UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


SCHOOL  OF  LAW 
LIBRARY 


A  TREATISE 


ON  THB 


Law  of  Private  Corporations 


by 


CHARLES  B.  ELLIOTT,  Ph.  D.,  LL  D., 

Judge  of  the  District  Court  of  Minnesota 
Author  of  Work  on  "Public  Corporations" 


THIRD  REVISED  EDITION 


THE  BOWEN-MERRILL  COMPANY 

INDIANAPOLIS  AND  KANSAS  CITY 

1900 


: 


Copyright  1900 

BY 

THE  BOWEN-MERRILL  COMPANY 


\ 


THE   HOLLENBECK    PRESS 
INDIANAPOLIS 


TO  THE 

HON.  CUSHMAN  K.  DAVIS 

OF    MINNESOTA 
SCHOLAK,     LAWYER,    STATESMAN 


(iii) 


This  book  has  been  thoroughly  revised  and  rewritten,  and 
the  author  trusts  that  in  its  present  form  it  will  be  of  value  to 
the  student,  the  teacher  of  law.  and  the  lawyer  engaged  in  the 
active  practice  of  the  profession, 

Minneapolis,  November,  1899. 


(*> 


TABLE  OF  CONTENTS 


CHAPTER  1. 


DEFINITION    AND    CLASSIFICATION. 


Introductory. 
Definition. 

Origin  and  growth  of  corpora- 
tions. 
Organization  and  powers. 

5.  Corporations  during  the  Middle 

Ages. 

6.  The  great  trading  corporations. 

7.  Early  incorporation  in  the 

United  States. 

8.  The  juristic  person. 

9.  The  fiction  theory. 
10.   Illustrations. 


§1. 
2. 
3. 

4. 


§11. 
12. 
13. 

14. 
15. 
16. 
17. 
18. 
19. 

20. 


Kinds  of  corporations. 

Public  corporations. 

Municipal  and  public  gwasi-cor* 
porations. 

Qwcm'-public  corporations. 

Private  corporations. 

Corporations, aggregate  and  sole. 

Ecclesiastical  corporations. 

Incorporated  religious  societies. 

Charitable  or  eleemosynary  cor- 
porations. 

Joint  stock  companies. 


CHAPTER  2. 


THE    CREATION,  ORGANIZATION,  AND   CITIZENSHIP   OF 
CORPORATIONS. 


I.    The  Creation  and  Organization. 

§  21.   In  general. 

22.  By  what  authority. 

23.  Essentialsof  legal  incorporation. 

24.  Agreement  between  incorpora- 

tors. 

25.  Acceptance  of  the  grant. 

26.  Delegation  of  power  to  charter 

corporations. 

27.  Delegation  of  ministerial  duties. 

28.  Power  of  congress  to  create  cor- 

porations. 

29.  Ratification  of  claim  of  corpo- 

rate franchise. 

30.  Corporations  by  prescription. 

(Vii) 


§31.   Creation  by  implication. 

32.  Methods  of  legislative  action, 

33.  Constitutional  limitations. 

34.  By  consolidation. 
77.    Organization  under  General  Incoi  ■ 

poration  Laws. 

35.  In  general. 

36.  General  requirements. 

37 .  Purposes  for  which  corporations 
may  be  organized. 

38.  Substantial    compliance     with 
statutory  requirements. 

39.  Illustrations. 

40.  Conditions  precedent  to  organi- 
zation of  corporation  de  jure. 


Vlll 


TABLE    OF   CONTENTS. 


1 41.  Articles  of  incorporation — Con- 
tents. 

42.  Filing  and  publication  of  arti- 

cles. 

43.  Subscriptions  for  capital  stock  as 

a  condition  precedent. 

44.  Date  of  incorporation. 

45.  Who  may  be  incorporators. 

46.  Number  of  incorporators. 

47.  The  corporate  name. 

48.  Protection  of  corporate  name. 

49.  Proof  of  incorporation — In  di- 

rect proceedings. 

50.  In  collateral  proceedings. 
III.  Promoters  of  Corporations. 

51.  Who  are  promoters. 

52.  Fiduciary  position  of  promoters. 

53.  Secret  profits. 

54.  Owners   of    property    as  pro- 

moters. 

55.  Personal  liability  of  promoters 

on  contracts. 

56.  Liability  to  subscribers  whose 

subscriptions  are  obtained  by 
fraud. 


§  57.  Fraudulent  prospectus. 

58.  Liability  of  corporation  on  con- 

tracts made  by  promoters. 

59.  Adoption  of  contract  by  corpo- 

ration. 

60.  Acceptance  of   benefits  under 

the  contract. 

61.  Limited  to  obligations  of  the  ac- 

cepted contract. 

62.  The  expenses  and  services  of 

promoters. 

IV.    Corporations  as  Persons  and 
Citizens. 

63.  The  citizenship  of  a  corporation. 

64.  Incorporation  in  several  states. 

65.  Citizenship    within    the    four- 

teenth amendment. 

66.  A  corporation  as  an  "inhabi- 

tant" of  a  state. 

67.  Place    of    doing    business— Li- 

cense— Effect  on  citizenship. 

68.  A  corporation  as  a  person. 


CHAPTER  3. 


CORPORATION    EXISTING    WITHOUT    LEGAL    RIGHT. 


§  69.   General  statement. 

70.  Manner  of  raising  the  question 

of  corporate  existence. 

71.  Collateral  attack  upon  de  facto 

corporation,  and  the  doctrine 
of  estoppel. 
/.     De  Facto  Corporation. 

72.  Definition. 

73.  Necessity  for  a  valid  law. 

74.  Good  faith  attempt  to  organize. 

75.  User  of  franchise. 

76.  Organization  under  unconstitu- 

tional statute. 

77.  Status  after  expiration  of  term 

of  existence. 

78.  Collateral  attack  on  the  right  to 

exercise  a  franchise. 


§  79.   Fraudulent  organization. 

80.  Powers  of  de  facto  corporations. 

II.     Estoppel  to  Deny  Corporate  Exist- 
ence. 

81.  General  statement. 

82.  The  general  rule. 

83.  In  actions  against  members  as 

partners. 

84.  Actions  on  stock  subscriptions. 

85.  Subscriptions  in  contemplation 

of  incorporation. 

86.  Estoppel  by  acquiescence. 

87.  Estoppel  limited  to  de  facto  cor- 

porations. 

88.  The  contrary  doctrine — Uncon- 

stitutional statutes. 


TABLE    OF   CONTENTS 


IX 


CHAPTER  4. 


THE    CORPORATION   AND   THE    STATE — THE    CHARTER. 


§  89.   The  control  of  the  state.  §  105. 

90.  Visitorial  power.  106. 

91.  Corporations  of    a  gwasi-public 

character.  107. 

92.  Reports. 

93.  Consequences  of  illegal  or  ultra  108. 

vires  acts.  109. 

94.  Forfeiture   distinguished    from  110. 

repeal.  111. 

95.  The  charter. 

96.  The  charter  as  a  contract.  112. 

97.  The  Dartmouth  College  case.  113. 

98.  Contracts  contained  in  charter.  114. 

99.  Reservation  of  right  to  repeal 

or  amend  charter.  115. 

100.  Exercise  of  the  reserve  power  116. 

— Illustration. 

101.  Effect  of  dissolution  of  corpora-  117, 

tion. 

102.  Vested  rights — Reservation  of  118, 

power.  119, 

103.  Acceptance  of  amendment.  120, 

104.  Amendment  must  not  create  a 

new  charter. 


Offer  of  amendment. 

Illegal  amendments  —  Reme- 
dies. 

Implied  contracts — Grant  of 
exclusive  franchise. 

Eminent  domain. 

The  police  power. 

Statutes  affecting  the  remedy. 

Construction  of  corporate 
grants. 

Taxation  of  corporations. 

Situs  of  taxable  property. 

Restrictions  imposed  by  federal 
constitution. 

Federal  agencies. 

State  taxation  of  national 
banks. 

Meaning  of  "other  money  and 
capital." 

Telegraph  companies. 

Other  agencies  of  commerce. 

Exemption  from  taxation. 


CHAPTER  5. 


FRANCHISES   AND    PRIVILEGES. 


§120. 
121. 


122. 


123. 


124. 


The  nature  of  a  franchise. 

Illustrations  of  franchises  — 
Conditions — Grant  of  right 
to  use  street  for  railway  pur- 
poses. 

Illustrations — Nature  of  rights 
acquired. 

The  franchise  of  being  a  cor- 
poration. 

In  whom  franchises  vests. 


§  125.  The  sale  and  transfer  of  fran- 
chises. 

126.  Corporations    charged   with 

public  duties. 

127.  Transfer  under  legislative  au- 

thority— Construction. 

128.  Franchises  pertaining  to  use  of 

particular  property. 

129.  Forfeiture  of  franchises. 

130.  Constitutional    protection    of 

franchises. 


TABLE    OF    CONTENTS 


CHAPTER  6. 


POWERS. 


J 131.   General  statement. 
I.    The  Theory  of  Corporate  Power. 

132.  The  theory  of  general  capacity. 

133.  The  theory  of  special  capaci- 

ties. 

134.  Principles  of  construction. 

135.  Presumption  of  power  and  reg- 

ularity. 

136.  Place  where  powers  may  be 

exercised. 


§  137.  Grant  of  power— Not  limited 
by  term  of  corporate  exist- 
ence. 
II.    Classification  of  Powers. 

138.  Express  powers. 

139.  Powers  implied  from  express 

powers. 

140.  Incidental  powers. 


§141. 
142. 
143. 

144. 
145. 
146. 
147. 

148. 

149. 

150. 
151. 
152. 
153. 

154. 
155. 


CHAPTER  7. 

POWERS    INCIDENTAL   TO    CORPORATE    EXISTENCE. 


In  general. 
Perpetual  succession. 
To  have  a  seal. 

I.   By-Laws. 

Definition. 

Power  to  make  by-laws. 

In  whom  vested. 

Manner  of  adoption. 

General  requirements  —  Must 
conform  to  charter. 

Must  not  be  repugnant  to  law 
of  the  land. 

Public  policy. 

Must  be  reasonable. 

Must  be  general. 

Effect  of  by-laws— As  to  mem- 
bers and  officers. 

Effect  upon  third  persons. 

By-laws  limiting  powers  of 
agents. 


§  156.   Rules    and    regulations    pub- 
lished by  corporations. 

157.  By-laws  imposing  forfeiture. 

158.  Expulsion  of  members. 

159.  Amendment, repeal  and  waiver. 
II.   Power  to  Take  and  Hold  Land. 

160.  The  common  law  rule. 

161.  Statutory  restrictions. 

162.  Distinction  between  power  to 

take  and  to  hold. 

163.  Manner  of  acquiring  title. 

164.  Power  to  take  by  devise. 

165.  Devise  to  corporation— Statu- 

tory limit. 

166.  The  doctrine  of  equitable  con- 

version. 

167.  The  estate  which  may  be  taken. 

168.  Who  can  question  the  right  of 

the  corporation. 


CHAPTER  8. 

PARTICULAR     POWERS. 


§169. 
170. 

171. 


Power  to  contract.  §  172. 

Manner  of  acting  — Necessity 

for  a  seal.  173. 

Formalities  to  be  observed  in        174. 

contracting. 


Contracts  which  are  against 
public  policy. 

Traffic  agreements. 

Pooling  arrangements  —  Con- 
tracts to  prevent  competition. 


TABLE    OF    CONTENTS. 


XI 


175. 

Contracts  granting  special  priv- 
ileges. 

§187. 

176. 

Trust  agreements. 

177. 

Illustrations    of    trust    agree- 

188. 

ments. 

189. 

178. 

Statutes  forbidding  trust  agree- 

ments. 

190. 

179. 

Contracts  by  trusts. 

180. 

Power  to  indorse  and  guaran- 

191. 

tee  paper. 

192. 

181. 

To  enter  into  a  partnership. 

193. 

182. 

To  borrow  money  and  make 

negotiable  paper. 

194. 

183. 

Limitations  upon  amount  of  in- 

195. 

debtedness. 

196. 

184. 

Liability  to  holder  of  overis- 

197. 

sued  negotiable  paper. 

198. 

185. 

Power  to  acquire  personal  prop- 

erty. 

199. 

186. 

Power  of  alienation. 

199a 

Limitations  on  right  of  aliena- 
tion —  Corporations  charged 
with  public  duties. 

Power  to  give  a  mortgage. 

Assignment  for  benefit  of  cred- 
itors— Preferences. 

Power  to  hold  stock  in  another 
corporation. 

Exceptions  to  general  rule. 

Purchase  of  its  own  shares. 

When  a  corporation  may  hold 
its  own  shares. 

Powers  of  national  banks. 

Consolidation. 

The  effect  of  consolidation. 

Powers  of  the  new  corporation. 

Liabilities  of  the  new  corpora- 
tion. 

The  loaning  of  money. 
.  Power  to  act  as  a  trustee. 


CHAPTER  9. 


THE  DOCTRINE  OF  ULTRA  VIRES  AND  ITS  APPLICATION. 


§  200.   General  statement. 

201.  Proper    use    of    phrase    ultra 

vires. 

202.  The  strict  rule. 

203.  The  reason  for  the  rule. 

204.  Conflicting  theories  and  decis- 

ions. 

205.  Actions  in  furtherance  of  ultra 

vires  contracts. 

206.  Buckeye  Marble  Co.  v.  Harvey. 

207.  Central  Transportation  Co.  v. 

Pullman  Palace  Car  Co. 

208.  Disaffirmance   after  part  per- 

formance. 

209.  Recovery      of      consideration 

paid. 

I.   Certain  Rules  Affecting  Doctrine  of 
Ultra  Vires. 

210.  In  general. 

211.  Presumption  of  validity. 

212.  Notice  of  corporate  powers. 

213.  Limitations  upon  the  authority 

of  corporate  officers. 


§  214.    Restrictions  contained  in  by 
laws. 

215.  Limitations  upon  general  rule. 

II.  Estoppel  to  Assert  Defense  of  Ultra 

Vires. 

216.  General  statement. 

217.  Estoppel — Rule  of  the  supreme 

court. 

218.  Partially   executed  ultra  vires 

contracts. 

219.  Estoppel — Retention  of  bene- 

fits. 

220.  Acquiescence  in  ultra  vires  acts. 

221.  Ratification  of  ultra  vires  acts. 

III.  Contracts  Illegal  Because  Malum 
Prohibition  or  Malum  In  Se. 

222.  General  statement. 

223.  Contracts  malum  in  se. 

224.  Contracts  against  public  policy, 

225.  Statutory  prohibitions. 

226.  Illustrations. 


Xll 


TABLE    OF    CONTENTS. 


§227.  Liability  for  benefits  received     §229.  Want  of  power  and  neglect  of 
under  illegal  contracts.  formalities. 

230.  Reasons  for  the  distinction — 
IV.  Irregular  Exercise  of  Power.  Statement  of    Chief  Justice 

228.  Effect  of  irregularities.  Sawyer. 


CHAPTER  10. 

LIABILITY  FOR  TORTS  AND  CRIMES. 


§  232.  General  statement.  §  236. 

233.  Growth  of  the  law.  237. 

234.  The  modern  rule.  238. 

235.  Liability  for  punitive  damages.  239. 


The  commission  of  crime. 
Crimes  involving  intent. 
Contempt  of  court. 
Proceedings. 


CHAPTER  11. 

EXTRA-TERRITORIAL    POWERS  OF    CORPORATIONS STATE  CONTROL 

OVER    FOREIGN    CORPORATIONS. 


§  240.   General  statement. 

241.  The  corporate  domicile. 

242.  Laws  have  no  extra-territorial 

force. 

243.  Submission  to  state  laws. 

244.  Conflict  of  laws. 

245.  Obligations  imposed  by  penal 

statutes. 

246.  Constitutional  rights  of  corpo- 

rations—Insolvency proceed- 
ings. 

/.    Bight  of  a  Corporation  to  Exercise 
its  Powers  in  a  Foreign  State. 

247.  Power  of  corporation. 

248.  Corporate  acts  out  of  state. 

II.    Power  of  the  State  Over  Foreign 
Corporations. 

249.  Right  to  exclude. 

250.  Limitations  on   the  power  of 

the  state. 

251.  Insurance  not  interstate  com- 

merce. 

252.  No   visitorial   power  over  for- 

eign corporations. 

253.  Right  to  compel  issue  of  new 

stock  certificate. 


III.  The  Bides  of  Comity. 
§  254.^  The  comity  of  states. 

255.  The  general  rule. 

256.  Contracts  contrary  to  the  law 

of  the  forum. 

257.  Public  policy,  how  determined. 

258.  Discrimination    against    non- 

residents. 

259.  Acts  not  authorized  by  charter. 

260.  Restrictions  imposed  by  gen- 

eral laws. 

IV.  Statutory  Bestrictions. 

261.  In  general. 

262.  Conditions  which  may  be  im- 

posed. 

263.  Retaliatory  statutes. 

264.  Waiver  of  constitutional  rights 

— Removal  of  causes. 

265.  The  granting  and  revocation  of 

a  license. 

266.  Meaning  of  "doing  business." 

267.  Contracts  made  out  of  the  state. 

V.     Effect  of  Failure  to   Comply  with 
Statutory  Bequirement. 

268.  Effect  upon   validity   of   con- 

tracts. 


TABLE   OF   CONTENTS. 


Xlll 


§269.  Where  the  statute  imposes  a     §275. 
penalty. 

270.  Where  no  express  penalty  is        276. 

provided. 

271.  Estoppel  to  allege  non-compli-        277. 

ance. 


Service  upon  foreign  corpora- 
tions. 

Must  be  doing  business  in  the 
state. 

Service  upon  officer  tempora- 
rily within  the  state. 

Illustrations. 

Statutory  requirements. 

Designation  of  agent  to  accept 
service. 

Service  obtained  by  deception. 

Proceedings  by  state  against 
foreign  corporation. 


CHAPTER  12. 

THE  ACQUISITION  AND    LOSS   OF   MEMBERSHIP  IN  A  CORPORATION. 


272.   Presumption  —  Burden  of 

278. 

proof. 

279. 

280. 

VI.    Actions  by  and  Against  Foreign 

Corporations. 

281. 

273.   The  right  to  sue. 

282. 

274.   Actions  against  foreign  corpo- 

rations. 

§  283.   Non-stock  corporations.  §  291. 

284.  Corporations    having    capital 

stock.  292. 

285.  Who  can  be  members. 

286.  Method  of  obtaining  shares.  293. 

287.  Effect  of  delivery  of  stock  cer- 

tificate. 294. 

288.  Compliance  with  conditions.  295. 

289.  Estoppel  to  deny  membership.  296. 

290.  The  holder  of  illegally  issued  297. 

shares. 

298. 


Disfranchisement — Joint  stock 
companies. 

Disfranchisement  in  non-stock 
corporations. 

Nature  of  membership  in  non- 
stock corporations. 

Grounds  for  expulsion. 

The  proceedings. 

Notice. 

Incorporate  and  unincorpo- 
rated societies. 

Review  by  the  courts. 


CHAPTER  13. 


CAPITAL    STOCK. 


299.  Capital. 

300.  Capital  stock. 

301.  Shares  of  stock. 

302.  Amount  of  capital  stock. 

303.  Dividend  stock. 

304.  Stock  certificates. 

305.  Not  negotiable  instruments. 

/.    Classes  of  Stock. 

306.  Different  kinds  of  stock. 

307.  Preferred  stock. 

308.  Power  to  issue  preferred  stock. 

309.  Power  of  majority. 

310.  Under  legislative  authority. 


§311.  Estoppel. 

312.  Status  of  holders  of  preferred 

stock. 

313.  Rights  of  holders  of  preferred 

stock. 

314.  Accumulative  dividends. 
II.  Nature  of  Capital  Stock. 

315.  Personal  property. 

316.  Statute  of  frauds. 

317.  The  trust  fund  theory. 

318.  Meaning  of  the  doctrine. 

319.  Criticisms. 


XIV 


TABLE    OF    CONTENTS. 


Ill 
320. 
321. 

322. 

323. 

324. 

325. 

326. 

327. 

328. 
329. 

330. 


Fraudulently  Issued  Stock. 

Overissue  of  stock. 

Bona  fide  holders  of  fraudu- 
lently issued  stock. 

Estoppel    by  recital  in    stock 
certificate. 

Liability  for  fraudulent  acts  of 
agents. 

Fraudulent  acts  of  agents,  con- 
tinued. 

Liability  to  innocent  purchas- 
ers only. 

Recovery  of  money  paid  for 

void  shares. 
Payment  for  stock. 
IV.    Watered  Stock. 

Meaning  of  phrase. 

Issue  of  shares  below  par — The 
common  law  rule. 

As  between   stockholder  and 
creditor. 


§343. 
344. 

345. 

345a 
346. 
347. 

348. 
349. 
350. 

351. 

352. 
353. 
354. 

355. 
356. 
357. 


331.  Recital  that   shares  shall  be 

deemed  fully  paid  up. 

332.  Bona  fide  purchaser  of  shares. 

333.  Who  may  complain. 

334.  Liability  is  to  subsequent  cred- 

itors only. 

335.  Bonus  stock  given  to  "sweet- 

en" bonds. 

336.  Construction  bonds  and  bonus 

shares. 

337.  Stock  issued  by  a  going  con- 

cern with  impaired  capital. 

338.  Shares  accepted  as  a  gratuity. 

339.  Illustrations. 

340.  Payment  in  property. 

341.  Remedy  where  there  is  over- 

valuation. 

342.  Constitutional    and    statutory 

provisions  as  to  payment  of 
shares. 


CHAPTER  14. 


STOCK    SUBSCRIPTIONS. 


In  general. 

Agreement  to  take  shares  in  a 
corporation  to  be  organized. 

When  there  are  no  statutory 
provisions. 

Statement  of  rules. 

Who  may  subscribe. 

Subscriptions  through  an 
agent. 

The  form  of  the  contract. 

The  consideration. 

Signing  articles  of  incorpora- 
tion. 

Application,  allotment  and  no- 
tice. 

Conditional  subscriptions. 

Secret  conditions. 

Subscription  of  amount  named 
in  charter  or  required  by  law. 

Payment  of  deposit. 

Tender  of  certificate. 

Conditional  delivery  of  sub- 
scription contract. 


§358. 


Performance   of   condition  — 
Waiver. 

Conditions  subsequent. 

Subscriptions    upon   special 
terms. 

Subscriptions  in  excess  of  au- 
thorized capital. 
362.  Amount  of  subscription  by  one 
person. 

Who    may   receive     subscrip- 
tions. 

Subscriptions  necessary  to  ob- 
tain charter. 

Withdrawal  of  subscriptions — 
Notice. 

Implied  agreement  to  pay  for 
shares. 

The  New  England  rule. 

368.  Premature  contract  by  corpo- 

ration— Effect  upon  subscrip- 
tion. 

369.  Effect  of  fraud  upon  the  con- 

tract of  subscription. 


359. 
360. 

361. 


363. 


364. 


365. 


366. 


367. 


TABLE    OF    CONTENTS. 


XV 


§370. 

The  English  doctrine. 

§380. 

371. 

The  contract  voidable  merely 

— Authority  of  agent. 

381. 

372. 

Fraudulent  representations  by 
promoters. 

382. 

373. 

What  frauds  will  vitiate. 

383. 

374. 

Expressions  of  belief  or  opin- 

384. 

ion. 

385. 

375. 

Remedies  of  defrauded  stock- 

holders. 

386. 

376. 

Rescission — Necessity    for 

387. 

prompt  action— Laches. 

388. 

377. 

Insolvency  —  The   rights  of 

creditors — English  doctrine. 

389. 

378. 

Rule  in  the  United  States. 

389a, 

379. 

Right  to  rescind  after  insolv- 
ency continued. 

Rights  of  creditors  before  in- 
solvency of  corporation. 

Insolvency — Rule  of  diligence. 

Enforcement  of  subscription 
contracts  by  action. 

Calls. 

Calls— Uniformity— Demand . 

Release  of  subscriber — By  con- 
sent. 

Release  by  act  of  corporation. 

By  forfeiture. 

When  forfeiture  a  cumulative 
remedy. 

Estoppel  of  subscriber. 

.  The  statute  of  limitations. 


CHAPTER  15. 


THE    RIGHTS    OF    MEMBERSHIP. 


§390.  Participation  in  the  manage- 
ment. 

391 .  General  rights  of  stockholders. 

392.  Rights  in  the  corporate  prop- 

erty. 

393.  Right  to  inspect  records. 

394.  Conditions  upon  which  inspec- 

tion is  permitted. 

395.  The  demand. 

396.  Remedy  for  wrongful  refusal 

to  permit  inspection. 

397.  Preference  in  subscription  for 

new  shares. 

I.    Dividends. 

398.  Nature  of  dividends. 

399.  Control  of  directors  over  divi- 

dends. 

400.  Discretion  of  directors. 

401.  Protection  of  corporate  prop- 

erty. 

402.  When  dividends  may  be  legally 

declared. 

403.  What  are  profits. 

404.  Right  to  dividends  declared. 

405.  To  whom  dividends  belong. 

406.  Collection  of  dividends. 


§  407.   How  payable— No  discrimina- 
tion. 

408.  Right  of  a  pledgee  of  stock  to 

dividends. 

409.  Unlawful     payment    of    divi- 

dends—Liability of  officers. 

410.  Set-off  by  the  corporation. 

411.  Who  entitled  to  dividends, 
(a)   As    Between    Successive  Absolute 

Owners. 

412.  In  general. 

413.  Conditional  sales  and  transfers. 

414.  Transfers  made   between  the 

date  of  declaration  and  pay- 
ment. 

(6)  As  Between  Life   Tenant  and  Be- 
mainder-Man. 

415.  General  statement. 

416.  The  English  rule. 

417.  The  Massachusetts  rule. 

418.  The  Pennsylvania  rule. 

419.  General  adoption  of  this  rule. 
II.   Actions  by  Stockholders. 

420.  Actions  against  third  persons 

— The  protection  of  collective 
rights. 


XVI 


TABLE    OF    CONTENTS. 


§  421.   When  a  stockholder  may  sue.  §  428. 

422.  Conditions  precedent  to  right  429. 

of  action.  430. 

423.  Exceptions  to  the  rule.  431. 

424.  Illustrations— Foss  v.  Harbot- 

tle.  432. 

425.  Mozley  v.  Alston.  433. 

426.  Hawes  v.  Oakland. 

427.  The  rights  of  transferees. 


Discretionary  power. 

Acquiescence. 

Parties  to  the  suit. 

Right  to   restrain    ultra   vi 

acts. 
Control  by  the  majority. 
Limitations  on  the  power 

the  majority. 


of 


CHAPTER  16. 


TRANSFER   OF    SHARES. 


§  434.   General  statement. 

435.  The  right  to  transfer  shares. 

436.  Power  to  prohibit  transfers. 

437.  The  regulation  of  transfers. 

438.  Restrictions  imposed    by  by- 

law or  express  contract. 

439.  Regulation  of    transfers  con- 

tinued. 

440.  Transfer  on  books  of  the  cor- 

poration. 

441.  Transfer  on  books,  continued. 

442.  The  rights  of  attaching  cred- 

itors. 

443.  Transfers  in  fraud  of  creditors. 

444.  Manner  of  making  assignment 

and  transfer. 

445.  Transfer    after    insolvency  or 

dissolution. 

446.  Pledge  of  stock  certificates  by 

delivery. 

447.  Surrender  of  old  certificate — 

Fraudulent  reissue. 

448.  Evidence  of  transferee's  right. 

449.  Indorsement  of  certificate. 


§450. 


451. 


452. 


453. 


454. 


455. 

456. 

457. 

458. 

459. 

460. 
461. 
462. 


Fraudulent  transfer — Rights  of 
transferee  or  purchaser  of 
stock  certificate. 

Negligence  of  owner — Estop- 
pel. 

Transfer  on  forged  power  of 
attorney — Liability  of  corpo- 
ration. 

Forgery  of  transfer  —  Negli- 
gence. 

Rights  of  purchaser  of  shares 
transferred  in  violation  of  a 
trust. 

Transfers  in  breach  of  trust — 
Liability  of  corporation. 

When  the  power  to  sell  exists — 
Presumption  of  right  doing. 

Lien  of  corporation  upon 
shares. 

Effect  of  a  transfer  upon  rights 
and  liabilities  of  parties. 

Remedies  for  a  wrongful  re- 
fusal to  transfer. 

An  action  for  damages. 

A  suit  in  equity. 

Mandamus. 


CHAPTER  17. 

CORPORATE    MEETINGS    AND    ELECTIONS. 


§463.  In  general.  §467. 

464.  Calling  meetings.  468. 

465.  The  place  of  meeting.  469. 

466.  Regular  and  special  meetings. 


Notice  of  corporate  meeting. 
Adjourned  meetings. 
Manner  of   conducting  meet- 
ings. 


TABLE    OF    CONTENTS. 


XV11 


§470. 

Records — Evidence. 

§483. 

Powers  of  the  majority  to  man- 

471. 

Who  entitled  to  vote. 

age  the  corporation. 

472. 

Right  of  bondholders  to  vote. 

484. 

Rights  of  the  minority. 

473. 

Voting  by  proxy. 

485. 

Power  of  majority  to  wind  up 

474. 

Personal    interest    of     stock- 

business. 

holder  —  Motive     governing 

486. 

Power  of  majority  to  accept 

vote. 

amendments. 

475. 

Voting  trusts  and  agreements. 

487. 

Power  to  accept  amendments 

476. 

Voting  agreements  continued. 

continued. 

477. 

Voting  agreements  continued. 

488. 

Immaterial   amendments  and 

478. 

The    Shepaug    Voting    Trust 

alterations. 

cases. 

489. 

Material     beneficial     amend- 

479. 

Specific  enforcement  of  such 

ments. 

contracts. 

490. 

Elections — Presumption  of  reg- 

480. 

Number  of  votes  by  each  stock- 

ularity. 

holder. 

491. 

Inspectors  of  elections. 

481. 

Cumulative  voting. 

492. 

Illegal  votes. 

482. 

The  majority  and  quorum. 

493. 

Control  of  courts  over  corpo- 
rate elections. 

CHAPTER  18. 


OFFICERS    AND    AGENTS    AND    THE     MANAGEMENT    OF    CORPO- 
RATIONS. 


,494. 

General  statement. 

§508. 

Liability  of  a  corporation  for 

495. 

Presumption  of  authority. 

torts  of  its  agents. 

496. 

The  general  management — Di- 

509. 

Ratification. 

rectors — Directors'  meetings. 

510. 

Liability  for  torts  in  ultra  vires 

497. 

Place  of  directors'  meeting. 

transactions. 

498. 

Qualifications  of  directors. 

511. 

Liability  of  officers  for  acts  in 

499. 

Powers  of  directors. 

excess  of  authority. 

500. 

Stockholders'  control  over  di- 

512. 

Liability  for  abuse  of  trust. 

rectors. 

513. 

Degree  of  care  required  of  di- 

501. 

Delegation  of  authority  —  Ex- 

rectors. 

ecutive  committee. 

514. 

Liability  of  officer  is  for  indi- 

502. 

Relation  of  officers  and  direc- 

vidual acts  or  omissions. 

tors  to  the  corporation. 

515. 

Supervision  of  sub-agents. 

503. 

Contracts  between  a  corpora- 

516. 

Knowledge  of  contents  of  cor- 

tion and  its  officers. 

porate  records. 

504. 

When  an  officer  may  deal  with 

517. 

Liability  for  care  of  papers. 

his  corporation. 

518. 

Liability  for  mistakes. 

505. 

Right  of  corporation  to  repudi- 

519. 

Liability  on  contracts. 

ate  such  contract. 

520. 

Liability  to  third  persons  for 

506. 

Contracts  between  corporations 

torts. 

having  common  officers   or 

521. 

Violation  of  charter  or  statute. 

directors. 

522. 

Liability  imposed  by  statute. 

507. 

The  prevailing  rule, 
ii — Private  Corp. 

xvm 


TABLE    OF    CONTENTS. 


§523. 


524. 

525. 

526. 
527. 

528. 


Liability  of  directors  where 
corporation  maintains  a  nui- 
sance. 

Liability  imposed  for  benefit  of 
third  persons. 

Remedy  of  the  corporation 
against  an  officer. 

Statute  of  limitations. 

No  liability  to  corporate  cred- 
itors. 

Powers  of  particular  officers. 


§  529.   The  president. 

530.  The  vice-president. 

531.  The  secretary. 

532.  The  treasurer. 

533.  De  facto  officers. 

534.  Notice  to  officers  and  agents. 

535.  Compensation. 

536.  Removal  from  office. 

537.  Creditors  can  not  control  man- 

agement. 


CHAPTER  19. 

THE  COMMON  LAW  LIABILITY  OF  STOCKHOLDERS. 


§  538.    In  general. 

539.  Liability  to  corporation  meas- 

ured by  the  contract  of  sub- 
scription. 

540.  Acts  prior  to  incorporation. 

541.  The  incorporation  of  a  partner- 

ship business. 

542.  Debts   contracted    before  dis- 

tribution of  stock. 

543.  Liability  resulting  from  illegal 

or  defective  incorporation. 

544.  Liability  as  partners. 

545.  Conflicting  theories  and  decis- 

ions. 

546.  The  tendency  of  the  decisions. 

547.  Where  there  is  not  even  a  de 

facto  corporation. 

548.  "One  man"  corporations. 


§549 


One  man  corporations,  contin- 
ued. 
550.    Corporations  organized  to  do 
business   exclusively   in  an- 
other state. 

Liability  for  capital  wrong- 
fully distributed. 

Liability  upon  shares  issued 
below  par. 

Fraudulent  acts. 

Enforcement — Defenses. 

Enforcement  of  liability  in  a 
foreign  jurisdiction. 

Decree  determining  assets  and 
debts,  and  making  assess- 
ments— Conclusiveness. 

Conclusiveness  of  decree,  con- 
tinued. 


551. 

552. 

553. 
554. 
555. 

556. 


557. 


CHAPTER  20. 


THE      CONSTITUTIONAL     AND      STATUTORY     LIABILITY     OF      STOCK- 
HOLDERS. 


§  558.   General  statement. 

559.  Power  of  legislature  to  impose 

liability. 

560.  Limitations  by  contract. 

561.  Exceptions  in  favor  of  certain 

classes  of  corporations. 

562.  Repeal   of    statute— Rights  of 

creditors. 


§563, 


564. 
565. 
566. 
567. 


Constitutional   provisions 

— When  self-executing. 
/.   Nature  of  the  Liability . 

When  contractual. 

When  penal. 

Survival  of  the  right  of  action. 

Liability  of  officers  and  direct- 
ors. 


TABLE    OP    CONTENTS. 


XIX 


77.   Against  Whom  the  Liability  is  En- 
forcible. 

§  568.   As  to  time  of  holding  stock. 

569.  Trustees,  pledgees  and  execu- 

tors. 

570.  Unrecorded  transfers — Liabil- 

ity of  transferrer  and  trans- 
feree. 

III.    The  Debts  for  Which  the  Stock- 
holders are  Liable. 

571.  The  debt  of  the  corporation- 

Release. 

572.  Nature  of  the  obligation. 

573.  Debts  due    laborers  and  em- 

ployes. 

574.  Creditors  who  are  also  stock- 

holders and  officers. 

IV.   Enforcement  of  the  Liability. 

575.  At  the  domicile  of  the  corpora- 

tion. 

576.  Remedy  against  the  corpora- 

tion— Judgment. 

577.  Judgment  against  the  corpora- 

tion— Conclusiveness. 


§  578.   By  whom  the  liability  is  en- 
forcible. 

579.  Enforcement  in  foreign  juris- 

dictions. 

580.  Proceedings   in   the  federal 

courts. 

581.  Decisions  in  various   states — 

Massachusetts. 

582.  Decisions  in  New  Hampshire, 

New  York  and  Illinois. 

583.  Where  a  special  statutory  rem- 

edy is  provided. 

584.  Where  no  statutory  remedy  is 

provided. 

585.  Ancillary  proceedings. 

586.  Original  proceedings  in  court 

of  corporate  domicile. 

587.  Conclusiveness  of  the  decree  of 

the  court  of  the  domicile. 

588.  Rights  of  receiver  in  a  foreign 

jurisdiction. 

V.   Miscellaneous  Eights  and  Defenses. 

589.  The  right  of  set-off. 

590.  Statute  of  limitations. 

591.  Contribution    among   stock- 

holders. 


CHAPTER  21. 


INSOLVENCY    AND    DISSOLUTION. 


§592. 

Manner  of  dissolution. 

§601. 

593. 

Impairment  of  contracts. 

594. 

Expiration  of   term  of   exist- 

ence. 

602, 

dvb. 

Dissolution  by  legislative  act. 

596. 

Surrender  of  charter. 

597. 

Forfeiture  of  charter. 

603. 

598. 

Loss  of  integral  part. 

604, 

599. 

Statutory  methods  of  dissolu- 

605 

tion — By  the  state. 

606, 

600. 

Voluntary  liquidation. 

Statutory  provisions  for  a  tem- 
porary continuance  of  the 
corporation. 

Insolvency,  sale  or  loss  of 
property — Abandonment  of 
business. 

Powers  of  a  court  of  equity. 

Proceedings  by  state. 

Effect  of  dissolution,  generally. 

Effect  upon  corporate  debts 
and  assets. 


TABLE  OF  CASES 


{References  are  to  Pages.  ] 


Abbey  v.  Long,  44  Kan.  688, 
Abbott  v.  Baltimore,  etc.,  Co.,  1 
Md.  Ch.  542, 
v.  Hapgood,  22  N.  E.  Rep.  907, 
v.  N.  Y.,  etc.,  R.  Co.,  145  Maes. 

450, 
v.  Refining  Co.,  4  Neb.  416, 
Abeles  v.  Cochran,  22  Kan.  405, 
Abell  v.  Pennsylvania,  etc., Co.,  18 

W.  Va.  400, 
Aberdeen  Bank  v.  Chehalis  Co., 

166  U.  S.  440, 
Aberdeen    R.   Co.   v.   Blaikie,    1 

Macq.  H.  L.  461, 

Abrath  v.  Northwestern  R.  Co., 

11  Q.  B.  Div.  440  (1883),  25 

Am.  L.  Reg.  759,  234, 

Ackerman  v.  Halsey,  37  N.  J.  Eq. 

356, 
Ackerson  v.  Erie  R.  Co.,  32  N.  J. 

L.  254, 
Adams  v.  Ft.  Plain  Bank,  36  N.  Y. 
255 
v.  Goodrich,  55  Ga.  233, 
v.  Mills,  60  N.  Y.  533, 
v.  Nashville,  95  U.  S.  19,       106, 
v.  Yazoo,  etc.,  R.  Co.  (Miss.), 
24  S.  Rep.  317,  112,  194, 

v.  Yazoo,  etc.,   R.  Co.  (Miss., 
1898),  24  S.  W.  Rep.  371, 
Adams,  etc.,  Co.  v.  Deyette,  8  S. 
Dak.  119, 
v.  Deyette  (S.  Dak.),  65  N.  W. 

Rep.  471, 
v.  Dyette,  5  S.  Dak.  418,  59  N. 
W.  Rep.  214,  65  N.  W.  Rep. 
471,  189, 

v.  Ohio,  165  U.  S.  194, 
v.  Senter,  26  Mich.  73, 
Adams  Ex.  Co.  v.  Ohio  State  Audi- 
tor, 166  IT.  S.  185,  165  U.  194, 
255,  6  A.  &  E.  Corp.  Cas.  U. 
S.  404, 


659 

223 
52 

195 
599 
190 

282 

108 

547 


236 

562 

237 

319 
635 

581 
108 

317 

196 

182 

182 


190 
105 
554 


103 


Adley  v.  Whitstable  Co.,  17  Ves. 

Jr.  315,  463 

Adriance    v.    Roome,    52    Barb. 

(N.  Y.)  399,  147,  216 

^Etna,  etc.,  Co.  v.  Black,  80  Ind. 

513,  283 

v.  Harvey,  11  Wis.  412,  277,  278 
iEtna  Nat'l  Bank  v.  Charter  Oak, 

etc.,  50  Conn.  167,  171 

Albany,  etc.,  R.  Co.  v.  Brownell, 

24  N.  Y.  345,  91 

Alberger  v.  Bank,  123  Mo.  313,  182 
Albers  v.  Merch.  Exch.,  45  Mo. 

App.  206,  449 

Albert  v.  Saving  Bank,  1  Md.  Ch. 

407,  221 

Albitztigui  v.  Guadalupe,  etc., Co., 

92  Tenn.  598,  341 

Albright  v.  LaFayette,  etc.,  Co., 

102  Pa.  St.  411,  136 

Alcorn  v.  Hamer,  38  Miss.  652,  268 
Alcot  v.  Tioga  R.  Co.,  20  N.  Y. 

210,  62 

Alderson  v.  Dole,  74  Fed.  Rep.  29,  653 
Aldine,  etc., Co. v. Phillips  (Mich.), 

42  L.  R.  A.  531,  76  N.  W.  Rep. 

371,  491 

Aldrich  v.  Anchor,  etc.,  Co.,  24 

Ore.  32,  645,  652 

v.  Press  Printing  Co.,  9  Minn. 

133,  Gil.  123,  86  Am.  Dec.  84,  236 
Alexander  v.  Cauldwell,  83  N.Y. 

480,     •  581 

v.  Rolfe,  74  Mo.  495,  189 

v.  Rollins,  84  Mo.  657,  218 

v.  Searcy,  81  Ga.  536,  223,  524 

v.  Tolleston  Club,  110  111.  65,  157 
Alibone  v.  Hager,  46  Pa.  St.  48,  365 
Allemong  v.  Simmons,  122  Ind. 

199,  575 

Allenv.  Am.,  etc.,  Assn., 49 Minn. 

544,  149 

v.  Am.,  etc.,  Assn.,  55  Minn.  86,  408 
v.  Curtis,  26  Conn.  456,    449, 525,  545 


(xxi) 


xxn 


TABLE    OF    CASES. 


[References  are  to  Pages. ~\ 


Allen  v.  Fairbanks,  40  Fed.  Rep. 

188,  45  Fed.  Rep.  445,  661 

v.  Railway  Co.,  150  Mass.  200,  480 
v.  Sewall,  2  Wend.  (N.  Y.)  327, 

6  Wend.  335,  616 

v.  South   Boston,  etc.,  R.  Co., 

150  Mass.  200,  15  Am.  St.  Rep. 

185,  327,  330,  331,  469,  476 

v.  Walsh,  25  Minn.  543,  617,  651 
v.  Woonsocket    Co.,   11    R.    I. 

Allibone  v.  Hagar,  64  Pa.  St.  48,  367 
Ailing  v.  Wenzel,  133  111.  264,  321,  338 
Allis  v.  Jones  (Neb.),  45  Fed.  Rep. 

148,  182 

Alhnan  v.  Havana,  etc.,  R.  Co., 

88  111.  521,  373 

Alta,  etc.,  Co.  v.  Alta,  etc.,  Co., 

78  Cal.  629,  577,  498 

Altman  v.  Waddle,  40  Kan.  195,  73 
Amador,  etc.,  Co.  v.  Dewitt,  73 

Cal.  483,  15  Pac.  Rep.  74,  98 

American  Asvlum  v.  Phoenix 
Bank,  4  Conn.  172,  10  Am. 
Dec.  112,     .  19 

American  Central  R.  Co.  v.  Miles, 

52  111.  174,  584 

American,  etc., v.  Taylor,  etc.,  Co., 

46  Fed.  Rep.  152,  167 

American,  etc.,  Assn.  v.  Rainbolt 

(Neb.),  67  N.  W.  Rep.  493,       406 
American,    etc.,    Bank    v.    First 
Nat'l  Bank,  82  Fed.  Rep.  961, 
48  U.  S.  App.  633,  539 

American,  etc.,  Co.  v.  Bayless,  91 
Ky.  94,  329 

v.  Connecticut,    etc.,    Co.,    49 

Conn.  352,  44  Am.  Rep.  237,        82 
v.  Farmers',  etc.,  Co.,  20  Colo. 

203,  25  L.  R.  A.  338,  244,  264 

v.  Haven,  101  Mass.  398, 

189,  191,  507 
v.  Heidenheimer,  80  Tex.  344, 

26  Am.  St.  Rep.  743,         597,  598 
v.  Klotz,  44  Fed.  Rep.  721,  167 

v.  Union  Pac.  R.  Co.,  1  McCray 

188,  226,  229 

v.  Minn.,  etc.,  R.  Co.,  157  111. 

641,  42  N.  E.  Rep.  153,  67 

v.  Oakley,  9  Paige  (N.  Y.)  496,  578 
v.  Ogdcn,  49  La.  Ann.  8,  273 

v.  Peirce,  49  La.  Ann.  390,  273 

v.  State,  46  Neb.  194,  30  L.  R. 

A. 447,  81 

v.  Tennile,  87  Ga.  28,  153,  157 

v.  Wellman,  69  Ind.  413,  278 

v.  Wood  wort  h,  79  Fed.  Rep.  951, 

82  Fed.  Rep.  209,         643,  638,  646 


American,  etc.,  Com.  v.  Chicago, 

etc.,  Exch.,  143  111.  210,  291,  299 
American,  etc.,  Soc.  v.  Marshall, 

15  Ohio  St.  537,  153,  155,  265 

American   L.,   etc.,  Co.   v.  East, 

etc.,  Co.,  37  Fed.  Rep.  242,  276 
American    Nat'l   Bank    v.    Am., 

etc.,  Co.,  19  R.  I.  149,  162 

v.  Oriental  Mills,  17  R.  I.  551, 

23  Atl.  Rep.  795,  466,  502 

American   Order  v.  Merrill,   151 

Mass.  558,  8  L.  R.  A.  320,  41 

American  Surety    Co.   v.   Great, 

etc.,  Co.,  (N.J.)  43  Atl.  Rep. 

579,  671 

American  Tube  Works  v.  Boston, 

etc.,  Co.,  139  Mass.  5,  314,  410 
American  Union  v.  Yount,  101  U. 

S.  352,  262 

Ames  v.  Lake  Superior,  etc.,  R. 

Co.,  21  Minn.  241,  29 

Amesbury  v.  Bowditch,  etc.,  Co., 

6  Gray  (Mass.)  596,  142 

Anacosta  Tribe  v.  Murbach,   13 

Md.  91,  305 

Anderson  v.  Anderson,  etc.,  Co., 

65  Minn.  281,  33  L.  R.  A.  510,  621 
v.  Blood,  152  N.Y.  285,  485 

v.  Kinley  (Iowa  1894),  58  N.  W. 

Rep.  909,  583 

v.  Railroad,  91  Tenn.  44,  17  S. 

W.  Rep.  803,  373,  374 

v.  South  Chicago,  etc.,  Co.  (111.), 

50  N.  E.  Rep.  655,  579 

v.  Warehouse  Co.,  Ill  U.  S.  "79,  631 

Andes  v.  Ely,  158  U.  S.  312,        27,  64 

Andrews  v.  Bovd,  5  Maine  200,       425 

v.  Nat'l,  etc.,  Works,  46  U.  S. 

App.281,36L.  R.  A.  139,  64,65 
Andrews    Bros.    v.    Youngstown 

Coke  Co.,  86  Fed.  Rep.  585,  2,  13 
Androscoggin,  etc.,  Co.  v.  Bethel, 

etc.,  Co.,  64  Maine  441,  240 

Angle  v.Chicago,  etc.,  R.  Co.,  151 

U.  S.  1,  601 

Anglo-California  Bank  v.  Gran- 
gers' Bank,  63  Cal.  359,  146,  489 
Angsburg,  etc.,  Co.  v.  Pepper,  95 

Va.  92,  27  S.  E.  Rep.  807,  189 

Anheuser-Busch,     etc.,     Co.    v. 

Houch  (Tex.),  27  S.  W.  Rep. 

692,  168,  170 

Annapolis,  etc.,  R.  Co.  v.  Comis, 

103  U.  S.  1,  111 

Anthony  v.  Household,  etc.,  Co., 

Hi  R.  1.571,  315 

v.  Machine  Co.  16  R.  I.  571,        213 

Antonio  v  Mahaffy,  96  U.  S.  312,  210 


TABLE   OF   CASES. 


XX111 


[References  are  to  Pages."] 


Anvil,  etc.,  Co.  v.  Sherman,  74 
Wis.  226,  42  N.  W.  Rep.  226, 
4  L.  R.  A.  232,  373,  386.  404 

Appeal  of  Aultinann,  98  Pa.St.  505,  624 
Goodwin,  etc.,  Co.,  117  Pa.  St. 

514,  12  Atl.  Rep.  736,  520 

Hahn  (Pa.),  7  Atl.  Rep.  482,       381 
Kisterbock,  127  Pa.  St.  601,  14 

Am.  St.  Rep.  868,  330,  492 

Lehigh,  etc.,  R.  Co.,  129  Pa.  St. 

405,  177 

Philler,  161  Pa.  St.  157,  580 

Pittsburgh  Junction  R.  Co.,  122 
Pa.  St.  511,  9  Am.  St.  Rep. 
128,  98 

Appleton,  etc.,  Co.  v.  Jesser,  87 

Mass.  (5  Allen),  446,  76 

Arapahoe,  etc.,  Co.  v.  Stevens,  13 

Colo.  534.  147,  336 

Archer  v.  Murphy,  26  Wash.  L. 

Rep.  98,  509 

v.  Rose,  3  Brewster  264,  364 

v.  Water- works  Co.,  50  N.  J. 
Eq.  33,  494 

Ardes   Co.   v.   North    American, 

etc.,  Co.,  66  Pa.  St.  375,     181,  543 
Arenz  v. Weir,  89  111.  25,  639 

Arkadelphia,  etc.,  Mills  v.  Trim- 
ble, 51  Ark.  316,  374 
Arkansas,  etc.,  Co.  v.  Farmers', 

etc.,  Co.,  13  Colo.  587,       326,  358 
Armington  v.  Palmer  (R.  I.),  43 

L.  R.  A.  95,  40,41 

Armour  v.  Town  Co.,  98  Ga.  458, 

25  S.  E.  Rep.  504,  436 

Armour  &  Co.  v.  East,  etc.,  T.  Co., 

98  Ga.  458,  25  S.  E.  Rep.  504,   431 
Arms  v.  Conant,  36  Vt.  744, 

251,  500,  541,  543 
Armstrong  v.  Karshner,  47  Ohio 
St.  276,  24  N.  E.  Rep.  897, 

371,  393,  406,  407 
Arnold  v.  Ruggles,  1  R.  I.  165,  320 
Arthur  v.Willus,  44  Minn.  409,  46 

N.  W.  Rep.  851,  619,620 

Ashbury,  etc.,  Co.  v.  Riche,  L.  R. 

7  H.  L.  653,  213,  219 

Ashley,  etc.,  Co.  v.  Illinois,  etc., 
Co.,  164  111.  149,  45  N.  E.  Rep. 
410,  132 

Ashley's  Case,  x,.  R.  9  Eq.  263,       396 
Ashtabula,  etc.,  R.  Co.  v.  Smith, 

15  Ohio  St.  328,  367 

Ashton  v.  Burbank,  2  Dill  (C.  C.) 

435,  409,  529,  531 

v.  Dashaway  Assn.,  84  Cal.  61,    454 
Ashuelot,  etc.,  R.  Co.  v.  Elliot,  52 

N.  H.  387,  58  N.  H.  451,  94 

v.  Marsh,  55  Mass.  507,  578 


Ashuelot  R.  Co.  v.  Elliot,  58  N. 

H.  451,  86 

Ashurst's  Appeal,  60  Pa.  St.  290, 

223,  552 
Ashville  Div.  No.  15  v.  Astor,  92 

N.  C.  578,  71,  677 

Association  v.   Coriell,  34  N.  J. 

Eq.  383,  563 

v.  Stonemetz,  29  Pa.  St.  534,       586 
v.  Walker,  83  Mich.  386,  47  N. 
W.  Rep.  338,  383 

Asylum  v.  New  Orleans,  105  U.  S. 

362,  110 

Atchison  Co.  Bank  v.  Durfee,  118 

Mo.  431,  144 

Atchison,  etc.,  R.  Co.  v.  Denver, 
etc.,  R.  Co.,  110  U.  S.  667,        165 
v.  Fletcher,  35  Kan.  236,  250 

v.  Nave,  38  Kan.  744,  5  Am.  St. 
Rep.  803,  84,  90,  117,  125,  667 

Athol,   etc.,   Co.    v.    Carey,    116 

Mass.  471,  363,  364,  368 

Atkinson  v.  Foster,  134  111.  472,      473 
v.  Marietta,  etc.,  R.  Co.,  15  Ohio 

St.  21,  120 

v.  Railway  Co.,  15  Ohio  St.  21,      71 
Atlantic,  etc.,  Co.  v.  Mason,  5  R. 
1. 463,  503 

v.  Pacific  R.  Co.,  1  Fed.  Rep. 

745,  214 

v.  Sanders,  36  N.  H.  252,       540,  502 
v.  Sullivant,  etc.,  Co.,  5  Ohio 
St.  276,  71 

Atlantic,  etc.,  Mills  v.  Abbott,  9 
Cush.  (Mass.)  423,  373 

v.  Indian,  etc.,  Mills  (Mass.), 

17  N.  E.  Rep.  496,  582 

v.  Indian  Orchard  Mills,  147 
Mass.  268,  583 

Atlantic,  etc.,  R.  Co.  v.  Dunn,  19 

Ohio  St.  162,  237 

Attorney-General     v.     Aqueduct 

Corporation,  133  Mass.  361,        84 
v.  Bay  State,  etc.,  Co.,  99  Mass. 

148,  267 

v.  Central  R.  Co.,  50  N.  J.  Eq. 
52,  24  Atl.  Rep.  964,  25  Atl. 
Rep.  942,  166 

v.  Downing,  Amb.  550,  1  Dick 
414,  3  Ves.  714,  5  Ves.  300,  8 
Ves.  256,  152 

v.  Great  Eastern  R.  Co.,  5  App. 

Cas.  473,  219 

v.   Great    Northern    R.   Co.,  5 

App.  Cas.  481,  128 

v.  Hanchett,  42  Mich.  436,  64 

v.  Looker,  111  Mich.  498,  69  N. 

W.  Rep.  929,  521 

v.  Lorman,  59  Mich.  157,  33 


XXIV 


TABLE    OF    CASES. 


[References  are  to  Pages.'] 


Attorney-General  v.  Mercantile, 

etc.,  Ins.  Co.,  121  Mass.  524,        20 
v.  North  American  Ins.  Co.,  82 

N.  Y.  172,  28 

v.   Petersburg  R.   Co.   6   Ired. 

(N.  C.)456,  82 

v.  Superior,  etc.,  R.  Co.,  93  Wis. 

604,  125 

v.  Tudor,  etc.,  Co.,  104  Mass. 

239,  83 

v.  Utica,  etc.,  Co.,  2  John.  Ch. 

371,  83 

Auburn   Bolt  &    Nut    Works    v. 

Schultz,  143  Pa.  St.   256,   22 

Atl.  Rep.  904,  384 

Auburn,  etc.,  Co.  v.  Sylvester,  68 

Hun  (N.  Y.)  401,  671 

Auer  v.  Lombard,  33  U.  S.  App. 

438,  72  Fed.  Rep.  209,  19  C.  C. 

A.  72,  646,  653 

Auerbach  v.  Le  Sueur,  etc.,  Co., 

Minn.  291,  175,  177,  217 

Aurora  Society  v.  Paddock,  80  111. 

264  178,  180 

Austin  v.  Searing,  16  N.  Y.  112,  . 

69  Am.  Dec.  665,         144,  146,  298 
v.   Tecumseh    Nat'l    Bank,    49 

Neb.  412,  68  N.  W.  Rep.  628, 

35  L.  R.  A.  444,  194 

Aultman's  Appeal,  98  Pa.  St.  500, 

630,  633 
Ayers'  Case,  25  Beav.  513,  388 

Ayers  v.  French,  41  Conn.  142,       320 
Aylesworth  v.  Curtis,  19  R.  I.  516, 

61  Am.  St.  Rep.  785,  625 

B 

Bagby  v.  A.  M.  &  O.  R.  Co.,  86 

Pa.  St.  291,  658 

Bagg's  Case,  11  Co.  93,  297,  303 

Bagley  v.  Tyler,  43  Mo.  App.  195, 

643,  646 
Bagshaw  v.  Eastern,  etc.,  R.  Co., 

7  Hare  114,  450 

Baile  v.  Educational  Society,  47 

Md.  117,  372 

Bailey  v.  Champion,  etc.,  Co.,  77 

Wis.  453,  311 

v.  Clark,  21  Wall.  284,  308 

v.  Coke  Co.,  69  Pa.  St.  334,  350 

v.   Hannibal,  etc.,   R.    Co.,    17 

Wall.  96,  I    Dillon  (C.  C.)  74,    319 
v.  Strohecker,  38  Ga.  259,  496 

Bainbridge  v.  Smith,  L.  R.  41  Ch. 
Div.  462,  33  Am.  and  Eng. 
Corp.  Cas.  172,  '  542 

Baines  v.  Babcock,  95  Cal.  581,  27 
Pac.  Rep.  674,  450,  637 


Baird  v.  Shipman,  132  111.  16,  7  L. 

R.  A.  128,  571 

Baker  v.  Cotter,  45  Maine  236,        577 
v.  Drake,  66  N.  Y.  518,  494 

v.  Marshall,  15  Minn.  177  (Gill 

136),  496 

v.  Wasson,  53  Tex.  150,  476 

v.  Woolston,  27  Kan.  185,  292 

Baker's  App.,  109  Pa.  St.  461,  521,  535 

Balch  v.  Wilson,  25  Minn.  299,        659 

Baldwin  v.  Canfield,  26  Minn.  43, 

10,  320,  439,  466,  471 
v.  Hole,  1  Wall.  223,  249 

v.  Hosrner,  101  Mich.  119,  25  L. 
R.  A.  739,  610 

Balkis,  etc.,  Co.  v.  Tompkinson, 

L.  R.  (1893)  A.  C.  396,      482,  494 
Baltimore,  etc.,  R.  Co.  v.  Boone, 

45  Md.  344,  237 

v.  Fifth  Baptist  Church,  108  U. 

a   317  2 

v.  Hambleton,77  Md.  341,  431 

v.  Hambleton   (Md.,  1893),  26 

Atl.  Rep.  279,  419 

v.  Pumphrey  (Md.),  21  Atl.  Rep. 
559,  371 

Bandenstein  v.  Hoke,  101  Cal .  131 ,     76 
Banet  v.  Alton,  etc.,  R.  Co.,  13 

111.  504,  528,  531,  532 

Bangor,  etc.,  Co.  v.  Robinson,  52 

Fed.  Rep.  520,  496 

Bangor,  etc.,  R.  Co.  v.  Smith,  47 

Maine  34,  23 

Banigan  v.  Bard,  134  U.  S.  291, 

315,  317 
Bank  v.  Alden,  129  U.  S.  372,  352 

v.  Alvord,  31  N.  Y.  473,  228 

v.  Bennett,  33  Mich.  520,  577 

v.  Bliss,  35  N.  Y.  412,  625 

v.  Butchers',  etc.,  Bank,  16  N. 

Y.  258,  235 

v.  Byers,  139  Mo.  627,  571 

v.  Cady  L.  R.,  15  A.  C.  267,         487 
v.  Champlain,  etc.,  Co.,  18  Vt. 

131,  191 

v.  Christopher,  40  N.  J.  L.  435, 

539,  584 
v.  Clark,  139  N.  Y.  307,  36  Am. 

St.  Rep.  705,  583 

v.  Dandridge,  12  Wheat.  (U.  S.) 

64,  538 

v.  Delaware,  etc.,  Co.,  22  N.  J. 

Eq.  130,  180 

v.  Deveaux,  5  Cranch  61,  62 

v.  Dunn,  6  Pet.  (U.  S.)  51,  575 

v   Edgerton,  30  Vt.  182,  180 

v.  Flour  Co.,  41  Ohio  St.  552, 

539,  547 
v.  Gibbs,  3  McCord  (S.  C.)  377,     16 


TABLE    OF    CASES. 


XXV 


[Beferences  are  to  Pages. ] 


Bank  v.  Graham,  100  U.  S.  699,      235 
v.  Gridley,  91  111.  457,  467 

v.  Hamilton,  21  111.  53,  80 

v.  Kurtz,  99  Pa.  St.  344,  326 

v.  Laird,  2  Wheat.  390,  294 

v.  Lanier,  11  Wall.  369,  458,  476,  489 
v.  Lawrence  (Mich.),  76  N.  W. 

Rep.  105,  623,  650 

v.  Lyman,  20  Vt.  666,  23 

v.  Montgomery,  3  111.  422,  281 

v.  Owens,  2  Pet.  (U.  S.)  527,        228 
v.  Palmer,  47  Conn.  443,  595 

v.  Patchin  Bank,  13  N.  Y.  309, 

173,  235 

v.  Pierson,  112  Mich.  410,  569 

v.  Rindge,  57  Fed.  Rep.  279, 

638,  643,  646 

v.  Rutland,  etc.,  R.  Co.,  30  Vt. 

159,  539 

v.  Stone,  121  Cal.  202,  576 

v.  Tisdale,  84  N.  Y.  655,  577 

v.  Townsend,  139  U.  S.  67,  224 

v.  Transportation    Co.,   18    Vt. 

138,  191 

v.  Warren,  52  Mich.  557,  18  N. 

W.  Rep.  356,  293 

v.  Whitman,  76  Fed.  Rep.  697, 

51  U.  S.  App.  536,  642,  643 

v.  Whittle,  78  Va.  737,  181 

v.  Young,  37  Mo.  398,  277 

Bank,  etc.,  v.  Earl,  13  Peters  (U. 

S.)  595,  113 

v.  Earl,  13  Pet.  588,  100 

v.  Pinson,  58  Miss.  421,  38  Am. 

Rep.  330,  146,  509 

v.  Potts,  etc.,  Co.,  90  Mich.  345, 

181,  182 
Bank   of   Atchison  Co.  v.  Byers, 

139  Mo.  627,  568 

Bank  of   Atchison  v.  Durfee,  118 

Mo.  431,  489 

Bank  of  Attica  v.  Manufacturers', 
etc.,  Bank,  20  N.  Y.  501, 

458,  463,  465 

Bank  of  Augusta  v.  Earle,  13  Pet. 
517,  224 

Bank  of  Columbia  v.  Page,  6  Ore. 
431,  278 

v.  Patterson,  7  Cranch  (U.  S.) 
298,  160 

Bank  of  Commerce  v.  Bank  of 
Newport,  11  C.  C.  A.  484,  63 
Fed.  Rep.  898,  27  U.  S.  Ap- 
peal 486,  489,  491 

Bank  of  Com.  Appeal,  73  Pa.  St. 
59,  429 

Bank  of  England  v.  Moffat,  3  Bro. 

Ch.  262,  161 


Bank  of  Ga.  v.  Harrison,  66  Ga. 

696,  496 

Bank    of     Genesee     v.    Patchin 

Bank,  19  N.  Y.  312,  171 

Bank  of  Hindustan  v.  Alison,  L. 

R.  6  C.  P.  54,  297 

Bank  of  Kentucky  v.  Schuylkill 

Bank,  1  Pars.  Eq.  Cas.  180,       332 
Bank   of  Louisville  v.   Gray,  84 

Ky.  565,  430 

Bank  of  Manchester  v.  Allen,  11 

Vt.  302,  42 

Bank  of  Mich.  v.  Niles,  1  Doug. 

(Mich.)  401,  208 

Bank  of  Montreal  v.  Potts,  etc., 

Co.,  90  Mich.  345,  183 

Bank  of  North  America  v.  Rindge, 

154  Mass.  203,  13  L.  R.  A.  56, 

645,  650,  652 
Bank  of  Pa.  v.   Commonwealth, 

19  Pa.  St.  144,  87 

Bank  of  Redemption  v.  Boston, 

125  U.  S.  60,  107 

Bank  of  Shasta  v.  Boyd,  99  Cal. 

604,  73 

Bank  of  U.  S.  v.  Planter's  Bank, 

9  Wheat.  904,  16 

Bank  of  Utica  v.  Smallev,  2  Cowen 

(N.  Y.)  770,  471 

Bank  of  Wilmington  v.  Wollas- 

ton,  3  Harr.  (Del.)  90,  146 

Barbor  v.  Boehm,   21  Neb.   450, 

277,  278 

Barbot  v.  Mutual,  etc.,  Assn.,  100 

Ga.  681 ,  28  S.  E.  Rep.  498,        146 
Barclay  v.  Quicksilver,  etc.,  Co., 

6  Lans.  25,  657 

v.  Wainwright,  14  Ves.  Jr.  67,     439 
Bard  v.  Poole,  12  N.  Y.  495,  264 

Bardstown  R.  Co.  v.  Metcalf,  4 
Mete.  (Ky.)  199,  81  Am.  Dec. 
541,  180 

Bargate  v.  Shortridge,  5  H.  L.  Cas. 

297,  294,  464 

Barker   v.   Guarantee,   etc.,   Co., 

(N.  J.),  31  A-tl.  Rep.  174, 
Barnes  v.  Brown,  80  N.  Y.  527, 

337, 
v.  Brown,  130  N.  Y.  372, 
v.  Gas,  etc.,  Co.,  27  N.  J.  Eq.  33,  584 
Barnhardt  v.  Star  Mitfs  (N.  C), 

31  S.  E.  Rep.  719,  579 

Barr  v.  N.  Y.,  etc.,  R.  Co.,  125 

N.  Y.  263,  171,  342,  354,  552,  553 
v.  Pittsburg,  etc.,  Co.,  51  Fed. 

Rep.  33,  525 

v.  Pittsburg,  etc.,  Co.,  57  Fed. 
Rep.  86,     .  549 


356 

459 
494 


XXVI 


TABLE    OP    CASES. 


[References  are  to  Pages."] 


Barr  v.  Plate  Glass  Co.,  57  Fed. 

Rep.  86,  17  U.  S.  App.  124, 

551   553 
v.  Railroad  Co.,  125  N.  Y.  263, '  348 
Barrick  v.  Gifiord,    47  Ohio   St. 

180,  21  Am.  St.  R.  798, 

10,  180,  630 
Barron  v.  Burnside,  121  U.  S.  186,  270 
v.  Burrill,  86  Maine  72,  29  Atl. 

Rep.  938,  292,  293,  629 

Barrow  S.  S.  Co.  v.  Kane,  170  U. 

S.  100,  281 

Barrow's  Case,  L.  R.  14  Ch.  Div. 

432,  341 

Barrv  v.  Exchange  Co.,  1  Sandf. 

Ch.  (N.  Y.)  280,  180,  308 

Barse,  etc.,  Co.v.Roug,  etc.,  Co., 

16  Utah  59,  272 

Barstow  v.  Savage  M.  Co.  64  Cal. 

388,  49  Am.  Rep.  705,        471,  479 
Barth  v.  Backus,  140  N.  Y.  230, 

23  L.  R.  A.  47,  245 

Bartholomew  v.   Derby    Rubber 

Co.,  69  Conn.  521,  61  Am.  St. 

Rep.  57,  178,  672 

Bartlett  v.  Drew,  57  N.Y.  587,  321,606 
Barton   v.    Association,    114  Ind. 

226,  16 N.  E.  Rep.  486,        524,526 
v.  Plank,   etc.,   Co.,    17   Barb. 

397,  190 

Bash  v.  Mining  Co.,  7  Wash.  122, 

34  Pac.  Rep.  464,  68 

Bashford,  etc.,  Co.  v.  Agua,  etc., 

Co.  (Ariz.), 35  Pac.  Rep.  983,     77 
Bass  v.  Chicago,  etc.,  R.  Co.,  42 

Wis.  654,  236 

v.  R.  N.,  etc.,  Co.,  Ill  N.  C.  439, 

16  S.  E.  Rep.  402,  133 

Basshor  v.  Dressel,  34  Md.  503,        26 
Bastian  v.  Modern   Woodmen  of 

America,  166  111.  595,  252 

Basting  v.  Northern,  etc.,  Co.,  61 

Minn.  307,  474,  632 

Bateman   v.   Mid-Wales  R.  Co., 

Lower  Courts  1  C.  P.  499,         175 
Bates  v.  Androscoggin,   etc.,   R. 

Co.,  49  Maine  491,  316 

v.    Coronado    Beach    Co.,   109 

Cal.  160,  173 

v.  Wilson  (Colo.),  24  Pac.  Rep. 

<J9,  598 

Bates  Countv  v.  Winter,  112  U.  S. 

325,  195 

Bath,  etc.,  Co.  v.  Claffy,  151  N.Y. 

24,  36  L.  R.  A.  664,      220,  221,  246 
Bathe  v.  Society,  73  Iowa  11,  558 

Battelle  v.  Northwestern,  etc., Co., 

37  Minn.  89,      50,  51,  52,  549,  553 
v.  Pavement  Co.,  37  Minn.  89,      553 


Batty  v.  Adams  Co.,  16  Neb.  44,  19 
Bavington  v.  Dougherty,  44  Md. 

380,  378 

v.  Railroad  Co.,  34  Pa.  St.  358,  384 
Bawknight  v.  Liverpool,  etc.,  Co., 

55  Ga.  194,  283 

Baxter  v.  Coughlan  (Minn.),  72 

N.  W.  Rep.  797,  569,  573 

Bayard  v.  Farmers'  Bank,  52  Pa. 

St.  232,  486 

Bayless  v.  Orn,  Freem.  Ch.  161, 

176,  588 

B.,  etc.,  R.  Co.  v.  Gallahue,   12 

Grat.  (Va.)  655,  65  Am.  Dec. 

254,  62 

Beach  v.  Methodist,  etc.,  Church, 

96  111.  177,  384 
v.  Miller,  23  111.  App.  151,  546 
v.  Miller,  130  111.  162,  549,  551 
v.  Miller,  17  Am.  St.  Rep.  298,  552 
v.  Smith,  30  N.Y.  116,  375 

Bean  v.  Trust  Co.,  122  N.  Y.  622,    477 

Bear  v.  Heaslev,  98  Mich.  279,  24 

L.  R.  A.  6i5,  18 

Beard  v.  Bayse,  7  B.  Mon.  133,       261 
v.  Union,  etc.,  Co.,  71  Ala.  60,    272 

Beaston  v.  Farmers'  Bank,  12  Pe- 
ters (U.  S.)  102,  61 

Beatty  v.  Transportation  Co.,  12 
Canada  S.  C.  598,  510 

Beddit  v.  Singer  Mfg.   Co.,  32  S. 
E.  Rep.  (N.  C.)  392,  236 

Bedford  R.  Co.  v.  Bowser,  48  Pa. 
St.  29,  95 

Beecher  v.  M.  &  P.  Rolling,  etc., 

Co.,  45  Mich.  103,  217 

Beer  Company  v.  Massachusetts, 

97  U.  S.  25,  99 
Beers  v.  Bridgeport  Spring  Co.,  42 

Conn.  17,  420,  421,  428,  430,  431 
v.  Hamburg-American,  etc., Co., 

62  Fed.  Rep.  469,  237 

v.  Hanghton,  9  Pet.  (U.  S.)  329,  621 
Beesley  v.  Chicago,  etc.,  Assn.,  44 

111.  App.  278,  300 

Behrev.  National,  etc.,  Co.,  100  Ga. 

213,  62  Am.  St.  R.  320,       235,  236 
Beitman  v.  Steiner  Bros.,  98  Ala. 

241,  515 

Belfast,   etc.,    Co.   v.   Moore,   60 

Maine  561,  378,385 

Belfast,  etc.,  R.  Co.  v.  Belfast,  77 

Maine  445,  315,  317,  423 

Belknap  v.   Boston,  etc.,  R.  Co., 

49  N.  H.  358,  237 

Bell   v.  Farwell,  176   111.  489,  68 

Am.  St.  Rep.  194, 

610,  623,  643,  646,  650,  652 


TABLE    OF    CASES. 


XXV11 


[Beferences  are  to  Pages."} 


Bell,  etc.,  R.  Co.  v.  Christy,  79 

Pa.  St.  54.  53 

Bell's  App.  115  Pa.  St.  88,  2  Am. 

St.  Rep.  532,  492,  632 

Belleville  v.  Citizens',  etc.,   Co., 

152  111.  171,  26  L.  R.  A.  681, 

115,  116,  117,  125 
Bellows   v.  Todd,  39  Iowa,   209, 

251,  500,  541 
Belton  v.  Hatch,  109  N.  Y.  593,  4 

Am.  St.  R.  495,  17  N.  E.  Rep. 

225  20,  299 

Benbon  v.  Cook,  115  N.  C.  324, 

44  Am.  St.  Rep.  457,  178,  672 

Benesh  v.  Mill-Owners',  etc.,  Co., 

103  Iowa  465,  72  N.  W.  Rep. 

674,  194 

Bennett  v.  St.  Louis,  etc.,  Co.,  19 

Mo.  App.  349,  548 

Bentlv    Case,   2   Lord    Raymond 

1334,  305 

Benwood,  etc.,  Works  v.  Hutch- 
inson &  Bro.,  101  Pa.  St.  359,  288 
Bercich  v.  Marye,  9  Nev.  312,  494 

Bergeron  v.  Hobbs,  96  Wis.  641, 

65  Am.    St.   R.  85,  71  N.  W. 

Rep.  1056,  36,  64,  66,  68 

Bergman  v.  St.  Paul,  etc.,  Assn., 

29  Minn.  275,  142,  143 

Bergner,   etc.,   Co.     v.     Drevfus, 

(Mass.   1899),  51  N.  E.  Rep. 

531,  249 

Berney  Nat'l  Bank  v.  Pinckard, 

etc.,  Co.,  87  Ala.  577,  472 

Bertha,  etc.,  Co.  v.  Clute  (N.  Y.), 

27  X.  Y.  Supp.  342,  272 

Beveridge  v.  New  York,  etc.,  R. 

Co.,  112  N.  Y.  1,  2  L.  R.  A. 

648,  415 

v.  Railway  Co.,  112  N.  Y.  1,         420 
Bickley  v.   Schlag,  45  N.  J.  Eq. 

533  352 

v.  Schlag,  46  N.  J.  Eq.  533,  354 

Biddle,   etc.,  Co.  v.  Steel  Co.,  16 

Wash.  681,  182 

Biddle's  Appeal,  99  Pa.  St.  278, 

419,  444 
Biglow   v.  Gregory,    73   111.    197, 

33,  36,  595,  596,  599 
Bilcher  v.  St.  Louis,  etc.,  Co.,  101 

Mo.  192,  13  S.  W.  Rep.  822,      153 
Bill  v.  Western  LTnion,  etc.,  Co., 

16  Fed.  Rep.  141,  449,  550 

Billings   v.    Robinson,   94  N.  Y. 

415,  639 

Bird  v.  Chicago,  etc.,  R.  Co.,  137 

Mass.  428,  486 

Bird,  etc.,  Co.  v.  Humes,  157  Pa. 

St.  278,  545 


Birmingham,   etc.,   Co.   v.  Bank 

(Ala.),  20  L.  R.  A.  600,  491 

Birmingham  Nat'l  Bank  v.  Ro- 
den,  97  Ala.  404,  11  So.  Rep. 
883,  495 

Bish  v.  Bradford,  17  Ind.  490,         394 
Bishop  v.  American,  etc.,  Co.,  51 
111.  App.  417,  170 

v.  American,  etc.,  Co.,  157  111. 

284,  170 

v.  Globe  Co.,  135  Mass.  132,  282,  489 
Bissell  v.  Heath,  98  Mich.  472,  57 

N.  W.  Rep.  585,    296,  392,  393,  397 
v.  Michigan,  etc.,  R.  Co.,  22  N. 
Y   258 

127,  177*,  200,  204,  207,  217,  220,  235 
v.  Spring  Valley  Township,  110 
U.  S.  162,  162 

Bissit    v.   Kentucky   River  Nav. 

Co.,  15  Fed.  Rep.  353,  658 

Biorngaard     v.     Goodhue,    etc., 

Bank,  49  Minn.  483,  450,  510,  524 
Blachard  v.  Kaull,  44  Cal.  440,  596 
Black  v.  Caldwell,  83  Fed.  Rep. 

880,  260 

v.  Canal  Co.,  24  N.  J.  Eq.  455,  95 
v.  Canal  Co.,  24  N.  J.  Eq.  474,  131 
v.  Delaware,  etc.,  Co.,  24  N.  J. 

Eq.  455,  193 

v.  Homersham,  L.  R.  4  Excb. 

Div.  24,  436 

v.  Zacharie  &  Co.,  3  How.  (U. 
S.)  482,  459,  467 

Black,   etc.,   Soc.   v.  Vandyke,  2 

Whart.  309,  305 

Black  River,  etc.,  Co.  v.  Holway, 
85  Wis.  344,  55  N.  W.  Rep. 
418,  74, 543 

Blair  v.  Illinois,  etc.,  Co.,  159  111. 

350,  31  L.  R.  A.  269,  184 

v.  Perpetual,  etc.,   Co.,  10  Mo. 
559,  47  Am.  Dec.  129,  265 

Blake  v.  Brown,  80  Iowa  277,  45 
N.  W.  Rep.  751,  377 

v.  Domestic  Mfg.  Co.(N.  J.  Ch.), 

38  Atl.  Rep.  241,  171,  580 

v.  McClung,  172  U.  S.  239,      57,  250 
Blakeman  v.  Benton,  9  Mo.  App. 

107,  622 

Blanc  v.  Paymaster  Min.  Co.,  95 

Cal.  524,  284 

Blanchard  v.  Warner,  1  Blatchf. 

(U.  S.)  258,  151 

Blien  v.  Rand,  79  N.  W.  Rep.  606, 

292,  296,  366,  410,  462 
Bliss  v.  Kaweah,  etc.,  Co.,  65  Cal. 

502,  542 

Blisset  v.  Daniel,  10  Hare  478,        304 


XXV111 


TABLE    OF    CASES. 


[Beferences  are  to  Pages."] 


Bliven  v.  Peru,  etc.,  Co.,  9  Abb. 

N.  Cas.  205,  673 

Bloede  v.  Bloede,  84  Md.  129,  33 

L.  R.  A.  107,  458,  459 

Bloxam  v.  Metropolitan  R.  Co., 

L.  R.  3  Ch.  App.  337,  452,  461 
Blue  v.  Bank,  145  Ina.  518,  586 

Blunt  v.  Walker,  11  Wis.  334,  78 

Am.  Dec.  709,  154,  157 

v.  Walker,  11  Wis.  349,  158 

Board  v.  Montgomery,  etc.,  Co., 

64  Ala.  269,  101 

Board,  etc.,  v.  Cooley,  58  N.  W. 

Rep.  150  (Minn.),  28 

Board  of  Education  v.  Bakewell, 

122  111.  339,  18 

v.  Greenbaume,  30  111.  610,  19 

Board  of  Trade,  etc.,  v.  Nelson, 
162  111.  431,  53  Am.  S.  R.  312, 

144,  299,  300 
Boardman   v.  Cutter,   128   Mass. 

388,  321 

v.  Lake  Shore,  etc.,  R.  Co.,  84 
N.  Y.  157, 

317,  319,  428,  430,  434,  435,  493 
Boatman's,  etc.,  Co.  v.  Able,  48 

Mo.  136,  458,  473,  476 

Bockover  v.  Life  Assn.,  77  Va.  85,  216 
Bocock  v.  Alleghany,  etc.,  Co.,  82 
Va.  913,  3  Am.  St.  Rep.  128, 

147,  215,  216 
Bogardus    v.    Trinity   Church,   4 

Sandf.  Ch.  633,  153 

Bohlen's  Estate,  75  Pa.  St.  304,       486 

Bohn  v.  Brown,  33  Mich.  257,  633,  634 

v.  Loewer's,  etc.,  Co.,  30  N.  Y. 

S.  R.  424,  147 

Bolton  v.  Natal,  etc.,  Co.,  65  Law 

J.  Rep.  N.  S.  786,  424 

Bon  Aqua,  etc.,  Co.  v.  Standard, 

etc.,  Co.,  34  W.  Va.  764,  73 

Bond  v.  Terrell,  etc.,  Co.,  82  Tex. 

309,  18  S.  W.  Rep.  691,  199,227 
Bonnell  v.  Griswold,  80  N.  Y.  128,  570 
Booth  v.  Bank,  50  N.  Y.  396,  236 

v.  Clark,  17  How.  (U.  S.)  321, 

610,  657 
v.  Dear,  96  Wis.  516,  71  N.  W. 

Rep.  816,  616,  637 

v.  Robinson,  55  Md.  419, 

174,  186,  554 
v.  Wonderly,  36  N.  J.  L.  250, 

71,  599 
B.  &  L.  Assn.  v.  Chamberlain,  4 
S.  Dak.  271,  56  N.  W.  Rep. 
897,  67,  73 

B.  &  O.  R.  Co.  v.  Harris,  12  Wal- 
lace (U.  S.)  65,  56,  60 
v.  Koontz,  104  U.  S.  5,  60 


Borland  v.  Haven,  37  Fed.  Rep. 

394,  638 

Bosanquet  v.  St.  John,  etc.,  Co. 

(Ch.),  77  Law  J.  Rep.  266,        424 
Bosher  v.  Richmond,  etc.,  Co.,  89 

Va.  455,  37  Am.  St.  Rep.  879,   389 
Bosley  v.  National,  etc.,  Co.,  123 

N.  Y.  550,  236,  395 

Bosshardt,  etc.,  Co.  v.  Crescent, 

etc.,  Co.,  171  Pa.  St.  109,  221 

Boston,  etc.,  Assn.  v.  Cory,   129 

Mass.  435,  472,  473 

Boston,  etc.,  Co.  v.   Boston,  etc., 

Co.,  149  Mass.  436,  40 

v.  Coffin,  152  Mass.  95,  8  L.  R. 

A.  740,  261 

v.   Langdon,   24  Pick.    (Mass.) 

49,  662,  665,  669,  671,  673,674,  675 
v.  Massachusetts,  97  U.  S.  25,        99 
v.  Mercantile,  etc.,  Co.,  82  Md. 
536,  38  L.  R.  A.  97,  182 

Boston,  etc.,  R.  Co.  v.  Richard- 
son, 135  Mass.  473,  482 
v.  Wellington,  113  Mass.  79, 

296,  373,  382 
Bott  v.  Pratt,  33  Minn.  323,  573 

Botts  v.   Simpkinsville,  etc.,  Co., 

88  Ky.  54,  2  L.  R.  A.  594,  30,  193 
Boulton  Carbon  Co.  v.  Mills,  78 

Iowa  460,  341,  658 

Boulware  v.  Davis,  90  Ala.  207,       657 
Bourdette   v.  New  Orleans,  etc., 

Co.,  49  La.  Ann.  1556,  415 

Boutin  v.  Dement,  123  111.  143,  14 

N.  E.  Rep.  62,  405 

Bow  v.  Allentown,  34  N.  H.  351,      26 
Bowe  v.  Minn.,  etc.,  Co.,  44  Minn. 

460,  671 

Bowers  v.  Hechtman,  45  Minn. 

238  579 

Bowie  v.  Lott,  24  La.  Ann.  214,      622 
Bovce  v.  Coal  Co.,  37  W.  Va.  73,    205 
v.  Montauk,  etc.,  Co.,  37  W.  Va. 

73,  214,  217,  223 

v.  St.  Louis,  29  Barb.  650,  153 

v.  Towsontown,  etc.,  Trus..  46 

Md.  373,  76 

Boyd  v.  Hall,  56  Ga.  563,  659 

v.    Hankinson   (C.    C.    A.),   92 

Fed.  Rep.  49,  676 

v.  Peach  Bottom  R.  Co.,  90  Pa. 

St.  169,  367,  370 

v.  Railway  Co.,  90  Pa.  St.  169,     375 

v.  Rock  port  Mills,  7  Gray  406,     471 

v.  Worsted   Mills,  149   Pa.  St. 

363,  24  Atl.  Rep.  287,  432 

Boyer  v.  Bover,  113  TJ.  S.  689,         105 

Boynton  v.  Andrews,  63  N.  Y.  93,  349 

v.  Hatch,  47  N.Y.  225,  492 


TABLE    OF    CASES. 


XXIX 


[References  are  to  Pages.] 


Boynton  v.  Lynn,  etc.,  Co.,  124 
Mass.  197,  221 

v.  Roe  (Mich.),  72  N.  W.  Rep. 
257,  181 

Bradbury  v.  Boston  Canoe  Club, 

153  Mass.  77,  174 

Braddock   v.   Philadelphia,   etc., 

R.  Co.,  45  N.  J.  L.  363,  372 

Bradford  v.  R.  Co.,  142  Ind.  383, 

40  N.  E.  Rep.  741,  74 

Bradley  v.  Ballard,  55  111.  413,        175 
v.  Ballard,  55  111.   413,  8  Am. 

Rep.  656,  207,  220 

v.  Bander,  36  Ohio  St.  28,  102 

v.  Ohio,  etc.,  R.  Co.,  78  Fed. 

Rep.  387,  119  N.  C.  718,  57 

v.  Reppell,  133  Mo.  545,  54  Am. 
St.  Rep.  685,  32  S.W.  Rep.  645, 

70,662,  663 
v.    Richardson,   2  Blatchf.  (C. 
C.)  343,  447 

Branch  v.  Charleston,  92  U.  S. 
677,  111 

v.  Jessup,  106  U.  S.  468,        123,  317 
Brand  v.  Lawrenceville,  etc.,  R. 

Co.,  77  Ga.  506,  382 

Brandenstein  v.  Hoke,  101  Cal. 

131,  69 

Brander  v.    Brander,  4  Yes.  Jr. 

800,  438,  439 

Brandt  v.  Benedict,  17  N.  Y.  93,     672 
Brant  v.  Ehlen,  59  Md  1, 

335,  341,  342,  492 
Breitung  v.   Lindauer,  37  Mich. 

217,  89,  626 

Brent  v.  Bank  of  Wash.,  10  Pet. 

(IT.  S.)  594,  144 

Brewer  v.  Boston,  etc.,  Co.,  104 

Mass.  378,  450,  525 

Brewster  v.  Hartley,  37  Cal.  15, 

99  Am.  Dec.  237,  142,  505,  506 

v.  Michigan  C.  R.  Co.,  5  How. 

Pr.  183,  284 

v.  Sime,  42  Cal.  139,  487 

Bricklev  v.  Edwards,  131  Ind.  3, 

30  N.  E.  Rep.  708,  73 

Bridge  Co.  v.  Woolley,  78  Ky.  523,    56 
Bridgeport   Bank  v.  New  York, 
etc.,  R.  Co.,  30  Conn.  231, 

332,  476,  481 
Bridgman  v.  Keokuk,  72  Iowa  42,  310 
Briggs  v.  Spaulding,  141  U.  S.  132, 

464,  539,  544, 560, 561,  563,  565,  568 
Bright  v.  Lord,  51   Ind.  272,   19 

Am.  Rep.  732,       428,  435,  436,  437 
Brinckerhoff  v.  Bostwick,  88  N.Y. 

52,  447 

Brinckerhoff,  etc.,  Co.  v.  Home, 
etc.,  Co.,  118  Mo.  447,        462,  489 


Brinkerhoff-Farris  Trust  &  S.  Co. 

v.  Home  L.  Co.,  118  Mo.  447,     144 
Brisbane  v.  Railway  Co.,  94  N.  Y. 

204,  429,  435 

Bristol  v.  Scranton,  63  Fed.  Rep. 

218,  '    547 

Bristor  v.  Smith,  158  N.  Y.  157, 

53  N.  E.  Rep.  42,  635 

British,  etc.,  Co.  v.  Ames,  6  Mete. 
(Mass.)  381, 
v.  Comm'rs,  31  N.  Y.  32,  62 

Broadway  Bank  v.  McElrath,  13 

N.  J.  Eq.  24,  471 

Brockway  v.  Innes,  39  Mich.  47,     635 
Broderipv.  Salomon,  L.  R.  (1895), 

2  Ch.  Div.  323,  602 

Brooklyn,  etc.,   Co.    v.  Bledsoe, 

52  Ala.  538,  276 

Brooklyn  Steam  T.  Co.  v.  Brook- 
lyn, 78  N.  Y.  524.  662 
B.  &  S.  Smith  Society  v.  Vandyke, 
2  Whart.  (Pa.)  309,  30  Am. 
Dec.  263,  300 
Brower  v.   Passenger  R.   Co.,   3 

Phil.  161,  381 

Brown  v.  Adams,  5  Biss.  (C.  C.) 
181,  467 

v.  Corbin,  40  Minn.  508,  32,  33 

v.  De  Young,  167  111.  549,  47  N. 

E.  Rep.  863,  433 

v.  Duluth,  etc.,  R.  Co.,  53  Fed. 

Rep.  889,  344,  346,  358 

v.  Eastern  Slate  Co.,  134  Mass. 

590,  618,  621 

v.  Grand  Rapids,  etc.,  Co.  (U. 
S.  C.  C  App.),  58  Fed.  Rep. 
286,  22  L.  R.  A.  817,  181 

v.  Grand  Rapids,  etc.,  Co.  (C.  C. 
App.),  22  L.  R.  A.  817, 58  Fed. 
Rep.  286,  183 

v.  Morrison,   etc.,   Co.    (Tenn. 

Ch.  App.),  42  S.  W.  Rep.  161,  182 
v.  Pacific,  etc.,   Co.  5  Blatchf. 

(C.  C.)525,  509 

v.  Trail,  89  Fed.  Rep.  641,  643 

v.  Winnisimmet  Co.,  11  Allen 

(Mass.l  326,  131 

v.  Winnisimmet  Co.,  93  Mass. 
326,  581 

Brownell  v.  Old  Colony  R.  Co., 

164  Mass.  29,  29  L.  R.  A.  169,  125 
Browning  v.  Hinkle,  48  Minn.  544,  342 
Brovles  v.  McCoy,  5  Sneed  (Tenn.) 

602,  594 

Bruce  v.  Piatt,  80  N.  Y.  379,    569,  573 
Bruff  v.  Mali,  36  N.  Y.  200, 

49,  328,  332 
Bruffett  v.  Great  Western  R.  Co., 
25  111.  310,  664 


XXX 


TABLE    OF    CASES. 


[References  are  to  Pages."] 


Brundage  v.  Brundage,  60  N.  Y. 
544,  493 

v.  Deardorf,  55  Fed.  Bep.  839,       18 
Brunswick,  etc.,  Co.  v.   United, 
etc.,  Co.,  35  Am.  St.  Bep.  390,  122 
v.  United,  etc.,  Co.,  85   Maine 
532,  121,  204,  213 

Brush,  etc.,  Co.  v.   Montgomery 

(Ala.),  21  So.  Bep.  960,  576 

Bryan  v.  Board,  90  Ky.  322,  13  S. 

W.  Bep.  276,  95 

Bryants,  etc.,  Co.  v.  Felt, 87  Maine 

234,  33  L.  B.  A.  593,  384 

Bucher  v.  Dillsburg,  etc.,  B.  Co., 

76  Fa.  St.  306,  372 

Buck  v.  Boss,  68  Conn.  29,  57  Am. 

St.  Bep.  60,  323 

Buckeve  Marble  Co.  v.  Harvey,  92 

Tenn.  115,  18  L.  B.  A.  252,        209 
Buckport,  etc.,  B.  Co.  v.  Brewer, 

67  Maine  295,  377,  378 

Bucksport,  etc.,  Co.  v.  Buck,  68 

Maine  81,  40 

Budd  v.  Morrison,  58  Md.  423,         143 
v.  Multnomah,  etc.,  B.  Co.,  15 
Ore.  403,  15  Pac.  Bep.  659,  3 
Am.  St.  Bep.  169,       149,  404,  407 
Buell  v.  Buckingham,  16  Iowa  284, 

85  Am.  Dec.  516,  181,  183,  548,  552 
Buenaventura,  etc.Co.v.Vassault, 

50  Cal.  534,  502 

Buffalo  Co.  Nat'l  Bank  v.  Sharpe 
(Neb.  1894),  58  N.  W.  Bep. 
734,  584 

Buffalo,  etc.,  Co. v.  Standard,  etc., 

Co.,  106  N.  Y.  669,  237 

Buffalo,  etc.,  B.  Co.  v.  Dudley,  14 
N.  Y.  336, 
94,  313,  362,  363,  380,  384,  406, 

529,  531,  669 
v.  Dudley,  4  Kern  (N.  Y.)  336,  529 
v.  Gifford,  87  N.  Y.  294,  367,  381,  407 
v.  Pottle,  23  Barb.  (N.  Y.)  21, 

528, 532 
Buffettv.  Bailway  Co.,  40  N.  Y. 

168,  558 

Boffington  v.  Bardon,  80  Wis.  635,     50 
Building   Assn.   v.   Lampson,  60 

Minn.  422,  220 

Building,  etc.,  Assn.  v.  Chamber- 
lain, 4  S.  D.  271,  56  N.  W. 
Bep.  897,  77 

Bulkley  v.  Whitcomb,  121  N.  Y. 

107,  659 

Bullard  v.  Bank,  18  Wall.  (U.  S.) 

589,  490 

v.  Chandler,  149  Mass.  532,  5  L. 
B.  A.  104,  261 


Bullock  v.  Falmouth,  etc.,  Co.,  85 

Ky.  184,  3  S.  W.  Bep.  129,        367 
v.  Turnpike  Co.,  85  Ky.  184,        363 
Bump  v.  Butler  Co.,  93  Fed.  Bep. 

290,  672 

Burbank  v.  Dennis,  101  Cal.  90,       45 
Burden  v.  Burden,  40  N.  Y.  Supp. 

499,  52 

v.  Burden  (N.  Y.),54  N.  E.  Bep. 

17,  462 

Burford   v.  Keokuk,  etc.,  Co.,  3 

Mo.  App.  159,  477 

Burgess  v.  Seligman,  107  U.  S.  20,  593 
Burgess's  Case,  L.  B.  15  Ch.  Div. 

507,  396 

Burke  v.  Smith,  16  Wall.  390, 

370,  371,  609 
Burleigh  v.  Ford,  61  N.  H.  360,  543 
Burnap  v.  Haskins,  etc.,  Co.,  127 

Mass.  586,  594 

Burner  v.  Brown,  139  Ind.  600,       354 
Burnes  v.  Pennell,  2  H.  of  L.  Cas. 

496,  520,  20,  296 

Burnsville,    etc.,    Co.   v.    State, 

119  Ind.  382,  496 

Burr  v.  McDonald,  3  Grat.  (Va.) 

215  588 

v.  Wilcox,  22  N.  Y.  551,  366 

Burrall  v.  Bushwick  B.  Co.,  75  N. 

Y.  211,  458 

v.  Bailroad  Co.,  75  N.  Y.  211, 

308,  309 
Burrill  v.  Dollar,  etc.,  Bank,  92 

Pa.  St.  134,  34  Am.  Bep.  669,    148 
v.  Nahant  Bank,  2  Met.  (Mass.) 

163,  542 

Burrows  v.  North  Carolina  B.  Co., 

67  N.  C.  376,        428,  435,  436,  437 
v.  Smith,  10  N.  Y.  550,  53,  380 

Burt  v.  Lodge,  66  Mich.  85,  33  N. 

W.  Bep.  13,  303 

Burton   v.  Schildbach,  45   Mich. 

504,  8  N.  W.  Bep.  497,  69,  77 

v.  St.  George  Society,  28  Mich. 

261,  300,  303 

Burton's  App.,  93  Ba.  St.  214,  481 

Busenback  v.  Attica,  etc.,  Co.,  43 

Ind.  265,  35 

Busey  v.  Hooper,  35  Md.  15,   293,  384 
Bushnell    v.   Consolidated,    etc., 

Co.  (111.  1891),  27  N.  E.  Bep. 

596,  598 

v.  Consolidated,  etc.,  Co.,   138 

111.  67,  74 

v.  Machine  Co.,  138  Til.  67,  27 

N.  E.  Bep.  596,  70,71,663 

Buswell  v.  Sup.  Sitting,  etc.,  161 

Mass.  224,  23  L.  B.  A.  846,       610 


TABLE    OF   CASES. 


XXXI 


[Beferences  are  to  Pages.] 


Butchers'   Bank    v.   MacDonald, 

130  Mass.  264,  73 

v.  Robinson,  52  Wis.  308,  10  N. 

W.  Rep.  512,  71 

Butler  v.    Robbins   Co.,   151   111. 

588,  182 

Butler  University  v.  Scoonover, 

114  Ind.  281,  376 

Butte,  etc.,  Co.  v.  Montana,  etc., 

Co.  (Mont.),  55  Pac.Rep.  112,  576 
Butterfield  v.  Beardsley,28  Mich. 

412,  20 

Butternuts,  etc.,  Co.  v.  North,  1 

Hill  (N.  Y.)  518,  370,  371 

Butterworth  v.  Kritzer  Mills  Co. 

(Mich.),  72  N.  VV.  Rep.  990, 

37,  173 
Button  v.  Hoffman,  61  Wis.  20,  20 

N.  W.  Rep.  667,  50  Am.  Rep. 

131,  10,  523,  672 

Buttrick  v.  Nashua,  etc.,  R.  Co., 

62  N.  H.  413, 13  Am.  St.  Rep. 

578,  471,  498, 583 

v.  Railroad  Co.,  62  N.  H.  413,      539 
Buxton  v.    Hamblem,   32  Maine 

448,  277 

Byers   v.  Franklin  Coal   Co.  106 

Mass.  131,  620 

v.  Rollis,  13  Colo.  22,  333 

Byrnes  v.  Mfg.  Co.,  65  Conn.  365, 

28  L.  R.  A.  304,  184 

Byron  v.  Carter,  22  La.  Ann.  98,    465 

C 

Cable  v.  Marsh,  11  Neb.  243,  634 

Cady  v.  Sanford,  53  Vt.  632,  247 

Oesar  v.  Capell,  83  Fed.  Rep.  403, 

273,  276 
Cahaill  v.  Insurance  Co.,  3  Doug. 

(Mich.)  123,  141 

Cahill  v.  Kalamazoo,  etc.,  Co.,  2 

Doug.    (Mich.)    124,   43    Am. 

Dec.  457,  581 

Calarels  River  Bridge  v.  Warren 

Bridge,  7  Pick.  (Mass.)  344,       35 
Calcutta  Jute  Co.  v.  Nicholson,  L. 

R.  1  Ex.  Div.  428,  244 

Calder,   etc.,    Co.  v.    Pilling,  14 

M.  &  W.  81,  141 

Caledonia,    etc.,   Co.   v.   Helens- 
burg,  etc.,  Trustees,  2  Macq. 

H.  L.  Cas.  391,  51 

Caley  v.   Philadelphia,   etc.,    R. 

Co.,  80  Pa.  St.  363,     382,  370,  609 
California   v.   Central,   etc.,   Co., 

127  U.  S.  40,  114 

v.  Central  Pac.  R.  Co.,  127  U.  S. 

1,  25,  104 


California  v.  Pac.  R.  Co.,  127  U. 

S.  139,  25 

California  Bank  v.  Kennedy,  167 

U.  S.  362,  186,  204,  213,  219 

California,  etc.,  Co.  v.  Callender, 

94  Cal.  120,  377 

v.  Russell,  88  Cal.  277,  26  Pac. 

Rep.  105,  382 

v.  Schafer,  57  Cal.  396,  362 

Calkins  v.  State,  18  Ohio  St.  366, 

98  Ann.  Dec.  121,  42 

v.  State,  18  Ohio  St.  370,  43 

Callaway,  etc.,  Co.  v.  Clark,  32 

Mo.  305,  135 

Calumet,  etc.,  Co.  v.  Haskell,  etc., 

Co.,  144  Mo.  331,  66  Am.  St. 

Rep.  425.  539 

Calumet  Paper  Co.  v.  Statts  Ins. 

Co.,  96   Iowa  147,  64  N.   W. 

Rep.  782,  186 

Camden,  etc.,  R.  Co.  v.  Elkins, 

37  N.  J.  Eq.  273,  505 

v.  May's  Landing,  etc.,  Co.,  48 

N.  J.  L.  530,  202,  220,  221 

Camden  v.  Stuart,  144  U.  S.  104, 

321,  322,  335,  338,  355 
Camden,  etc.,  Co.  v.  Swede,  etc., 

Co.,  32  N.  J.  L.  15,  284,285 

Came  v.  Brigham,  39  Maine,  35,  637 
Cameron  v.  Kenvon-Connell,  etc., 

Co.  (Mont.),  44  L.  R.  A.  508, 

56  Pac.  Rep.  358,  564,  567,  571 
Camp  v.  Byrne,  41  Mo.  525,  252 

Campbell's  Case,  9  Ch.  App.  Cases 

1,  297 

Campbell  v.  American,  etc.,  Co., 

122  N.  Y.  455,  11  L.  R.  A.  96, 

315,  316,  494 

v.  Merchants',  etc.,  Co.,  37  N. 

H.  41,  145 

v.  Morgan,  4  111.  App.  100,  329,  496 
Canada,  etc.,  R.  Co.  v.  Gebhard, 

109  U.  S.  527,  250,  255 

Canal  Co.  v.  Raby,  2  Price  (Ex.) 

93,  383 

Canal  St.  Gravel  Road  v.  Paas,  95 

Mich.  372,  43 

Canfield  v.  Gregory,  66  Conn.  9,  75 
Capital  City,  etc.,  Co.  v.  State,  105 

Ala.  406,  29  L.  R.  A.  743,  82,  668 
Capps  v.   Hastings  Prosp.  Co.,  40 

Neb.  470,  58  N.  W.  Rep.  956- 

958,  24  L.  R.  A.  25,  34,  63,  74,  75 
Cardwell  v.  Kelly,  95  Va.  (1898) 

570,  28  S.  E.  Rep.  953,  40  L.  R. 

A.  240,  75,  492,  609 

Carev,  etc.,  v.  Bliss,  151  Mass.  364, 

25  N.  E.  Rep.  92,  85 


XXX11 


TABLE    OF   CASES. 


[References  are  to  Pages.1] 


Carey,   etc.,  v.   Mining    Co.,   81 

Iowa  674,  47  N.  W.  Eep.  882,     50 

v.Morrill,  61  Vt.  598,  33 

v.  Williams,  79  Fed.  Rep.  906,      506 

Carey  &  Co.  v.  Morrill,  61  Vt.  598,  371 

Carmody  v.  Powers,  60  Mich.  26, 

26  N.  W.  Rep.  801,  48 

Carnahan  v.  Western,  etc.,  Co.,  89 

Ind.  526,  247 

Carothers  v.  Philadelphia  Co.,  118 

Pa.  St.  468,  101 

Carpenter  v.    Black  Hawk,  etc., 

Mining  Co.,  65  N.  Y.  43,   120,  180 
v.  New  York,   etc.,   R.  Co.,  5 

Abb.  Pr.  277,  437 

Carr  v.  Le  Fevre,  27  Pa.  St.  413, 

335,  351 
Carroll  v.  Mullanphy,  etc.,  Bank, 

8  Mo.  App.  249,  141,  465 

Carson  Citv,  etc.,  Bank  v.  Carson 

Citv,  etc.,  Co.,  90  Mich.  550, 

30  Am.  St.  Rep.  454,  221,  223 

Carson  v.  Gaslight  Co.,  80  Iowa 

638,  453 

v.  Mining  Co.,  5  Mich.  288,  385,  409 
Carson-Rand  Co.. v.  Stern,  129  Mo. 

381,  32  L.  R.  A.  420,  275 

Carsten  v.  Leidigh,  etc.,  Co.,  18 

Wash.  450,  39  L.  R.  A.  548,      285 
Cartan  v.  Father  Matthew,  etc., 

Society,  3  Daly  20,  142 

Carter,  etc.,  Co.   v.  Hazzard,  65 

Minn.  432,  407 

v.  Howe,  etc.,  Co.,  51  Md.  290, 

34  Am.  Rep.  311,  235 

v.  Ford,  etc.,  Co.,  85  Ind.  180,     447 
Cartwright  v.  Dickinson,  88Tenn. 

476,  7  L.  R.  A.  706,  17  Am.  St. 

Rep.  910,  12  S.  W.  Rep.  1030, 

311,  313,  383,  405 
Carver  v.   Manufacturing  Co.,   2 

Story  432,  634 

Cary,  etc., Co.  v.  Thomas,  92  Tenn. 

587,  277 

Casco  Nat'l  Bank  v.  Clark,  139  N. 

Y.  307,  582,  584 

Case  v.  Bank,  100  U.  S.  446,  489 

v.  Beauregard,  101  U.  S.  688,        324 
v.  Kelley,  133  U.  S.  21, 

100,  132,  151,  153,  157 
Case  Mfg.  Co.  v.  Soxman,  138  U.S. 

431,  580 

Case  of  Sutton's  Hospital,  10  Rep. 

23a,  140 

Casey  v.  Galli,  94  U.  S.  673,  658 

Cashman  v.  Brownlee,  128  Ind. 

260,  196 

Cass  v.   Railroad  Co.,  80  Pa.  St. 

31,  377, 404 


Cassaday  v.  American,  etc.,  Co., 

72  Ind.  95,  277,  280 

Cassell  v.    Lexington,   etc.,   Co., 

(Ky.),9S.  W.  Rep.  502,  503 

Castle  v.   Belfast,   etc.,   Co.,   72 

Maine  167,  577 

Castner  v.  Twitchell,  etc.,  Co.,  91 

Maine  524,  523 

Catlin  v.  Eagle  Bank,  6  Conn.  233,  181 
Cattle  Co.  v.  Frank,  148  U.  S.  603,  589 
Cazeauxv.Mali,25Barb.578(N.Y.),  49 
Caulkins  v.  Gas,  etc.,  Co.,  85  Tenn. 

683,  4  Am.  St.  Rep.  786,  486,  567 
Clearwater  v.  Meredith,  1  Wall.  25,  95 
Cecil  Nat'l  Bank  v.  Watsontown 

Bank,  105  U.  S.  217,  432 

Cedar  Rapk.o,  etc.,  Co.  v.  Butler, 

83  Iowa  124,  398 

Celluloid,  etc.,   Co.  v.  Cellonite, 

etc.,  Co.,  32  Fed.  Rep.  94,  40 

Central  City,  etc.,  Bank  v.  Walk- 
er, 66  N. Y.  424,  596 
Central,  etc.,  Assn.  v.  Ala.,  etc., 

Co.,  70  Ala.  130,  76 

Central,  etc.,  Co.  v.  Atlantic,  etc., 

R.  Co.  50  Ga.  444,  494 

v.  Calif,  162  U.  S.  91,  105 

v.  Citizens',  etc.,  R.  Co.,  80  Fed. 

Rep.  218,  89 

v.    Cullen,   40  Ga.  582,  185 

v.  Lowell,  4  Gray  474,  98 

v.  Smith,  76  Ala.  572,  173,  558 

v.  State  (Ga.),  42  L.  R.  A.  518,      81 
Central  Nat'l  Bank  v.  Williston, 

138  Mass.  244,  471 

Central  Nebraska  Nat'l  Bank  v. 
Wilder,  32  Neb.  454,  49  N.  W. 
Rep.  369,  432,  435 

Central,  etc.,   R.  Co.  v.  Ashling, 

160  111.  373,  194 

v.  Brewer,  78  Md.  394,  27  L.  R. 

A.  63,  236,  557 

v.  Papot,  59  Ga.  342,  67  Ga.  675,    43 
v.  Pennsylvania,  etc.,  R.  Co., 
31   N.  J.  Eq.  475,  184 

Central  Land  Co.  v.  Obenchain, 

92  Va.  130,  22  S.  E.  Rep.  876,  45 
Central  R.  Co.  v.    Carr,  76  Ala. 

388  282 

v.  Clark,  23  Minn.  422,  29 

v.  Collins,  40  Ga.  582,  454 

V.Georgia,  92  U.S.  665,  31 

v.  Pennsylvania  R.  Co.,  31  N.  J. 
Eq.  475,  39 

Central  Trans.   Co.  v.   Pullman, 
etc.,  Co.,  139  U.  S.  24,  11  Sup. 
Ct.  478, 
179,  187,  202,  205,  209,  210,  213,  215 


TABLE    OF    CASES. 


XXX111 


[References  are  to  Pages."] 


Central  Trust  Co.  v.  Columbus, 

etc.,  R.  Co.,  87  Fed.  Rep.  815,  181 
Central  Union,  etc.,  Co.  v.  Brad- 
bury, 106  Ind.  1,  82 
Chaffee  v.  Rutland,  etc.,  R.  Co., 

55  Vt.  110,  315,  318 

Chaffin  v.  Cunnnings,  37  Maine 

76,  296,  376 

Chamberlain  v.  Broniberg,  83  Ala. 

576,  181,  543 

v.  Hugenot,  etc.,  Co.,  118  Mass. 

532,  432,  639 

v.  Pacific,  etc.,  Co.,  44  Cal.  103,     548 

v.  Painesville,  etc.,  R.  Co.,  15 

Ohio  St.  225,  499 

Chambers  v.  Falkner,  65  Ala.  448,  199 

Champion   v.   Memphis,  etc.,  R. 

Co.,  35  Miss.  692,  95 

Chandler  v.  Bacon,  30  Fed.  Rep. 
538,  45 

v.   Sheep,   etc.,  Co.,  (Utah)  49 
Pac.  Rep.  535,  404 

Chapin  v.  School  Dist.,  35  N.  H. 

445,  199 

Chapman,  etc.,  Co.  v.  Oconto,  etc., 
Co.,  89  Wis.  264,  46  Am.  St. 
Rep.  830,  122 

Chappell's  Case,  L.  R.  C.  Ch.  App. 

902,  464 

Charles  River  Bridge  v.  Warren 
Bridge,  11   Pet.  (U.  S.)  420, 

35,96,  131 
Charter  Oak,  etc.,  Co.  v.  Sawver, 

44  Wis.  387,  281 

Charlottsville,  etc.,  v.  Mahan,  136 

U.  S.  548,  435 

Chase  v.  Curtis,  13  U.  S.  452,    176,  247 
v.  Tuttle,  55  Conn.  455,  3  Am. 
St.  Rep.  64, 

181,  522,  539,  540,  541,  543 
'  Chas.  Higgins  Co.  v.  Higgins,  etc., 
Co.,  144  N.  Y.  462,  27  L.  R. 
A.  133,  41 

Chattanooga,  etc.,  R.  Co.  v.  War- 
then,  98  Ga.  599,  406,  407 
Cheetham  v.  McCormick,  178  Pa. 

St.  186,  342 

Cheever  v.  Myer,  52  Vt.  66,  471 

Cheltenham,  etc.,  R.  Co.  v.  Dan- 
iel, 2  Q.  B.  Ad.  &  E.  281,  42 
Eng.  C.  L.  675,  296 

Chemical,  etc.,  Bank  v.  Colwell, 
SSandf.  Ch.  (N.  Y.)  1,  539 

v.  Wagner,  93  Ky.  525,  20  S.  W. 
Rep.  535,  580 

Chemical  Nat'l  Bank  v.  Colwell, 

132  N.  Y.  250,  466,  469,  542 

iii— Private  Corp. 


Cherokee,  etc.,  Co.  v.  Jones,  52 

Ga.  276,  454 

Cherokee  Nation  v.   Kansas   R. 

Co.,  135  U.  S.  641,  25 

Chesapeake,  etc.,  R.  Co.  v.  Miller, 

114  U.  S.  176,  124 

Chester,   etc.,   Co.  v.  Dewev,  16 

Mass.  94,  220,  313,  376 

Chestnut  Hill,  etc.,  Co.  v.  Rutter, 
4  S.  &  R.  (Pa.)  6,  8  Am.  Dec. 
675,  235 

Chew  v.  Bank,  14  Md.  299,  283 

Chewacla    Lime  Works   v.    Dis- 

mukes,  87  Ala.  344,  135.  159,  221 
Chicago  v.  Cameron,  120  111.  447,  447 
Chicago  Board  of  Trade  v.  People, 

91  111.  80,  115 

Chicago,  etc.,  Assn.  v.  Ford,  46  111. 

App.  576,  169 

Chicago,    etc.,   Co.   v.   Creamery 
Co.  (Ga.),  31  S.  E.  Rep.  809,      52 
v.  Chicago  Nat'l  Bank,  176  111. 

224,  580 

v.  Fav,  164  111.  323,  482 

v.  Marsailles,  84  111.  145,  191 

v.  Needles,  113  U.  S.  574,       99,  665 
v.  People's,  etc.,   Co.,    121   111. 
530,  531,  2  Am.  St.  Rep.  124, 

120,  121,  167,  204 
v.  Yerkes  (111.)  30  N.  E.  Rep. 
667,  524 

Chicago,  etc.,  R.  Co.  v.  Allerton, 

18  Wall.  (U.  S.)  233,  310 

-  v.  Colman,  18  111.  297,  579 

v.  Hall,  135  Ind.  91,  23  L.  R. 

A.  231,  198 

v.  Howard,  7  Wall.  (U.  S.)  392,  172 
v.  Minn.,  etc.,  Co.,  29  Fed.  Rep. 

337,  60 

v.  Moffatt,  75  111.  524,  196 

v.  People,  73  111.  541,  115 

v.  Suffern,  129  111.  274,  165 

v.  Union  Pac.  R.  Co.,  47  Rep.  15,  202 
Child  v.  Boston,  etc.,  AVorks,  137 

Mass.  516,  50  Am.  Rep.  328,      633 
v.  Hudson  Bav  Co.,  2  Peere  Wil- 
liams 207  (1723),  8 
v.  Iron  Works,  137  Mass.  516,      634 
Childs  v.  Boston,  etc.,  Works,  137 

Mass.  516,  176 

v.  Harris,  etc.,  Co.,  104  N.  Y. 

477,  286 

v.  Hurd,  32  W.  Va.  99,  9  S.  E. 
Rep.  362,  34,  35,  37,  64 

Chittenden  v.  Thannhauser,  86  N. 

Y.  95,  569 

Chollar,  etc.,  Co.  v.  Wilson,  66 
Cal.  374,  523 


XXXIV 


TABLE    OF    CASES. 


[References  are  to  Pages.'] 


Chouteau,  etc.,  Co.  v.  Floyd,  74 

Mo.  286,  403,  406 

Chouteau,  etc.,  Spring  Co.  v.  Har- 
ris, 20  Mo.  382, 

460,  469,  473,  475,  632 
Christensen    v.    Colby,   43    Hun 

(N.Y.)362,  412 

v.  Eno,   106  N.  Y.  97,  60  Am. 

Rep.  431,       308,  337,  340,  348,  492 
v.Qumtard,36  Hun  (N.  Y.)334,  412 
v.  Quintard,  8  N.  Y.  Supp.  400,    348 
Christian  v.  American  Freehold, 
i    etc.,  Co.,  89  Ala.  198,         277,  280 
v.  Bowman,  49  Minn.  99,      598,  599 
Christian,  etc.,  Co.  v.  Fruitdale, 
etc.,  Co.  (Ala.),  25  So.  Rep. 
566,  71 

Christian  Union  v.  Yount,  101  U. 

S.  352,  155,  260,  280 

Chubb  v.  Upton,  95  U.  S.  665,  74 

Church  v.  Citizens',  etc.,  R.  Co., 
78  Fed.  Rep.  526,  342 

v.  Cementico  Co.   (Minn.),   77 

N.  W.  Rep.  548,  566 

v.  Coke  Co.,  6  Ad.  &  El.  846,      160 
Chubb  v.  Upton,  96  U.  S.  328,  321 

Cincinnati  v.  Cameron,  33  Ohio 

St.  336,  231 

Cincinnati,  etc.,  Co.  v.  Bate,  96 

Ky.  356,  49  Am.  St.  R.  300,        40 
v.  Rosenthal,  55  111.  85,  278 

Cincinnati,  etc.,  R.Co.v.  Citizens' 
Nat'l  Bank,  56  Ohio  St.  351 ,  43 
L.  R.  A.  777,        328,  330,  334,  480 
Citizens',  etc.,  Assn.  v.  Coriell,  34 

N.  J.  Eq.  383,  559 

Citizens',  etc.,  Co.  v.  Sortwell,  8 

Allen  (Mass.)  217,      499,  521,  534 
Citizens',  etc.,  R.  Co.  v.  Robbins, 

128  Ind.  449,  485 

Citizens'  Nat'l  Bank  v.  Elliott,  55 

Iowa  104,  39  Am.  Rep.  167,      584 
City  Bank  v.  Bruce,  17  N.  Y.  507, 

190,  191 
v.  Bartlett,  71  Ga.  797,  396,  398 

City  of  Ellsworth  v.  Rossiter,  46 

Kan.  237,  231 

City  of  Lexington  v.  Butler,  14 

"  Wallace  (U.  S.)  282,  177 

City  of  Lincoln  v.  Sun,  etc.,  Co., 
59  Fed.  Rep.  756,  8  C.  C.  A. 
253,  538 

City  of  St.  Louis  v.  Western  Union, 

etc.,  Co.,  63  Fed.  Rep.  68,         117 

City  Ins.  Co.  v.  Bank,  68  111.  348,  675 

City,  etc.,  Co.  v.  Carrugi,  41  Ga. 

660,  230 

v.  State,  88  Tex.  600,  32  S.  W. 

Rep.  1033,  179 


City,  etc.,  R.  Co.v.  Bank,  62  Ark. 

33,  31  L.  R.  A.  535,  174 

City  Water  Co.  v.  State,  88  Tex. 

600,  180 

Claflin  v.  Farmers',  etc.,  Bank,  25 

N.  Y.  293,  331 

Clapp  v.  Astor,  2  Edw.  Chan.  379,  437 
v.  Oberlin,  etc.,  Assn.,  35  Ohio 

St.  258,  190 

v.  Peterson,  104  111.  26,         191,  606 
Claremount,  etc.,  Co.  v.  Royce,42 

Vt.  730,  260 

Clark  v.  American,  etc.,  Co.,  86 
Iowa  436,  17  L.  R.  A.  557, 

313,342,551,  584 
v.  Barnard,  108  U.  S.  436,  57 

v.  Bever,  139  U.  S.  96,  321,  322,  348 
v.  German,  etc.,  Bank,  61  Miss. 

611,  471 

v.  Insurance  Co.,  6  Cush.  342,  150 
v.  Lincoln,  etc.,  Co.,  59  Wis.655,  334 
v.  Middleton,  19  Mo.  53,  276 

v.  Mutual,  etc.,  Co.  (D.  C),  43 

L.  R.  A.  391,  80,  145,  257 

v.  Turner,  73  Ga.  1,  326,  380 

Clark  Co.  v.  Winchester,  etc.,  Co. 

(Ky.),  43  S.  W.  Rep.  716,         311 
Clarke  v.  Blackmar,  47  N.  Y.  150,    98 
v.  Central,  etc.,  R.  Co.,  50  Fed. 

Rep.  338,  15  L.  R.  A.  683,  506,  508 
v.  Cold  Spring,  etc.,  Co.  (Minn. 

1894),  59  N.  W.  Rep.  632,  616 

v.  Jones,  87  Ala.  474,  6  So.  Rep. 

362,  74 

v.  Lincoln,  etc.,  Co.,  59  Wis.  655, 

18  N.  W.  Rep.  492,  358 

v.  Thomas,  34  Ohio  St.  96,  409 

Clarkson   v.   Clarkson,   18  Barb. 

646,  445 

Clay,  etc.,  Co.  v.  Huron,  etc.,  Co., 

31  Mich.  346,  276,  280 

Clayton  v.  Ore  Knob  Co.,  109  N. 

C.  385,  352,  353,  354 

Clearwater  v.   Meredith,  1  Wall 

(U.  S.)  25,       31,  88,  192,  422,  425 
Cleeg  v.  Hamilton,  etc.,  Co.,  61 

Iowa  121,  33,  36,  37 

Clem  v.  Newcastle,  etc.,  R.  Co.,  9 

Ind.  488,  68  Am.  Dec.  653,        393 
Clemet  v.  City  of  Lathrop,  18  Fed. 

Rep.  885i  40 

Cleveland  City,  etc.,  Co.  v.  Tay- 
lor Bros.,  etc.,  Co.,  54  Fed. 
Rep.  85,  663 

Cleveland,  etc.,  R.  Co.  v.  Prewitt, 

134  Ind.  557,  33  N.  E.  Rep.  367,  196 
v.  Robbins,  35  Ohio  St.  483,  435 

Cleveland,  etc.,  Co.  v.  Texas, 
etc.,  R.  Co.,  27  Fed.  Red.  250,  356 


TABLE    OF    CASES. 


XXXV 


[Beferences  are  to  Pages. ] 


Clinch  v.  Financial  Corp.,  L.  R. 

4  Ch.  App.  117,  525 

Clow  v.  Brown,  150  Ind.  185,  569 

Close  v.  Cemetery,  107  U.  S.  477,      77 

v.   Greenwood,    etc.,   Co.,    107 

U.  S.  466,  89,  92 

Coats  v.  Donnell,  94  N.  Y.  168, 

181,  182 
Coburn  v.  Boston,   etc.,  Co.,  10 

Gray  (Mass.)  243,  671 

Cochran    v.   Phila.  Stock  Exch., 
180  Pa.  St.  289,  301 

v.  Wiechers,  119  N.  Y.  399,  29 
N.  Y.  St.  Rep.  388,  7  L.  R.  A. 
553,  626,  631 

Cochrane   v.  Arnold,  58  Pa.   St. 

399,  74 

Cockburn  v.  Union  Bank,  13  La. 

Ann.  289,  419 

Cockrill  v.  Abeles,  86  Fed.  Rep. 

505,  433 

Coe  v.  Col.,  etc.,  R.  Co.,  10  Ohio 
St.  372,  75  Am.  Dec.  518, 

120,  122,  i23 
v.   East,   etc.,  R.  Co.,  52  Fed. 
Rep.  531,  554 

Coffin  v.  Ransdell,  110  Ind.  417, 

335,  352,  354 
v.  Reynolds,  37  N.  Y.  640,  635 

v.  Rich,  45  Maine  507,  71  Am. 
Dec.  559,  592,  621 

Coffing  v.  Dodge,  167  Mass.  231, 

610,  650 
Coit  v.    Amalgamating  Co.,    119 

U.  S.  343,  335 

v.  Gold,  etc.,Co.,  119  U.  S.  343, 
14  Fed.  Rep.  12,  343,  351,  352 

Colbert  v.  Sutton,  5  Del.   Chan. 

294,  471 

Cole  v.  Adams  (Tex.),  49  S.  W. 
Rep.  1052,  353 

v.  Cassidv,  138  Mass.  437,  568 

v.  Millerton,  etc.,  Co.,  133  N.Y. 

164,  192,  322 

v.  Satsop  R.  Co.,  9  Wash.  487,     649 
Coleman  v.  American  Bible,  etc., 
Co.,  49  Cal.  517,  156 

v.  Coleman,  78  Ind.  344, 

595,  596,  599 
v.  Howe,  154  111.  458,  45  Am. 
St.  Rep.  133,        340,  341,  353,  356 
Coles  v.  Iowa,  etc.,  Co.,  18  Iowa 

425,  144 

Colfax,  etc.,  Co.  v.  Lyon,  69  Iowa 

683,  29  N.  W.  Rep.  780,     313,  367 
Colman  v.  Land  Co.,  25  W.  Va. 
148,  579 

v.  Railway  Co.,  10  Beav.  1,  159 


Colonial  Bank  v.  Whinney,    30 

Ch.  Div.  261,  321 

Colorado,  etc.,  Co.  v.  Grand  Val- 
ley, etc.,  Co.  (Colo.),  32  Pac. 
Rep.  178,  221 

Colorado  Fuel,  etc.,  Co.  v. Western, 
etc.,  Co.  (Utah),  50 Pac.  Rep. 
628,  184 

Colorado  I. Works  v.  Sierra  Grande, 

etc.,  Co.,  15  Colo.  499,  272 

Colt  v.  Ives,  31  Conn.  25,         471,  472 

v.  Owens,  90  N.  Y.  368,  494 

Columbia,  etc.,   Co.  v.  Bucyrus, 

etc.,  Co.,  60  Minn.  142,  290 

v.  Dixon,  46  Minn.  463, 

73,  75,  292,  313,  376,  394 
v.  Kinton,  37  N.  J.  L.  33,  274 

v.  Meier,  39  Mo.  53,  522 

Columbus,  etc.,  Co.  v.  Walsh,  18 

Mo.  228,  276 

Columbus,  etc.,  R.  Co.  v.  Powell, 

40  Ind.  37,  196 

Combes  v.  Keyes,  89  Wis.  297,  46 
Am.  St.  Rep.  839;  27  L.  R.  A. 
369,  92,  125,  675 

Commercial  Bank  v.  Kortright,  22 

Wend.  (N.  Y.)  348,  471 

v.  Lockwood,  2  Harr.  (Del. )  8,     676 
v.  Pfeiffer,  108  N.  Y.  242,  15  N. 
E.  Rep.  311,  73 

Commercial  Nat'l  Bank  v.  Burch, 

141  111.  519,  31  N.  E.  Rep.  420,  189 
v.    Motherwell,    etc.,    Co.,    95 
Tenn.  172,  29  L.  R.  A.  164,       676 
Commissioners  v.   Atlantic,  etc., 
R.  Co.,  77  N.  C.  289,  135,  174 

v.  Webb,  47  Kan.  104,  231 

Common  v.  Boston,  etc.  R.  Co., 

18  Mass.  142,  192 

Commonwealth  v.  Atlantic,  etc., 
R.  Co.,  53  Pa.  St.  9,  31,  193 

v.  Biddle,  139  Pa.  St.  605,  274 

v.  Boston,  etc,,  R.  Co.,  142  Mass. 

146,  312,  358 

v.  Bringhurst,   103  Pa.  St.  134, 

49  Am.  Rep.  119  508 

v.  Building,  etc.,  90  Va.  790,         101 
v.  Coal  Co.,  97  Ky.  238,  269 

v.  Crompton,  137  Pa.  St.  138,        473 
v.  Cullen,  53  Am.  Dec.  461,  94 

v.  Cullen,  13  Pa.  St.  ]33,         93,524 
v.  Detwiller,  131  Pa.  St.  614,  18 
Atl.  Rep.  990,  7  L.  R.  A.  357, 

509,  520,  588 
v.  Dalzell,   152  Pa.  217,  34  Am. 

St.  Rep.  640,  505,  506 

v.   Eastern,   etc.,   R.   Co.,   103 
Mass.  254,  91 


XXXVI 


TABLE    OF    CASES. 


[Beferences  are  to  Pages.'} 


Commonwealth  v.  Essex  Co.,  13 
Gray  (Mass.)  289,  93 

v.  German  Society,  15  Pa.  St. 

25,  301 

v.  Hemmingway,  131  Pa.  St.  614, 

18  Atl.  Rep.  990,  365,  541 
v.  Iron  Co.,  105  Pa.  St.  Ill,  417 
v.  Lehigh,  etc.,  R.  Co.,  165  Pa. 

St.  162,  238 

v.  New  York,  etc.,  R.  Co.,  129 

Pa.  St.  463,  254 

v.  New  York,  etc.,  Co.,  114  Pa. 

St.  340,  153 

v.  Pass.  R.  Co.,  134  Pa.  St.  237, 

19  Atl.  Rep.  629,  416 
v.   Pennsylvania,  etc.,   Soc,  2 

Serg.  &  Rawle  141,  303 

v.  Pennsylvania  R.  Co.,  117  Pa. 

St.  637,  239 

v.  Philadelphia  Co.,  157  Pa.  St. 

527,  104 

v.  Phoenix,  etc.,  Co.,  105  Pa.  St. 

Ill,  23  Am.  Law  Reg.  (N.  S.) 

388,  415,  417,  418 

v.  Prop.  New  Bedford  Bridge,  2 

Gray  (Mass.)  339.  240 

v.  Pulaski,  etc.,  Assn.,  92  Ky. 

197,  17  S.  W.  Rep.  442,  238,  239 
v.  Railway  Co.,  132  Pa.  St.  591,  153 
v.  Railwav  Co.,  139  Pa.  St.  457,  153 
v.   St.   Patrick's,  etc.,  2  Binn. 

(Pa.)  441,  4  Am.  Dec.  453,  298 
v.  Smith,  10  Allen  (Mass.)  448, 

87  Am.  Dec.  672,  180 

v.  Standard,  etc.,  Co.,  101  Pa. 

St.  119,  102,  267,  272 

v.  Suffolk,  etc.,  Co.,  161  Mass. 

550,  37  N.  E.  Rep.  757,  221 

v.  Union,  etc.,  Co.,  5  Mass.  230,  675 
v.  Union   League,   135  Pa.  St. 

301,  19  Atl.  Rep.  1030, 141,  301,  302 
v.  Wickersham,  66  Pa.  St.  134,  522 
v.  Woelper,  3  S.  &  R.  (Pa.)  30, 

504,  534 

v.  Worcester,  3  Pick.  462,  142 

Conant  v.  Van  Schaick,  24  Barb. 

89,  88 

Cone,  etc.,  Co.  v.  Poole,  41  S.  C. 

40,  24  L.  R.  A.  289,  280 

Congregational,  etc.,  Soc.  v.  Ev- 

eritt,  85  Md.  79,  36  Atl.  Rep. 

654,  35  L.  R.  A.  693,  157,  246 

Connecticut,  etc.,  Bank  v.  Fiske, 

60  N.  H.  363,  176,  221,  229 

Connecticut,  etc.,  R.  Co.  v.  Bailey, 

24  Vt.  465,  375,  392,  409 

Conn.  River,  etc.,  Co.  v.  Way,  62 

N.  H.  622,  275 


Connolly  v.  Davidson,  15  Minn. 
519,  Gil.  428,  425 

Connor  v.  Vicksburg  R.  Co.,  36 
Fed.  Rep.  273,  1  L.  R.  A.  331,    55 

Consolidated,  etc.,  Co.  v.  Kan- 
sas, etc.,  Co.,  45  Fed.  Rep.  7,   583 

Consolidated  Tank  Line  v.  Kansas 
City,  etc.,  Co.,  45  Fed.  Rep.  7,  183 

Constant  v.  University,  111  N.  Y. 

604,  584 

Continental,  etc.,  Co.  v.  Toledo, 
etc.,  R.  Co.,  82  Fed.  Rep.  642, 

67,  192 

Continental  Ins.  Co.  v.  Richard- 
son, 72  N.  W.  Rep.  458 
(Minn.)  43,  43 

Continental  Nat'l  Bank  v.  Eliot 
Nat'l  Bank,  7  Fed.  Rep.  369, 

466,  471 

Conway  v.  Halsev,  44  N.  J.  L. 

462,  449 

v.  John,  14  Colo.  30,  471 

Cook  v.  Chittenden,  25  Fed.  Rep. 
544,  382 

v.  Detroit,  etc.,  R.  Co.,  43  Mich. 

349,  123 

v.  Kuhn,  1  Neb.  472,  161 

v.  Munroe,  45  Neb.  349,  428 

v.  Southern,  etc.,  Co.  (Miss.), 

21  So.  Rep.  795,  45 

Cooke    v.    Town  of    Orange,   48 

Conn.  401,  658 

Cooney   v.   A.  Booth,   etc.,   Co., 

169  111.  370,  48  N.  E.  Rep.  406,  157 
Cooper  v.  Corbin,  105  111.  224, 

195,  320 

v.  Oriental  Sav.  Assn.,  100  Pa. 

St.  402,  671 

Cooper,  etc.,  Co.  v.  Ferguson,  113 

U.  S.  727,  255,  271,  272,  273 

Copeland    v.    Copeland,   7  Bush 

(Ky.)349,  320 

v.  Johnson,  etc.,  Co.,  47  Hun 

235,  548 

v.  Manufacturing  Co.,  47  Hun 

235,  550 

Coppage  v.  Hutton,  124  Ind.  401, 

7L.R.  A.  591,  369 

Coppin  v.  Greenless  &   Ransom 

Co.,  38  Ohio  St.  275,  189 

Coquard    v.    National,   etc.,  Co., 

171  111.  480,  667 

v.   Prendergast,   35    Mo.   App. 

237,  659 

Corey  v.  Wadsworth,  99  Ala.  68, 

23  L.  R.  A.  618,  183 

Corinne,  etc.,  Co.  v.  Joponce,  152 

U.S.  405,  584 


TABLE    OF    CASES. 


XXXV11 


[References  are  to  Pages. ^ 


Cormac  v.  Western,  etc.,  Co.,  77 

Iowa  33,  632 

Cornell  and  Michler's  Appeal,  114 

Pa.  St.  153,  6  Atl.  Rep.  258, 

374,  377,  411,  609 
Cornell,  etc.,  v.  Fiske,  136  U.  S. 

152,  156 

Corning  v.  McCullough,  1  N.  Y. 

47,  616 

Corrigan  v.  Coney  Island  Jockey- 
Club  (N.   Y.),  2   Misc.   Rep. 

512,  16 

Corry  v.   Londonderry,   etc.,  R. 

Co.,    29    Beav.    263,    7    Jur. 

(N.  S.)  508,  30  L.  J.  Ch.  290,    319 
Cory  v.  Lee,  93  Ala.  468,  597,  598 

Cottage  St.,  etc.,  Church  v.  Ken- 
dall, 121  Mass.  528,  368 
Cotton  v.  Miss.,  etc.,  Co.,  22  Minn. 

372,  28,  29,  40 

Cottrell  v.  Manlove,  58  Kan.  405,    635 
County  of  Bates  v.  Winter,  97  U. 

S.  83,  195 

County  of  Scotland  v.  Thomas,  94 

U.S.  682,  111,195 

Courtright  v.  Deeds,  37  Iowa  503, 

313,  376 
Covington  v.  Covington,  etc.,  Co., 

10  Bush  (Ky.)  69,  316 

Covington,  etc.,  Co.   v.  Sanford, 

164  U.  S.  592,  57,  93 

Covington  v.  Sandford,  164  N.  S. 

578,  93 

Cowell  v.  Springs  Co.,  100  U.  S. 

55,  218,  251 

Cowling  v.  Zenith    Iron  Co.,  65 

Minn.  263,  33  L.  R.  A.  508, 

186,  620 
Cox  v.  First  Nat'l  Bank,  119  N.  C. 

302,  488 

v.  Robinson,  82  Fed.  Rep.  277,    579 
Coxe  v.  State,  144  N.  Y.  396,  39 

N.  E.  Rep.  400,*  69 

Coy  v.  Indianapolis,  etc.,  Co.,  146 

Ind.  655,  36  L.  R.  A.  535,  81 

Coyote,  etc.,  Co.  v.  Ruble,  8  Ore. 

284,  423 

Cracker  v.  Railway  Co.,  36  Wis. 

657,  556 

Crafford  v.   Supervisors,   87  Va. 

110,  10  L.  R.  A.  129,  61 

Craft  v.  South  Boston  R.  Co.,  150 

Mass.  207,  5  L.  R.  A.  641,  22 

N.  E.  Rep.  920,  580 

Crafts  v.  Belden,  99  Mass.  535,        283 
Craig  v.First  Presbyterian  Church, 

88  Pa.  St.  42,  509,  522 

v.  Hesperia,  etc.,  Co.,  113  Cal.  7,  491 

Cragie  v.  Hadley,  99  N.  Y.  131,       582 


Crandall  v.  Lincoln,  52  Conn.  73, 

189,  310,  606 
Cravens  v.  Cotton  Mills,  120  Ind. 

6,  21  N.  E.  Rep.  981,    74,  369,  406 
Crawford  v.  Longstreet,  43  N.  J. 

L.  325,  139,  153,  161 

v.  Prov.,  etc.,  Co.,8U.  C.(C.  P.) 

263,  496 

Crease  v.  Babcock,  23  Pick.  334, 

90,  593 
Credit  Co.  v.  Howe,  etc.,  Co.,  54 

Conn.  357, 8  Atl.  Rep.  472,  171 ,  580 
Crescent  City  v.  Deblieux,  40  La. 

Ann.  155,  471 

Cresswell  v.  Oberly,  17  Bradw. 

(111.)  281,  37 

Crocker  v.  Crane,   21  Wend.  (N. 

Y.)  211,  375,380,  381 

Cromford,  etc.,  R.  Co.  v.  Leacey, 

3  Y.  &  J.  79,  296 

Cross  v.  Railwav  Co.,  35  W.  Va. 

172-174,  88,  91,  521 

v.  Sackett,  2  Bosw.  617  (N.  Y.),    49 
v.  West  Va.,  etc.,  R.  Co.,  37  W. 

Va.  342,  16  S.  E.  Rep.  587,  18 

L.  R.  A.  582,  143,  541 

Crouch  v.  Gridley,  6  Hill  250,  634 

Crumlish's    Adm'rs    v.    Central, 

etc.,  Co.,  38  W.  Va.  390,  23  L. 

R.  A.  120,  245,  584 

Crump  v.  United  States,  etc.,  Co., 

7  Grat.  (Va.)  352, 56  Am.  Dec. 

116,  389,  395 

Crutcher  v.  Kentucky,  141  U.  S. 

47,  110,  255,  256 

Culver  v.  Reno  R.  Co.,  91  Pa.  St. 

367,  171 

Cumberland,  etc.,  Co.  v.  Portland, 

56  Maine  77,  240 

v.  Schell,  29  Pa.  St.  31,  150 

v.  Sherman,  30  Barb.  553,  544 

Cumberland  Valley  R.  Co.  v.  Get- 
tysburg, etc.,  R.  Co.,  177  Pa. 

St.  519,  198 

Cummings  v.  Hollis  (Ga.),  33  S. 

E.  Rep.  919,  677 

v.  Webster,  43  Maine  192,  146 

Cunningham's  Appeal,  108  Pa.  St. 

546,  419 

Cunningham  v.  Vermont,  etc.,  R. 

Co.,  12  Gray  411,  318 

Curran  v.    Arkansas,   15   How. 

(U.  S.)  304,  663' 

Currie  v.  Bowman,  25  Ore.  364,       577 
v.  White,  45  N.  Y.  822,  428,  436 

Currierv.  New  York,  etc.,  R.  Co., 

35  Hun  (N.Y.)355,  550,553 

v.  Lebanon,  etc.,  Co.,  56  N.  H. 

262,  /   189 


xxxvm 


TABLE   OF   CASES. 


[.References  are  to  Pages.] 


Curtis  v.  Gokey,  68  N.  Y.  300,        214 
v.  Mining  Co.,  109  N.  C.  401,       162 
Curtiss  v.  Leavitt,  15  N.  Y.  9, 

134,  174,  180,  227,  228 
Currv  v.  Scott,  54  Pa.  St.  270,  316 

v.  Woodward,  44  Ala.  305,  427 

v.  Woodward,  53  Ala.  371,  411 . 

Cushing  v.  Perot,  175  Pa.  St.  66, 
34  L.  R.  A.  737, 

624,  639,  643,  646,  647,  650 
Cushrnan  v.  Thayer,  etc.,  Co., ,76 

N.  Y.  365,  476,  494,  495 

Custar  v.  Titusville,  etc.,  Co.,  63 

Pa.  St.  381,  390 

Cutting  v.  Dernerel,  88  N.  Y.  410,  4/1 
Cuvkendall  v.  Miles,  10  Fed.  Rep. 
342,  610 

D 

Dabney  v.  Stevens,  40  How.  Pr. 

(N.Y.)341,  578 

v.  Stevens,  10  Abb.  Pr.  N.  S.  39,  147 
Dade,  etc.,  Co.  v.  Haslett,  83  Ga. 

549,  541 

Daggs  v.  Orient,  etc.,  Co.,  136  Mo. 

382,  35  L.  R.  A.  227,  245 

Dailev  v.  National,  etc.,  Co.,  64 

Ind.  1,  25 

Dallas,    etc.,    Co.     v.     Crawford 

(Tex.)  44  S.  W.  Rep.  875,  578 

Dallas  v.  Columbia,  etc.,  Co.,  158 

Pa.  444,  579 

Danbury  &  N.  R.  Co.  v.  Wilson, 

22  Conn.  456,  75 

Dane  v.  Dane,  etc.,  Co.,  14  Gray 

(Mass.)  488,  626 

v.  Derby,  89  Am.  Dec.  736,  306 

v.  Young,  61  Maine  160,       459,  469 
Daniels  v.  Hart,  118  Mass.  542, 

121,  180 
Daniell's  Case,  1  De  J.  J.  372,  340 
Danna  v.    Bank  of  the  U.  S.,  5 

Watts  &  S.  223,  543 

v.  St.  Paul  Bank,  4  Minn.  385, 
Gil.  291,  162 

Darst  v.  Gale,  83  111.  136,         220,  221 
Dartmouth  College  v.  Woodward, 

4  Wheat.  518,  636,      2,  19,  85,  126 
Dauchy  v.  Brown,  24  Vt.  197, 

139,  475,  629 
Davenport  v.  Dows,  18  Wall.  626,  453 
Davenport  Bank  v.  Board,  etc., 

123  U.  S.  83,  106,  107 

Davenport,  etc.,  R.  Co.  v.  O'Con- 
nor, 40  Iowa  477,  378 
Davidson  v.  Gillies,  L.  R.  16  Ch. 
Div.  347,  423 
v.  Mexican,  etc.,  R.  Co.,  58  Fed. 
Rep.  653,  554 


Davidson  v.  Old  Peoples',  etc., 
Soc.,39  Minn.  303,  1  L.  R.  A. 
482,  145 

v.  Rankin,  34  Cal.  503,  625 

Davis    v.    Bank  of    England,    2 

Bing.  393,  482 

v.  Creamery  Co.,  48  Neb.  471, 

67  N.  W.  Rep.  436,  11 

v.  Grav,  16  Wall.  203,  658 

v.   Jackson,   152  Mass.  58,  23 

Am.  St.  Rep.  801,  440,  442 

v.   Memphis,   etc.,   R.   Co.,   22 

Fed.  Rep.  883,  578 

v.   Memphis,   etc.,   R.   Co.,  87 

Ala.  633,  133 

v.  Mining  Co.,  2  Utah  74,  426 

v.  Old  Colony  R.  Co.,  131  Mass. 
258,  41  Am.  Rep.  221, 

159,  171,  174,  176,  204,  205,  215 
v.  Peabody,  170  Mass.  397,  453 

v.  Ravenna,  etc.,  Co.,  48  Neb. 

471,  67  N.  W.  Rep.  436,  50 

v.  Railroad  Co.,  22  Fed.  Rep. 

883,  550 

v.  Second  Universalist,  etc.,  8 

Met.  (Mass.)  321,  463 

v.  United   States,  etc.,  Co.,  77 
Md.  35,  507 

Davis  Bros.  v.  Montgomery,  etc., 
Co.,  101  Ala.  127,  8  So.  Rep. 
496,  351,  358 

Davis,  etc,  Co.  v.  Davis,  etc.,  Co., 
20  Fed.  Rep.  699,  583 

v.  Fowler  Bros.,  47  N.  Y.  Supp. 

205,  120 

v.  Hillisboro,  etc.,  Co.,  10  Ind. 
App.  42,  54 

Davis  &  Co.  v.  Dumont,  37  Iowa 

47,  395 

Dawkins  v.  Antrobus,  L.  R.  17 
Ch.  Div.  615,  44  Law  T.  Rep. 
(N.  S.)  557,  150,  297,  300,  305 

Dayton  v.  Borst,  31  N.  Y.  435, 

369,  610 
Day  v.  Essex  Bank,  13  Vt.  97,        281 
v.  Ogdensburg,  etc.,  Co.,  107  N. 

Y.  129,  250 

v.   Spiral   Spring,  etc.,  Co.,  57 
Mich.  146,  58  Am.  Rep.  352, 

205,  207,  208,  209,  213 
v.  Worcester,  etc.,  R.  Co.,  151 
Mass.  302,  30,  197 

Dean  v.  Davis,  51  Cal.  406,  27 

Dearborn    v.    Washington,   etc., 

Bank,  38  Wash.  8,  471,489 

Dearborn,  etc.,  Co.  v.  Augustine, 

5  Wash.  67,  276,279 

De  Bost  v.  Albert  Palmer  Co.,  35 
Hun  (N.  Y.)  386,  147 


TABLE    OF    CASES. 


XXXIX 


[References  are  to  Pages."] 


De  Camp  v.  Alward,  52  Ind.  473, 

181,  543 
v.  Dobbins,  29  N.  J.  Eq.  36,         155 
Decatur,   etc.,   Co.  v.   Palm,   113 

Ala.  531,  39  Am.  St.  Rep.  140, 

447, 456 
Decree  v.  Hankinson  (C.  C.  A.), 

92  Fed.  Rep.  49,  84  Fed.  Rep. 

876,  675 

Dedham  Inst.  v.  Slack,  6  Cush. 

408,  581 

De  Gendre  v.  Kent,  L.  R.  4  Eq. 

283,  435 

De  Lacy  v.  Neuse  River,  etc.,  Co., 

1  Hawks  274,  9  Am.  Dec.  636,  303 
Deland  v. Williams,  101  Mass.  571,  440 
Delaney  v.  Rochereau  &  Co.,  34 

La.  Ann.  1123,  44  Am.  Rep. 

456,  571 

Delano  v.  Butler,  118  U.  S.  634,      410 
Delaware,  etc.,  Co.  v.  Pennsylva- 
nia, etc.,  Co.,  21  Pa.  St.  131,    582 
Delaware  R.  Tax  Case,  18  Wall. 

206,  101,  103,  111,  112 

Demarest  v.  Flack,  128  N.  Y.  205; 

28  N.  E.  Rep.  645,  13  L.  R.  A. 

854, 

39,  67,  71,  93,  255,  259,  267,  605 
DeNeufville  v.  New  York,   etc., 

R.  Co.,  81   Fed.  Rep.  10,  51 

U.  S.  App.  374,  454 

Denike  v.  Cement  Co.,  80  N.  Y. 

599,  673 

Denny  v.  Bennett,  128  U.  S.  489,    249 
Denny  Hotel   Co.   v.   Scbram,  6 

Wash.  134,  36  Am.  St.  Rep. 

140,  32  Pac.  Rep.  1002, 

184,  187,  365,  373,  382 
Densmore,  etc.,  Co.  v.  Densmore, 

64  Pa.  St.  43,  46 

v.  Shepard,  46  Minn.  54,  48  N. 

W.  Rep.  528,  619,  620 

Dent  v.  Holbrook,  54  Cal.  145,        494 
v.  Tramwavs  Co.,  16  Ch.  Div. 

344,  2   Cum.  Cas.  Pri.  Corp. 

225,  318 

Denton  v.  Jackson,  2  John.  Ch. 

320,  8 

Denver,  etc.,  Railroad  Co.  v.  Har- 
ris, 122  U.  S.  597, 

235,  237,  240,  556 
Denver,  etc.,  Co.  v.  McClelland, 

9  Colo.  11,  222 

DePass's  Case,  4  De  G.  &  J.  544,    475 
Deringer  v.  Deringer,  5  Housten 

(Del.)   416,    1   Am.  St.  Rep. 

150,  135 

Dern  v.  Salt  Lake   City  R.  Co. 

(Utah),  56  Pac.  Rep.  556,  666 


Derrickson  v.  Smith,  27  N.  J.  L. 
166,  626 

v.  Smith,  3  Dutcher  (27  N.  J.  L.) 
166,  246 

Derry  v.  Peek,  14  App.  Cas.  337,  49 
Desperv.  Continental  Water,  etc., 

Co.,  137  Mass.  252,  282 

Des  Moines  Bank  v.  Colfax  Hotel 

Co.,  88  Iowa  4,  367 

Des  Moines,  etc.,  R.  Co.  v.  Graff, 
27  Iowa  99,  378 

v.  Tilford,  etc.,  Co.  (Iowa),  70 
N.  W.  Rep.  839,  575 

Des  Moines  Nat'l  Bank  v.  Bank, 

97  Iowa  204,  490 

Detroit  v.  Dean,  106  U.  S.  537, 

448,  449,  451 
v.  Detroit,  etc.,  Co.,  43  Mich. 

140,  84,  93 

v.  Detroit,  etc.,  R.  Co.,  37  Mich. 
558,  117 

Detroit  Driving  Club  v.  Fitzgerald, 

109  Mich.  670,  67  N.  W.  Rep. 
899,  33 

Detroit,  etc.,  Co.  v.  McArthur,  16 

Mich.  447,  237 

Detroit,  etc.,  R.  Co.  v.  City  of  De- 
troit, 64  Fed.  Rep.  628,  26  L. 

R.  A.  667,  117,  133 

Detroit  St.  R.  Co.  v.  Detroit,  110 

Mich.  384,  156 

Dettra  v.  Kestner,  147  Pa.  St.  566,  397 
Dewev  v.  Toledo,  etc.,  R.  Co.,  91 

Mich.  351,  207,  221,  222 

De  Witt  v.  Hastings,  69  N.Y.  518,  74 
Dexter  v.  Edmands,  89  Fed.  Rep. 

467,  640,  643 

Diamond   Match  Co.  v.  Roeber, 

106  N. Y.  473,  169,  281 

Diamond,  etc.,  Co.  v.  Powers,  51 

Mich.  145,  265 

Dickenson  v.  Chamber  of  Com., 

29  Wis.  45,  150 

Dickinson  v.  Central  Nat'l  Bank, 

129  Mass.  279,  466,  471 

Diligent,  etc.,  Co.  v.  Comm.,   75 

Pa.  St.  291,  142,  303 

Dill  v.  Wabash,  etc.,  R.  Co.,  21 

111.  90,  403 

Dimpfell  v.  Ohio,  etc.,  R.   Co., 

110  U.  S.  209,  223,  448,  453 
Directors  v.  Kisch,  L.  R.  2  H.  L. 

99,  388,  393 

Discount  Co.  v.  Brown,  L.  R.  8 

Eq.  381,  559 

Dispatch  Line  v.   Bellamy   Mfg. 

CO.,  12  N.  H.  205,  161,  540,  542 
Distilling,  etc.,  Co.  v.  People,  156 

111.  448,  167 


xl 


TABLE    OF    CASES. 


[Beferences  are  to  Pages.'] 


Diven  v.  Lee,  36  N.  Y.  302,  631 

Diversev  v.  Smith,  103  111.  378,        625 
Dobson  v.  Simonton,  86  N.  C.  493, 

67,  70,  675 
Dock  v.  Cordage  Co.,  167  Pa.  St. 

370,  191 

Dodge  v.  Woolsey,  18  How.  (U. 

S.)  331,  448,  453,  525,  543 

Doe  v.  Norton,  11  M.  &  W.  913,        40 
v.   Taniere,    12    Q.    B.  (Ad.  & 
EL  N.  S.)  998,  7  Eng.  Rul.  Cas. 
366,  160 

v.  Transportation  Co.,  78  Fed. 
Rep.  62,  586 

Donnally  v.  Hearndon,  41  W.Va. 

519,  429,  433 

Donohoe  v.   Mariposa,  etc.,  Co., 

66  Cal.  317,  542 

Donovan  v.  Halsey,  etc.,  Co.,  58 

Mich.  38,  147 

Doolittle  v.  Marsh,  11  Neb.  243,      634 
Doris  v.  Sweeny,  60  N.  Y.  463,  75 

Dorsev  Match  Co.  v.  McCaffrey, 

139  Ind.  545,  236,  400 

Doty  v.  First  Nat'l  Bank,  3  N.  D. 
9,  53  N.  W.  Rep.  77,  17  L.  R. 
A.  259,  465,  471,  494 

Doud  v.  Wisconsin,  etc.,  R.  Co., 

65  Wis.  108,  447 

Dougan's  Case,  28  L.  Times  N.  S. 

60,  30 

Douglass  v.  Ireland,  73  N.  Y.  100, 

335,  349,  352 
v.  Kraft,  9  Cal.  562,  494 

v.  Merchants',  etc.,  Co.,  118  N. 
Y.  484,  7  L.  R.  A.  822, 

143,  146,  147,  588 
Dousman  v.  Wisconsin,  etc.,  Co., 

40  Wis.  418,  419 

Dow  v.  Gould,  etc.,  Co.,  31  Cal. 

629,  429 

v.  North,  etc.,  R.  Co.,  67  N.  H. 
1,  617 

Dowing  v.  Mt.  Wash.  R.  Co.,  40 
N.  H.230, 

131,  134,  159,  163,  205,  214 
Downie  v.  White,  12  Wis.  176,        372 
Downing  v.  Board.  129  Ind.  443, 
28  N.  E.  Rep.  123,  85 

v.    Marshal],  23  N.  Y.   366,  80 

An..  D.  290,  154,  155,  156 

v.    Potts,   23  N.  J.  L.  66,       292,  504 

v.  St.  Columba'e,  etc.,  Soc,  10 

Dalv  (N.  Y.)  262,  303 

Dows  v.  Napier,  91  111.  44,  77 

Dovle   v.  Continental,   etc.,  Co., 

94  U.  S.  727,  271 

v.  I  Qaurance  Co.,  94  U.  S.  535,    270 

v.  M issuer,  42  Mich.  332,  34 


Drake  v.   Hudson,   etc.,  R.  Co., 

7  Barb.  508,  140 

Draper   v.    Harvard    College,   57 

How.  Pr.  (N.  Y.)  269,  155 

Driscoll  v.  Manufacturing  Co.,  59 

N.  Y.  96,  146,  473,  489 

Drury  v.  Milwaukee,  etc.,  R.  Co., 

7  Wall.  299,  184 

Dubs  v.  Egli,  167  111.  514,  47  N. 

E.  Rep.  766,  18,  64 

Ducat  v.  Chicago,  10  Wall.  410,  271 
v.  Chicago,  48  111.  172,  104 

Ducbemin  v.  Kendall,  149  Mass. 

171,  3  L.  R.  A.  784.  486 

Duckworth  v.  Roach,  81  N.  Y.  49,  570 
Dudley  v.  Collier,  87  Ala.  431,  13 

Am.  St.  Rep.  55,  277 

v.    Kentucky  High   School,   9 

Bush  (Ky.)  576,  455,  524 

Duffield  v.  Barnum,  etc.,  Co.,  64 

Mich.  293,  397 

v.  Wire  Works,  64  Mich.  293,  401 
Duggan  v.  Colorado,  etc.,  Co.,  11 

Colo.  113,  '      67,  71 

Duke  v.  Markham,  105  N.  C.  131,  499 
v.  Taylor,  37  Fla.  64,  31  L.  R. 

A.  484,  67,  500 
Dukes  v.  Love,  97  Ind.  341,  335 
Duluth,  etc.,  Co.  v.  Witt,  63  Minn. 

538,  '  373 

Dummer  v.  Smedley,  110   Mich. 

446,  38  L.  R.  A.  490,  343,  348 

Dunn  v.  State  Bank,  59  Minn.  221, 

390,  397,  403 
v.  University  of  Oregon,  9  Ore. 

357,  ,  27 

Dunphy  v.  Travelers',  etc.,  Assn., 

146  Mass.  495,  447 . 

Dunston  v.  Imperial,  etc.,  Co.,  3 

B.  &  Ad.  125,  141 
Dupee  v.  Boston,   etc.,   Co.,  114 

Mass.  37,  178,  189,  191,  464,  622 
DuPont  v.  Tilden,  42  Fed.  Rep.  87,  352 
Durfee  v.  Old  Colony,  etc.,  R.  Co., 

5  Allen  (Mass.)  230, 

94,  95,  455,  456,  524,  529 
Durham  v.  Mon.,  etc.,  Co.,  9  Ore. 

41,  496 

Durkee  v.  People,  155  111.  355,  46 

Am.  St.  Rep.  340,  508 

D.  S.  Morgan  &  Co.  v.  White,  101 

Ind.  413,  272 

Dutch,  etc.,  Co.  v.  Moses,  1  Str. 

612,  280 

Dwelling-house,  etc.,  Co.  v.  Wild- 
er, 40  Kan.  561,  271 
Dwenger  v.  Geary,  113  Ind.  106,     145 
Dwinelle,  etc.,  R.  Co.  v.  Railway 

Co.,  120  N.  Y.  117,  556 


TABLE    OF    CASES. 


xli 


[Beferences  are  to  Pages.] 


Dyer  v.  Osborne,  11  R.  I.  321,         320 

v.  Power,  39  N.  Y.  St.  Rep.  136,  657 

Dynes  v.  Shaffer,  19  Ind.  165,         398 


E 


Eagle,  etc.,  Co.  v.  Ohio,  153  U.  S. 

446,  99 

Eakright  v.  Logansport,  etc.,  R. 

Co.,  13  Ind.  404,  33 

Earl  v.  Rowe,  35  Maine  414,  425 

Earp's  Appeal,  28  Pa.  St.  368,  442, 443 
East  Anglian  R.  Co.  v.  Eastern, 

etc.,  R.  Co.,  11  C.  B.  775,  7 

Eng.  Law  and  Eq.  Rep.  505, 

154,  204,  227 
East   Birmingham   Land   Co.   v. 

Dennis,  85  Ala.  565,   313,  479,  482 
East  Tennessee  R.  Co.  v.  Insur- 
ance Co.,  49  Fed.  Rep.  608,        59 
Eastern,  etc.,  Co.  v.  Vaughan,  14 

N.  Y.  546,  36 

Eastern,  etc.,  R.  Co.  v.  Broom,  6 

Ex.  (Wels.  H.  &  G.)  314, 

225,  235,  240,  557 
v.  Hawkes,  4  H.  L.  C.  331,  218 

Eastern  R.  Co.  v.  Railway  Co.;  111 

Mass.  125,  542 

Easterly  v.  Barber,  65  N.  Y.  252,     625 
Eaton,  etc.,   R.  Co.  v.  Avery,  83 

N.  Y.  31,  38  Am.  Rep.  389,        328 
v.  Robinson,  19  R.  I.  146,  29  L. 

R.  A.  100,  587 

v.  United  States,  etc.,  Co.,  76 

Mich>579,  6  L.  R.  A.  102,  599 

v.  Walker,  76  Mich.  579,  43  N. 

W.  Rep.  638,  6  L.  R.  A.  102, 

66,  67,  68,  69,  76 
Easun  v.   Buckeye  Co.,  51  Fed. 

Rep.  156,  184 

Eby  v.  Guest,  94  Pa.  St.  160,  471 

Eckman  v.  Chicago,  etc.,  R.  Co., 

169  111.  312,  220 

Eckstein  v.   Downing,   64  N.  H. 

248,  9  Atl.  Rep.  626,  519 

Edelhoff  v.    State,  5  Wy.   19,  36 

Pac.  Rep.  627,  43 

Edison,  etc.,  Co.  v. Canadian,  etc., 

Co.,  8  Wash.  370,  276 

Edgerly  v.  Emerson,  23  N.  H.  555, 

539,  540 
Edgerton    Tobacco,   etc.,   Co.   v. 

Croft,  69  Wis.  256,  34  N.  W. 

Rep.  143,  297 

Edge  worth  v.  Wood,  58  N.  J.  L. 

463,  3,  27 

Edwards  v.  Carson,  etc.,  Co.,  21 

Nev.  469,  577 


Edwards  v.  Warren,  etc.,  Works, 

168  Mass.  564,  38  L.  R.  A.  791, 

20,  224 
Ehrman  v.  Insurance  Co.,  1  Fed. 

Rep.  471,  280 

v.  Teutonia  etc.,  Co.,  1  MCrary 

123,  276 

v.  Union,  etc.,  Co.,  35  Ohio  St. 

324,  157 

Eidman  v.  Bowman,  58  111.  444, 

11  Am.  Rep.  90,  310,  419,  542 

Eingartner  v.  Illinois,  etc.,  Assn., 

94  Wis.  70,  34  L.  R.  A.  503,       261 
Einstein  v.  Rochester,  etc.,  Co., 

146  N.  Y.  46,  310 

Elder  v.  Bank,  etc.,  12  Kan.  238,     199 
Eldridge  v.  Smith,  34  Vt.  484,  123 

Electric  R.  Co.  v.  Common  Coun- 
cil, 84  Mich.  257,  117 
Elevator   Co.   v.   Memphis,   etc., 

Co.,  85  Tenn.  703,  4  Am.  St. 

Rep.  798,  204,  215 

Elizabeth   City   Cotton    Mills  v. 

Dunstan,  121  N.  C.  12,  61  Am. 

St.  Rep.  654,  149 

Elizabethtown,  etc.,  Co..v.  Green, 

46  N.  J.  Eq.  118,  18  Atl.  Rep. 

844,  71,125,  674 

Elkhart  Nat'l  Bank  v.  Northwes- 
tern, etc.,  Co.,  87  Fed.  Rep. 

252,  643,  653 

Elkins  v.  Camden,  etc.,  R.  Co., 

36  N.  J.  Eq.  241,  164,  214,  319 

Ellerman  v.  Chicago,  etc.,  R.  Co., 

49  N.  J,  Eq.  217,  23  Atl.  Rep. 

287,  135 

Ellis  v.  Marshall,  2  Mass.  279,  93,  94 
v.  Essex  Bridge,  19  Mass.  243,  429 
v.  North  Carolina  Inst.,  68  N. 

C.  423,  582 

v.  Ward,  137  111.  509,  25  N.  E. 

Rep.  530,  560,  574,  575 

Ellison  v.  Brandstrator  (Ind.),  54 

N.  E.  Rep.  433,  538,  579,  580 

v.  M.  &  O.  R.  Co.,  36  Miss.  572,  394 
Ellsworth  v.  St.  Louis,  etc.,  Co., 

98  N.  Y.  553,  217 

Ellsworth,  etc.,  Co.  v.  Faunce,  79 

Maine  440,  522,  523 

Elston  v.  Piggott,  94  Ind.  14,    259,  276 
Elyton,  etc.,  Co.  v.  Birmingham, 

etc.,  Co.,  92  Ala.  407,  12  L. 

R.  A.  307,  353 

Embury  v.  Conner,  3  N.  Y.  511,      270 
Emerson,  etc.,  Co.  v.  McCormick, 

etc.,  Co.,  51  Mich.  5,  282 

v.  Skidmore,  (Tex.  1894),  25  S. 

W.  Rep.  671,  238 


xlii 


TABLE    OF    CASES. 


[References  are  to  Pages."] 


Emery  v.  Burbank,  163  Mass.  326, 

28  L.  R.  A.  57,  261 

v.  Candle  Co.,  47  Ohio  St.  320,     166 
v.  Parrott,  107  Mass.  95,  45 

Emma,  etc.,  Co.  v.  Grant,  11  Ch. 

Div.  918,  45 

v.  Lewis,  4  C.  P.  Div.  396,  11 

Ch.  Div.  918,  44 

Empire,  etc.,  Co.  v.  Alston,  etc., 

Co.,   4  Tex.   App.  Civ.   Cas. 

346,  12  L.  R.  A.  366,  15  S.  W. 

Rep.  505,  261,  595 

v.  Ex  Parte  Bagshaw,  L.  R.  4 

Eq.  341,  30 

Empire  Mills  v.  Alston,  etc.,  Co. 

(Tex.),  15  S.  W.  Rep.  200, 

71,  599,  604 
Employers',   etc.,   Corp.   v.   Em- 
ployers', etc.,  Co.  16  N.   Y. 

Supp.  397,  290 

Engine  Co.  v.  Green,  143  Pa.  St. 

269,  13  Atl.  Rep.  747,  384 

England  v.  Dearborn,  141  Mass. 

590,  10,  180,  523,  577 

Engelhardt  v.  Fifth  Ward,  etc., 

Assn.,  148  N.  Y.  281,  35  L.  R. 

A.  289,  140 

E.  Norway,  etc.,  Church  v.  Frois- 

lie,  37  Minn.  447,  64,  65 

Erd  v.  Bavarian,  etc.,  Assn.,  67 

Mich.  233,  303 

Erickson  v.  Nesmith,  4  Allen  233, 

645,  652 
Erie  City  Iron  Works  v.  Barber  & 

Co.,  106  Pa.  St.  125,  236 

Erie,  etc.,  R.  Co.  v.  Casey,  26  Pa. 

St.  287.  84,  90 

Erlanger  v.  Phosphate  Co.,  L.  R. 

3  App.  Cas.  1218,  45 

Ernest  v.  Loma,  etc.,  Co.,  75  Law 

T.  Rep.  N.  S.  317,  509 

Ernest  v.  Nicholls,  6  H.  L.  Cas. 

401,  553 

Ernst  v.  New  Orleans,  etc.,  Co., 

39  La.  Ann.  550,  2  So.  Rep. 

415,  81 

Estate  of  Smith,  140  Pa.  St.  344,  23 

Am.  St.  Rep.  237,  444 

Estes  v.  German  Nat'l  Bank,  62 

Ark.  7,  576,  577 

Eureka,   etc.,  Works  v.  Bresna- 

ban,  60  Mich.  332,  180 

Ewing  v.  Composite,  etc.,  Co.,  169 

Mass.  72,  30 

Excelsior,  etc.,  Co.  v,  Brown,  74 
Fed.  Rep  321, 42 U.S. App.  55,  450 
v.  Lacey,  63  N.  Y.  -422,  432, 
v.  Pierce,  90  Cal.  131,  27   Pac. 
Rep.  44,  424.427 


Ex  parte  Bagge,  13  Beav.  162,         632 
Brown,  19  Beav.  97,  566 

Hale,  55  L.  T.N.  S.  670,  398 

Holmes,  5  Cowen  (N.  Y.)  426, 

189,  507 
Murray,  7  Cowen  (N.  Y.)  153,  534 
Nicol,  5  Jur.  N.  S.  205,  388 

Penney,  L.  R.  8  Ch.  App.  Cas. 

446,  460,  464 

Peru,  etc.,  Co.,  7  Cow.  540,  214 

Pritz,  9  Iowa  30,  28 

Sargent,  L.  R.  17  Eq.  273,  496 

Schollenberger,  96  U.  S.  369,        287 
Spring  Valley,  etc.,  Works,  17 

Cal.  132,  33 

Wilcox,  7  Cowen  (N.  Y.)  402, 

505,  522 
Winsor,  3  Story  C.  C.  411,  434 

Express  Co.  v.   Railroad  Co.,  99 

U.  S.  191,  217 

Evans  v.  Bailey,  66  Cal.  112,    186,  187 
v.  Heating  Co.,  157  Mass.  37, 

31  N.  E.  Rep.  698,  180,  503 

v.  Interstate,  etc.,  R.  Co.,  106 

Mo.  594,  676 

v.  Lewis,  30  Ohio  St.  11,  634 

v.  Osgood,  18  Maine  213,  499 

v.  Philadelphia  Club,  50  Pa.  St. 

107,  150,  297,  300,  301,  306 

Evansville,   etc.,   Co.   v.   Bank 

(Ind.),  42  N.  E.  Rep.  1097,        555 
Evansville,  etc.,  R.  Co.  v.  Evans- 
ville, 15  Ind.  395,  317 
Evenson  v.  Ellingson,  67  Wis.  634,    69 
Everhart  v.  Westchester,  etc.,  R. 

Co.,  28  Pa.  St.  339,      316,  475,  531 
Eyster  v.  Centennial  Board,  94 
U.  S.  500,  425 


F 


Factors',  etc.,  Co. v.  Marine,  etc., 

Co.,  31  La.  Ann.  149,  476 

Fairfield,  etc.,  Bank  v.  Chase,  72 

Maine  226,  584 

Fall  River  v.  Cornes,   125  Mass. 

567,  101 

Falls  v.  United  States,  etc.,  Assn., 

97  Ala.  417,  24  L.  R.  A.  174, 

73,  251,  261,  263 
Fanning  v.  Insurance,  etc,  Co., 

37  Ohio  St.  339,  362,  367 

Farg.»  v.  Michigan,  121  U.  S.  230,  109 
Farmer  v.  National,  etc.,  Assn., 

50  Fed.  Rep.  829,  289 

Farmers'  and  Mechanics'  Bank  v. 

Colby,  64  Cal.  352,  559 


TABLE    OF    CASES. 


xliii 


[Beferences  are  to  Pages. ] 


Farmers',  etc.,  Bank  v.  Baldwin, 
23  Minn.  198,  100,  132 

v.  Payne,  25  Conn.  444,  584 

v.   Wasson,   48   Iowa  336,    30 
Am.  Rep.  398,      458,  459,  465,  489 
Farmers',   etc.,   Co.    v.   Chicago, 
etc.,  R.  Co.,  68  Fed.  Rep.  412,  276 
v.  Curtis,  7  N.  Y.  466,  157 

v.  Floyd,  47  Ohio  St.  525,  567 

v.  Lake,  etc.,  R.  Co.  (111.),  51 

N.  E.  Rep.  55,  271 

v.  Toledo,  etc.,  R.  Co.,  67  Fed. 
Rep.  49,  73 

Farmers'  Loan  and  Trust  Co.  v. 
New  York,  etc.,  R.  Co.,  150 
N.  Y.  410,  34  L.  R.  A.  76,         184 
Farmers'   Nat'l  Bank   v.  Backus 
(Minn.),  77  N.  W.  Rep.  142,     671 
v.    Suton,   etc.,   Co.,   52  Fed. 
Rep.  191,  171 

Farmington   Sav.  Bank  v.  Falls, 

71  Maine  49,  228 

Farnsworth  v.  Robbins,  36  Minn. 

369,  189 

v.  Wood,  91  N.  Y.  308,  640 

Farnum  v.  Ballard,  etc.,  Shop,  12 
Cush.  (Mass.)  507,  637 

v.  Blackstone,   etc.,   Corps.,   1 
Sum.  C.  C.  46,  30 

Farrar  v.  Walker,  3  Dill  (C.  C.) 

506,  389 

v.  Perley,  7  Maine  404,  504 

Farrell  Foundry  Co.  v.  Dart,  26 

Conn.  376,  584 

Farrington  v.  Railroad  Co.,  150 
Mass.  406,  15  Am.  St.  Rep. 
222,  330,  333 

v.  Putnam,  90  Maine  405,  155 

v.  Tennessee,  95  U.  S.  679, 

101,  102,  110 

v.  Tennessee,  95  U.  S.  686,  309 

Farrior  v.  NewEng.,  etc.,  Co.,  88 

Ala.  275,  272,  277 

Farwell  v.  Boston,  etc.,  Corp.,  4 
Mete.  (Mass.)  49,  38  Am. 
Dec.  339,  '  572 

Faulds  v.  Yates,  57  111.  416,  515 

Faulker  v.  Railway  Co.,  48  Kan. 

577,  456 

Faulkner  v.  Hyman,  142  Mass.  53, 

261,  264 
Fawcett  v.  Sup.  Sitting  of  I.  H. 

(Conn.),  24  L.  R.  A.  815,  610 

Fay  v.  Noble,  7  Cush.  (Mass.)  188, 

73,  596 
v.  Noble,  12  Cush.  (Mass.)  1, 

146,  147 


Fear  v.  Bartlett,  81  Md.  435, 33  L. 

R.  A.  721,  323,  396,  398,  402 

Feckheimerv.  National  Exchange 

Bank,  79  Va.  80,    459,  460,  462,  465 
Fee  v.  Fee,  10  Ohio  469,  36  Am. 

Dec.  103,  430 

Feeter  v.  Heath,  11  Wend.  (N.  Y.) 

478,  567 

Felch  v.  Bugbee,  48  Maine  9,  77 

Am.  Dec.  203,  249 

Fenton    v.   Livingston,   3   Macq. 

H.  L.  497,  261 

Ferguson  v.  Ann  Arbor,  etc.,  R. 

Co.,45N.  Y.  Supp.  172,  194 

v.  Gill,  19  N.  Y.  Supp.  149,  569 

v.  Sherman,  116  Cal.  169,  37  L. 

R.  A.  622,  246,  630,  643,  646 

Fertilizer  Co.  v.  Hyde  Park,  97 

U.  S.  659,  131 

Field   v.  Field,  9  Wend.  (N.  Y.) 

394,  522 

v.  Lamson,  etc.,  Co.,  162  Mass. 

388,  27  L.  R.  A.  136,  317,  318 

Fietsamv.  Hay,  122111.  293,3  Am. 

St.  Rep.  492,  17,  119,  120 

Fifth  Avenue,  etc.,  Bank  v.  Forty- 
second  St.,  etc.,  Co.,  137  N.  Y. 

231,  330,  332,  333,  480,  556 

Fifth  Nat'l  Bank  v.  Navassa,  etc., 

Co.,  119  N.  Y.  256,  577 

Fifth  Ward   Sav.  Bank  v.    First 

Nat'l  Bank,  48  N.  J.  Law  513, 

174,  580 
Field  v.  Pierce,  102  Mass.  253,  309 
Filli  v.  Railway  Co.,  37  Fed.  Rep. 

65,  60 

Filon'v.  Brewing  Co.,  38  N.  Y.  St. 

602,  539 

Finnegan  v.  Noerenberg,  52  Minn. 

239,  66,  68,  598,  599 

Finney's  App.,  59  Pa.  St.  398,  471 

Fire  Ins.  Patrol  v.  Boyd,  120  Pa. 

St.  624,  6  Am.  St.  R.  745,     19,  235 
Firemen's,  etc.,  Co.  v.  Thompson, 

155  111.  204,  284,  288 

First  M.E.  Church  v.  Dixon  (111.), 

52  N.  E.  Rep.  891,  131,  152 

First  Nat'l    Bank  v.    Almy,   117 

Mass.  476,  494,  596 

v.  Council  Bluffs,  etc.,  Co.,  9  N. 

Y.  Supp.  859,  581 

v.  Davies,  43  Iowa  424,  34 

v.  Dickson  (Colo  App.),  36  Pac. 

Rep.  618,  471 

v.  De  Morse   (Tex.),  26  S.  W. 

Rep.  417,  434 

v.  Exchange  Nat'l  Bank,  92  U. 

S.  122,  187 


xliv 


TABLE    OF    CASES. 


[Beferences  are  to  Pages.] 


First  Nat'l  Bank  v.  F.  C.  Frebein 
Co.,  50  Ohio  St.  316,  71 

v.  Gifford,  47  Iowa  575,  313 

v.  Greene,  64  Iowa  445,  412 

v.  Gustin,  etc.,  Co.,  42  Minn. 
327,  6  L.  R.  A.  676, 

324,  336,  338,  343,  344,  593 
v.  Hastings,  7  Colo.  App.  129,  472 
v.  Hingham  Mfg.  Co.,  127  Mass. 

563,  631,  639 

v.  Hoch,  89  Pa.  St.  324,  578 

v.  Harford,  29  Iowa  579,  392 

v.  Kiefer,  etc.,  Co.,  95  Ky.  97, 

23  S.  W.  Rep.  675,  176,  215,  223 
v.  Lanier,  11  Wall.  369,  332,  471 
v.  Nat'l  Broadway  Bank,  156  N. 

Y.  459,  42  L.  R.  A.  139,  485 

v.  Nat'l  Exchange  Bank,  92  U. 

S.  122,  186 

v.  Salem,  etc.,  Co.,  39  Fed  Rep. 

89,  191 

v.  Winona,  etc.,  Co.,  58  Minn. 
167,  59  N.  W.  Rep.  997,      619,  629 
First  Parish  v.  Stearns,  21  Pick. 

(Mass-.)  148,     "  523 

Fisher  v.  Brown,  104  Mass.  259,     486 
v.  Bush,  35  Hun  (N.  Y.)  641, 

462,  513 
v.  Essex  Bank,  5  Gray  373, 

309,  320,  468,  471 
v.  Keane,  L.  R.  11  Ch.  Div.  353, 

301,  303 
v.  Lord,  63  N.  H.  514,  264 

v.  W.  V.  &  P.  R.  Co.,  39  W.  Va. 
366,  23  L.  R.  A.  758,  121 

Fisher,  etc.,  Co.  v.  Jones,  82  Ala. 

117,  471 

Fisk  v.  Chicago,  etc.,  Co.,  53  Barb. 

(N.  Y.)  513,  337 

v.  Railroad,  10  Blatchf.  518,         663 
Fister  v.  La  Rue,  15  Barb.  (N.  Y.) 

223,  231 

Fitch  v.  Steam  Mill  Co.,  80  Maine 

34,  161,  180 

Fitchburgh,  etc.,  Bank  v.  Torrey, 

134  Mass.  239,  468 

Fitzgerald  v.  Fitzgerald,  etc.,  Co., 

44  Neb.  463,  553 

v.  Fitzgerald,  etc.,  Co.,  41  Neb. 

374,  59  N.  W.  Rep.  838,  235 

v.  Mo.,  etc.,   R.    Co.,  45  Fed. 

Rep.  812,  30 

v.  Weidenbeck,   76   Fed.  Rep. 
695,  627 

Fitzgerald^  etc.,  Co.  v.  Fitzgerald, 

137  U.  S.  98,         284,  285,  577,  584 
Fitzhugh  v.   Land   Co.,   81  Tex. 
306,  176 


Fitzpatrickv.  Rutter,  160  111.  282, 

43  N.  E.  Rep.  392,  73 

Flagg  v.  Manhattan,  etc.,  R.  Co., 

10  Fed.  Rep.  413,  554 

Flanagan  v.   Great  Western    R. 

Co.,  L.  R.  7  Eq.  116,  135 

Flash  v.  Conn,  109  U.  S.  371, 

247,  592,  625,  626,  637, 

642,  643,  646 
Fleener  v.  State,  58  Ark.  98,  23  S. 

W.  Rep.  1,  43 

Fleitas  v.  New  Orleans  (La.),  24 

So.  Rep.  623,  676 

Flenniken  v.  Marshall,  43  S.  C. 

80,  28  L.  R.  A.  402,  634 

Fletcher  v.  Insurance  Co.,  13  Fed. 

Rep.  526,  280 

v.  Peck,  6  Cranch  (U.  S.)  87,         92 
v.  U.  S.  Bank,  8  Wheat.  358,        161 
Flitcroft's  Case,  L.  R.  21  Ch.  Div. 

519,  559 

Flinn  v.  Bagley,  7  Fed.  Rep.  785,   339 
Flint  v.  Pierce,  99  Mass.  68,  96 

Am.  Dec.  691,      140,  145,  147,  592 
Flint  &  Fentonville  Plank  Road 
Co.  v.Woodhull,  25  Mich.  99, 

90,  91,  664 
Florida  Land,  etc.,  Co.  v.  Merrill, 
2  U.  S.  App.  434,  52  Fed.  Rep. 
77,  401 

Florsheim,  etc.,  Co.  v.  Lester,  60 

Ark.  120,  27  L.  R.  A.  505,         273 
Flynn  v.  Brooklyn,  etc.,  R.  Co., 

9  N.  Y.  App.  Div.  269,  354 

v.  Brooklyn,  etc.,  R.  Co.,  158  N. 
Y.493,  447 

Fogg  v.  Blair,  133  U.  S.  534,     321,  324 
v.  Blair,  139  U.  S.  118,  321,  322,  344 
v.  Boston,  etc.,  R.  Co.,  148,513, 
12  Am.  St.  Rep.  583,  236 

Folger  v.   Columbian,   etc.,    Co., 

99  Mass.  267,  672,  673 

Foils'  Appeal,  91  Pa.  St.  434,  495 

Forbes  v.  Memphis,  etc.,  R.  Co., 

2  Woods  C.  C.  323,  414 

Ford  v.  Bank,  87  Wis.  363,  182 

v.  Buckeye  Co.,   6  Bush  (Ky.) 

133,  278 

v.  Chicago,  etc.,  Assn.,  155  111. 

166,  169 

v.  Easthampton,  etc.,  Co.,  158 
Mass.  84,  35  Am.  St.  Rep.  462, 

428,  430 
v.  Hill,  92  Wis.  188,  66  N.  W. 
Rep.  115,  161,577 

Foreman  v.  Bigelow,  4  Cliff.' C.  C.) 

508,  341 

Forrester  v.   Boston,   etc.,   Co. 

(Mont.),  55  Pac.  Rep.  229,        449 


TABLE    OF    CASES. 


xlv 


[Beferences  are  to  Pages."] 


Fort  Edward,  etc.,  Co.  v.  Payne, 

17  Barb.  567,  384 

Fort  Edwards,  etc.,  Road  Co.  v. 

Payne,  15  N.  Y.  583,  370 

Fort  Madison  Bank  v.  Alden,  129 

IT.  S.  372,  607 

Fort  Madison,  etc.,  Co.  v.  Batavia 

Bank,  71  Iowa  270,  32  N.  W. 

Rep.  336,  60  Am.  Rep.  789, 471,  472 
Foss  v.  Harbottle,  2  Hare  461,  450 
Foster  v.  Bank,  16  Mass.  245,  671 

v.  Betcber  Lumber  Co.  (S. Dak.), 

23  L.  R.  A.  490,  283 

v.  Charles  Betcher,  etc.,  Co.  (S. 

Dak.),  23  L.  R.  A.  490,  289 

v.  Comrs.,  etc.,  1  Q.  B.  516,  11 

v.  Moulton,  35  Minn.  458,  599 

v.  Mullanphv,  etc.,  Co.,  92  Mo. 

79,  522 

v.  White,  86  Ala.  467,  6  So.  Rep. 

88,  415,  416,  419 

Fouche  v.  Brower,  74  Ga.  251,  181 

Fourgeray  v.  Cord,  50  N.  J.  Eq. 

185,  421.  323 

v.  Cord  (N.  J.  Eq.),  24  Atl.  Rep. 

499,  461,  524 

Fourth  Nat'l  Bank  v.  Francklyn, 

120  U.  S.  747, 

621,  624,  637,  638,  643,  652 
Fowler  v.  Lampson,  146  111.  472,  37 

Am.  St.  Rep.  163,  622,637,646,652 
Franco-Texan,  etc.,  Co.  v.  Laigle, 

59  Tex.  339,  250,  252,  500 

Franco,  etc.,  Co.  v.  McCormick, 

85  Tex.  416,  204,  229 

Franey  v.  Vvxarner,  96  Wis.  222,   46,  391 
Frankfort,  etc.,  Co.  v.  Churchhill, 

6T.  B.  Mon.  427,  17  Am.  Dec. 

159,  52 

Franklin    Bank    v.     Commercial 

Bank,  36  Ohio  St.  350,  184 

Franklin  Bridge  Co.  v.  Wood,  14 

Ga.  80,  24 

Franklin  Sav.  Bank  v.   Bridges, 

(Pa.)  8  Atl.  Rep.  611,  411 

Franklin   Co.   v.   Lewiston  Inst. 

for  Sav.,  68  Maine  43, 

134,  159,  184,  202,  215,  365 
Fraser  v.  Ritchie,  8  Brad.  (111.) 

554,  191 

Fredenberg  v.  Lyon  Lake  M.  E. 

Ch.,  37  Mich.  476,  68 

Freeland  v.  Ins.  Co.,  94  Pa.  St.  504,  77 
Freeman  v.  Alderson,  119  U.  S. 

185,  284 

v.  Machias,  etc.,  Co.,  38  Maine 

343,  252,  253 

v.  Sea  View,  etc.,  Co.  (N.  J.  Eq.) 

40  Atl.  Rep.  218,  153 


Freidenburg  v. Lynn,  etc., Church, 

37  Mich.  476,  74 

French  v.  Andrews,  145  N.Y.  441,     182 

v.  Donahue,  29  Minn.  Ill,  173 

v.  Fuller,  40  Mass.  108,  429 

French   v.  Ryan,  104  Mich.  625, 

387   395 
Frenkel  v.  Hudson,  82  Ala.  158,  '  584 
v.  Teschemaker,  24  Cal.  518,        622 
Freon   v.  Carriage  Co.,  42  Ohio 

St.  30,  496 

Frick  Co.  v.  Norfolk  Bank,  86 
Fed.  Rep.  725,  57  U.  S.  App. 
286,  '     541 

Friedman  v.   Gold,  etc.,  Co.,   32 

Hun  (N.  Y.)  4,  82 

Fritts  v.  Palmer,  132  U.  S.  282, 

157,  276,  279 
Fromm  v.  Sierra  Nevada,  etc., Co., 

61  Cal.  629,  494 

Frost  v.  Walker,  60  Maine  468, 

19,  20,  592 
Fulgam  v.  Macon,  etc.,  R.  Co.,  44 

Ga.  597,  376 

Fuller  &  Johnson,  etc.,  Co.  v. 
Foster,  etc.,  Co.,  4  Dak.  329, 
30  N.  W.  Rep.  166,  272 

Fuller  v.  Ledden,  87  111.  310,  625 

v.  Rowe,  57  N.  Y.  23,  595 

Funk  v.  Anglo-American,  etc., 
Co.,  27  Fed.  Rep.  336,  289 

G 

Gade  v.  Forest,  etc.,  Co.,  165  111. 

367,  311 

Gaff  v.  Flesher,  33  Ohio  St.  107,  475 
Gage  v.  Fisher,  5  N.  Dak.  297,  31 

L.  R.  A.  557,  65  N.  W.  Rep. 

809,  509,  513,  520 

Gainey  v.  Gilson,  149  Ind.  58,  48 

N.  E.  Rep.  633,  592 

Galena,  etc.,  R.  Co.  v.  Ennor,  116 

111.  55,  372 

Gallagher  v.  Germania,  etc.,  Co., 

53  Minn.  214,  11,  660 

Galveston    Hotel    v.   Bolton,    46 

Tex.  633,  367 

Galveston,   etc.,  R.  Co.  v.  Cow- 

drev,  11  Wall.(tJ.  S.)  459,  251,  501 
v.  Donahoe,  56  Tex.  162,  238 

v.  Gulf   City,  etc.,  R.  Co.,   63 

Tex.  529,  117 

Gamble  v.  Caldwell  (Ala.),  12  So. 

Rep.  424,  277 

v.  Queen's  County,  etc.,  Co.,  123 

N.  Y.  91,  25  N.  E.  Rep.  201, 

9L.  R.  A.  227, 

325, 350,  351,  352, 456,  510,  524,  526 


xlvi 


TABLE    OF    CASES. 


[References  are  to  Pages.'] 


Ganser  v.  Firemen's  Fund  Ins., 

34  Minn.  372,  277 

Gardener  v.  Butler,  37  N.  J.  Eq. 

702,  552 

Garesche  v.  Lewis,  63  Mo.  197,       411 
Garnett  v.  Richardson,   35   Ark. 

144,  34,  595,  596 

Garrett  v.  Belmont  Land  Co.,  94 

Tenn.  549,  161 

v.  Burlington,  etc.,  Co.,  70  Iowa 

697,  59  Am.  Rep.  461, 

177,  546,  551 

v.  Kansas  City,  etc.,  Co.,  113 

Mo.  330,  213 

v.  Plow  Co.,  70  Iowa  697,  549 

v.  Plow  Co.,  70  Iowa  667,  552 

v.  Railroad  Co.,  78  Pa.  St.  465,     384 

Garrison  v.  Howe,  17  N.  Y.  458,      569 

Gartside,  etc.,  Co.  v.  Maxwell,  22 

Fed.  Rep.  197,  598 

Gashwiler  v.  Willis,  33  Cal.  11,       498 
Gates  v.  Tippecanoe,  etc.,  Co.,  75 
Ohio  St.  60,  63  Am.  St.  Rep. 
705,  353 

Gaynor  v.Williamsport,etc.,R.Co. , 

189  Pa.  St.  5/41  Atl.  Rep.  978,  575 
Gebbard  v.  Eastman,  7  Minn.  56, 

Gil.  40,  629 

Gemmell  v.  Davis  &  Co.,  75  Md. 

546,  428,  432,  433,  435,  489 

Genesee  Sav.  Bank  v.  Michigan, 

etc.,  Co.,  52  Mich.  438,  217 

Gentv.  Mfg.  Ins.  Co.,  107  111.  652, 

37,50 

George  H.  Hammond  &  Co.   v. 

Hastings,  134  U.  S.  401,      489, 491 

etc.,   Co.    v. 
Range,  etc.,  Co.,  16  Utah  59, 

471,  472 

Georgetown,  etc.,  v.   Brown,   34 

Md.  450,  199 

Georgia,  etc.,  R.  Co.  v.  Wilks,  86 

Ala.  478,  195 

German  Nat'l  Bank  v.  Kentucky 

T.  Co.  (Ky.),  40  S.  W.  Rep. 

458,  490 

German  Sav.  Bank  v.  Wulfekuh- 

ler,  19  Kan.  60,  190 

Germania,  etc.,  Co.  v.  Boynton, 

71   Fed.  Rep.  797,  19  C.  C.  A. 

118,  171,204 

v.  King,  94  Wis.  439,  36  L.  R.  A. 

r,i,  404 

v.  Swigert,  128  111.  237,  4  L.  R. 

A    173,  268 

Germantown,  etc.,  R.  Co.  v.  Fil- 
ler, HO   Pa.  St.  124,  100  Am. 

Dec.  546,  404,  407 


Germantown,  etc.,  Co.  v.  Dhein, 
43  Wis.  420,  28  Am.  Rep.  549, 

159,  217,  220 
Gerry  v.  Bismark  Bank,  19  Mont. 

191,  450 

Gery  v.  Hopkins,  7  Mod.  129,  418 

Getty  v.  Devlin,  54  N.  Y.  403,  45 

v.Devlin,  70  N.Y.  504,  391 

Gibbons   v.    Anderson,    80    Fed. 

Rep.  345,  561 

v.  Ellis,  83  Wis.  434,  374 

v.  Mahon,  4  Mackey  130,  312 

v.  Mahon,  136  U.  S.  549, 

415,  421,  440,  441,  446 
Gibbs  v.  Consolidated,  etc.,  Co., 

130  U.  S.  396,  167 

v.  Queen,   etc.,   Co.,   63  N.  Y. 
114,  20  Am.  Rep.  513,         285,  288 
Gifford  v.  N.  J.  R.  Co.,  ION.  J. 

Eq.  171,  95 

Gilbert  v.  Hole,  2  S.  Dak.  164,  49 
N.  W.  Rep.  1,  152,  157 

v.  Insurance  Co.,  49  Fed.  Rep. 
884,  59 

Gilchrist  v.  Helena,  etc.,  R.  Co., 

47  Fed.  Rep.  593,  272 

Gilford  v.  Western  Union,  etc., 
Co.,  59  Minn.  332,  61  N.  W. 
Rep.  324,  476,  477 

Gill  v.  Balis,  72  Mo.  424,  190 

Gillingham  v.  Ohio,  etc.,  R.  Co., 
35  W.  Va.  588,  14  L.  R.  A. 
798.  237 

Gillis  v^  Bailey,  21  N.  H.  149,  543 

Gilman  v.  Lockwood,  4  Wall.  409,  249 
Gilman,  etc.,  R.  Co.  v.  Kelly,  77 

111.  426,  338,  547 

Ginn  v.  New  Eng.,  etc.,  Co.,  92 

Ala.  135,  272 

Girard  Will  Case,  2  How.  (U.  S.) 

127,  262 

Given  v.  Hilton,  95  U.  S.  591,  156 

Glamorganshire,     etc.,    Co.    v. 

Irvine,  4  Fost.  &  Fin.  947.        393 
Gleason  v.  McKay,  134  Mass.  419,     20 
Glenn  v.  Bread,  35  La.  Ann.  875,      32 
v.   Dorsheimer,   23    Fed.   Rep. 

695,  24  Fed.  Rep.  536,  411 

v.  Liggett,  47  Fed.  Rep.  472,  506 
v.  Liggett,  135  U.  S.  533, 

405,  411,  612,  613,  638 
Glenn  v.  Marbury,  145  U.  S.  499, 

411,  613 
v.  Orr,  96  N.  C.  413,  2  S.  E.  Rep. 

538,  43 

v.  Rosborough,  48  S.  C.  272,  376 
v.  Sexton,  68  Cal.  353,  613 
v.  Springs,  26  Fed.  Rep.  494, 

612,  038 


TABLE    OF    CASES. 


xlvii 


[References  are  to  Pages.] 


Glenn  v.  Williams,  60  Md.  93,         612 
Glidden,  etc.,  Co.  v.  Bank,  69  Fed. 

Rep.  912,  32  U.  S.  App.  654,      580 
Globe    Pub.   Co.   v.   State    Bank 
(Neb.),  59  N.  W.  Rep.  683, 

624,  625,  626 
Globe,  etc.,  Co.  v.  State  Bank,  41 

Neb.  175,  27  L.  R.  A.  854,  625,637 
Gloniger    v.    Railroad    Co.,    139 

Pa.  St.  13,  226 

Gloucester,  etc.,  Co.  v.  Pennsyl- 
vania, 114  U.  S.  196,  255 
Glover  v.  Lee,  140  111.  102,        181,  182 
Goddard  v.  Crefeld  Mills,  45  U.  S. 

App.  84,  278 

v.Grand  Trunk  R.  Co.,  57  Maine 

202,  237 

v.  Merchants'  Exchange,  9  Mo. 
App.  290,  142,  143,  150 

Godsden  v.  Woodward,  103  N.  Y. 

242,  625 

Goebic  Invest.  Co.  v.  Iron  Chief, 

etc.,  Co.,  78  Wis.  426,  351 

Gold  v.  Clyne,  134  N.  Y.  262,  31 
N.  E.  Rep.  980,  17  L.  R.  A. 
767,  569,  570 

Gold,  etc.,  Co.  v.  National  Bank, 

96  U.  S.  640,  199 

Golden  v.  Morning  News,  42  Fed. 

Rep.  112,  156  U.  S.  518,     285,  286 
Golden  Gate,  etc.,  Min.  Co.  v.  Su- 
perior Court,  65  Cal.  187,  241 
Goldsmith  v.  Home,  etc.,  Co.,  62 

Ga.  379,  268 

Gooch  v.  Faucette,  122  N.  C.  270, 

30  L.  R.  A.  835,  261 

Good  Hope  Co.  v.  Railway,  etc., 

Co.,  22  Fed.  Rep.  635,  285 

Goodin  v.  Cincinnati,  etc.,  Co.,  18 
Ohio  St.  169,  98  Am.  Dec.  95 

554,  556 
Goodrich  v.  Reynolds,  31  111.  490, 

83  Am.  Dec.  240,  392 

Goodspeed  v.  Bank,  22  Conn.  530, 

235,  236 
Goodwin  v.  Colo,  etc.,  Co.,  110 

U.  S.  1,  289 

v.  Hardy,  57  Maine  143,  99  Am. 

Dec.  758,  428,  434,  435,  440 

v.  McGehee,  15  Ala.  232,  659 

v.  Ottawa,  etc.,  R.  Co.,  13  U.  C. 

(C.  P.)  254,  496 

v.  Providence,  etc.,   Assn.,  97 

Iowa  226,  245 

v.  Screw  Co.,  34  N.  H.  378,  161 

v.  Sleeper,  67  Wis.  577,  630 

v.  Union,  etc.,  Co.,  34  N.  H.  378,  538 

Goodvear  Rubber  Co. v.  Goodyear, 

etc.,  Co.,  21  Fed.  Rep.  276,         40 


Gorder  v.  Plattsmouth,  etc.,  Co., 

36  Neb.  548,  214,  538 

v.  Plattsmouth,   etc.,  Co.  (Neb. 

1893),  41  Am.  &  Eng.  Corp. 

Cas.  87,  549 

Gordon  v.  Richmond,  etc.,  R.  Co., 

78  Va.  501,  315 

Gordon's   Exrs.   v.   Railroad,   78 

Va.  501,  318,  319 

Gormon  v.  Russell,  14  Cal.  532,      305 
Gormully,  etc.,  Co.  v.  Pope  Mfg. 

Co., '34  Fed.  Rep.  818,  60 

Gould  v.  Head,  41  Fed.  Rep.  240,  494 
v.  Little  Rock,  etc.,  R.  Co.,  52 

Fed.  Rep.  680,  181 

v.  Oneonta,  71  N.  Y.  298,  404 

v.  Railway   Co.,   52  Fed.   Rep. 
680,  682,  182,  183 

Govenor    v.    Allen,    8    Humph. 

(Tenn.)  176,  17 

Gowen,  etc.,  Co.  v.   Tarrant,   73 

111.  608,  161 

Graham  v.  Birkenhead,  etc.,  R. 
Co.,  2  McN.  &G.  156,  528 

v.  First  Nat'l  Bank,  84  N.  Y. 

393  429 

v.  Railroad  Co.,  118  U.  S.  161, 

57,  502 
v.  Railroad  Co.,  102  IT.  S.  148, 

321,  322,  323,  325,  590 
Graham  &  Anderson  Co.  v.  Hen- 
dricks, 22  La.  Ann.  523,  272 
Grand  Lodge  v.  Waddell,  36  Ala. 

313,  199 

Grand  Rapids  Sav.  Bank  v.  War- 
ren, 52  Mich.  557,  621,  631 
Grand  Rapids,  etc.,  Co.  v.  Prang, 

35  Mich.  400,  70 

Grand  Trunk  R.  Co.  v.  Cook,  29 
111.  237,  26 

v.   Wayne    Circuit  Judge,   106 
Mich.  248,  288 

Granger  v.  Bassett,  98  Mass.  462,   437 
Granger,  etc.,  Co.  v.  Turner,  61 

Ga.  561,  395 

Grangers,  etc.,  Co.  v.  Kamper,  73 

Ala.  325,  310,  311 

Grannan    v.    Westchester,     etc., 

Assn.,  153  N.  Y.  449,  115 

Grant  v.  Duluth,  etc.,  R.  Co.,  66 

Minn.  349,  69  N.  W.  Rep.  23,  577 
v.  Mechanics'  Bank,  15  Serg.  & 

R.  140, 
v.  Ross  (Ky.),  37  S.  W.  Rep. 
263,  421, 

Grape,  etc.,  Co.  v.  Small,  40  Md. 

395 
Gratz  v'.  Redd,  4  B.  Mon.  178, 

426,  432,  575,  606 


490 
433 


52 


xlviii 


TABLE    OF    CASES. 


[References  are  to  Pages.] 


Graves  v.  Slaughter,  15  Pet.  (U.S.) 

449 
Gray  v.' Bennett,  3  Met.  522, 
v.   Christian,   etc.,   Soc,   137 
Mass.  329,  50  Am.  Rep.  310, 
v.  Coffin,  9  Cush.  (Mass.)  192, 
v.  National  Steamship  Co.,  115 
U.  S.  116,  30, 

v.  Navigation   Co.,   2  Watts  & 
Sarg.  156,  406, 

v.  Portland  Bank,  3  Mass.  364, 
161,419, 
Great  Falls,  etc.,  Co.  v.  Harvey, 

45  N.  H.  292, 
Great  Northern  R.  Co.  v.  Eastern, 
etc.,  R.  Co.,  21  L.  J.  Chan. 
837 
Great  Western,  etc.,  Co.  v.  Burn- 
ham,    79  Wis.  47;   47    N.  W. 
Rep.  373, 
v.  Gray,  122  111.  630, 
v.  Purdv,  162  U.  S.  329,  612,  613, 
Great  West,  R.  Co.  v.  Rushout,  5 

DeG.  &  Sm.  290, 
Great,  etc.,  Co.  v.  Loewenthal,  154 
111.  261,  372, 

Greaves  v.  Gonge,  69  N.  Y.  154, 
Green  v.  Biddle,  8  Wheat.  (U.  S.) 
1, 
v.  Board  of  Trade,  174  111.  585, 
51  N.  E.  Rep.  599,       141,  144, 
v.  Brokins,  23  Mich.  48, 
v.  Dennis,  6  Conn.  298, 
v.  Graves,  1  Doug.  (Mich.)  351, 
v.  Knife  River  Falls  Boom  Corp., 
35  Minn.  155,  22,  29, 

v.  London,  etc.,  Co.,  7  C.  B.  N. 

S.  290, 
v.  Omnibus  Co.,  7  C.  B.  N.  S. 
290, 
Green  Mont,  etc.,  Co.  v.  Bulla,  45 

Ind.  1, 
Green  Co.  v.  Blodgett,  159  111.  169, 
v.  Conners,  109  U.  S.  104,     111, 
Greenberg  v.  Whitcomb,  etc.,  Co., 

90  Wis.  225,  28  L.  R.  A.  439, 
Greenbrier  v.  Rodes  (W.  Va.),  17 

S.  E.  Rep.  305, 
Greenbrier  Ind.  Expo.  v.  Rodes, 

:\1  W.  Va.  738, 
Greenbrier,  etc.,  Co.  v.  Ward,  30 

W.  Va.  43, 

Greene  v.   Board,   etc.   (111.),  51 

N.  E.  Rep.  599,  301, 

Greenville,  etc.,  Co.  v.  Planters', 

etc.,  Co.,  70  Miss.  669,        204, 

Greenwood  v.  Freight  Co.,  105  U. 

S.  L3,  89,  90,91,92 

v.  Law,  55  N.  J.  L.  168, 


622 
634 

302 
617 

590 

532 

496 

145 

120 

405 
613 
654 

526 

613 
450 

621 

299 

321 

26 

77 

113 

236 

236 

496 
159 
195 

568 

95 

369 

674 

302 

213 

,  98 
321 


518 
292 
296 


Gregg  v.  Mass.  Med.  Society,  111 

Mass.  185,  150,  306 

Gregory  v.  Bank,  3  Colo.  332,  571,  626 
v.  German  Bank,  3  Colo.  336,         88 
Grenell  v.  Detroit,  etc.,  Co.,  112 

Mich.  70,  70  N.  W.  Rep.  413,        197 
Gresham    v.    Island    City,    etc., 

Bank  (Texas  Civ.  App.  1893), 

21  S.  W.  Rep.  556,  494 

Gridley  v.   Railroad  Co.,  71   111. 

200,  586 

Griffith   v.   Chicago,  etc.,   R.,  74 

Iowa  85,  578 

v.  Jewett,  15  Weekly  Law  Bui 

letin  419,  509,  517 

Grindle  v.  Stone,  78  Maine  176, 
Griswold  v.Seligman,  72  Mo.  110, 
Grommes  v.   Sullivan,  53  U.   S. 

App.  359,  81  Fed.  Rep.  45, 
1 ■  174,  180 

Grosse,  etc^  v.  I' Anson's  Exrs., 

43  N.  J.  L.  442,  403 

Grvmes  v.  Hone,  49  N.  Y.  17,  466,  471 
Guaranty  Co.,  etc.,  v.. East,  etc., 
Co.,  96  Ga.  511,  23  S.  E.  Rep. 
503,  432,  435 

Guckert  v.  Hacke,  159  Pa.  St.  303,  599 
Guernev  v.  Moore,  131  Mo.  650, 

643,  646 

Guernsey  v.  American,  etc.,  Co., 

13  Minn.  278  (Gil.  256),      287 

v.  Black,  etc.,  Co.,  99 Iowa  471,  578 

v.  Cook,  120  Mass.  501, 

Guest  v.  Worcester  R.  Co.,  L.  R. 

4  C.  P.  9, 
Guilford    v.   Western,  jetc,    Tel. 
Co.,  43  Minn.  434, 
v.  Western  Union,  etc.,  Co.,  59 
Minn.  332,  61  N.  W.  Rep.  324, 

257,  282 

Gulf,  etc.,  R.   Co.  v.  Morris,  67 
Texas,  692,  121 

v.  Newell,  73  Texas  334,  15  Am. 

St.  R.  788,  30 

v.  State.  72  Texas  404,  164 

Gunmakers',  etc.,   Co.   v.   Fell, 

Willes  384,  142 

Gunn  v.  Central  R.  Co.,  74 Ga.  509, 

173,  235,  558 

v.  White,  etc.,  Co.,  57  Ark.  24, 

18  L.  R.  A.  206, 
Guthrie  v.  Oklahoma,  1  Okla.  188, 

21  L.  R.  A.  841, 
Gutta  Percha,  etc.,  Co.  v.  Ogalallo, 

40  Neb.  775, 
G.  N.  B.  Mining  Co.  v.  Nat'l  Bank 

(C.  C.  App.),  95  Fed.  Rep.  23,  577 


325 
476 


256 

67 

230 


TABLE    OF    CASES. 


xlix 


[References  are  to  Pages."] 


H 


Hackensack  Water  Co.  v.  Dekay, 

36  N.  J.  Eq.  548,  163,  332 

Haden  v.  Farmers',  etc.,  Co.,  80 

Va.  691,  147 

v.  Farmers',  etc.,  Assn.,  80  Va. 

683,  216 

Hadden  v.  Linville  (Md.),  38  Atl. 

Rep.  37,  182 

Hadley    v.    Freedman's    Saving, 

etc.,  Co.,  2  Tenn.  Ch.  122,  25 

Hafer  v.  New  York,  etc.,  R.  Co., 

14  Weekly  Law  Bulletin  68, 

513,  517 

Hagan  v.  Providence,  etc.,  R.  Co., 

3  R.  I.  88,  237 

Hagar  v.  Union  Nat'l  Bank,  63 

Maine  509,  420,  430,  433 

Hagerman  v.  Empire  Slate  Co.,  97 

Pa.  St.  534,  289 

Hale  v.  Hardon,  95  Fed.  Rep.  747 

(C.  C.  A.  May  31,  1899), 

II,  611,  638,  642,  643,  647,654, 

656,  658 
v.  Republican,  etc.,  8  Kan.  466,  431 
Hall  v.  Rose  Hill,  etc.,  Co.,   70 

III.  673,  429,  479 
Hallam  v.    Indianola,  etc.,   Co., 

56  Iowa  178,  9  N.W.  Rep.  Ill, 

549,  551 
Hallenbeck  v.  Powers,  etc.,  Co. 

(Mich.),  76  N.  W.  Rep.  119,      146 
Hallmark's- Case,  L.  R.  9Ch.  Div. 

329,  565 

Halsev     v.     McLean,    12    Allen 

(Mass.)  438,  90  Am.  Dec.  157, 

247,  645 
Halstead  v.   Dodge,  .19  J.  &  S. 

(N.  Y.)  169,  139 

Hamilton  v.  Clarion,  etc.  R.  Co., 

144  Pa.  St.  34,    64,  73,  74,  374,  410 
Hamilton   County  v.   Mighels,  7 

Ohio  St.  110,  15 

Hamlin  v.  Toledo,  etc.,  R.  Co.,  78 

Fed.  Rep.  664,  47  U.  S.  App. 

422,  36  L.  R.  A.  826,  315 

Hamm  v.  Drew,  83  Tex.  77,      .         5§ 
Hammond,   etc.,  Co.  v.  Best,  91 

Maine  431,  42  L.  R.  A.  528, 

57  79  248  249  313 
Hammond  v.  Straus, '53  Md.  1,  23,  34 
Hamsherv.  Hamsher,  132  111.  273, 

8  L.  R.  A.  556,  157 

Hanan  v.  Sage,  58  Fed.  Rep.  651,    671 
Hanauer  v.  Doane,  12  Wall.  (U. 

S.)  342,  170 

iv-  Private  Corp. 


Hancock  Nat'l  Bank  v.  Farnum, 
(R.  I.  App.  1898),  40  Atl.  Rep. 
341,  646 

v.  Ellis,  166  Mass.  414,  42  L.  R. 
A.  396,  55  Am.  St.  Rep.  414, 
172  Mass.  39, 

610,  624,  639,  642, 

643,  645,  650,  652 
Hand  v.  Coal  Co.,  143  Pa.  St.  408,  161 
Handley  v.  Stutz,  139  IT.  S.  417, 
321 ,  322,  339,  340,  343, 

344,  348,  501,505,609 
Hanover,  etc.,  R.  Co.  v.  Halde- 

man,  82  Pa.  St.  36,  371,  377 

Hanson  v.  Davison  (Minn.),  76 
N.  W.  Rep.  254, 

640,  653,  654,  655,  656 
v.  Donkersley,  37  Mich.  184,        616 
Harben  v.  Phillips,  L.  R.  23  Ch. 

Div. 14,  509 

Hardin  v.  Trustees,  51  Mich.  137, 

47  Am.  R.  555,  18 

Hardon  v.   Newton,   14  Blatchf. 

376,  673 

Hardware  Co.  v.  Phalen,  128  Pa. 

St.  110,  221 

Harper  v.  Carroll,  66  Minn.  487, 
69  N.  W.  Rep.  610, 

492,  629,  630,  635,  640,  661 
Harpold  v.  Stobart,  46  Ohio  St. 
397,  15  Am.  St.  Rep\  618,  21 
N.  E.  Rep.  637,   469,  616,  630,  633 
Harrington  v.   Liston,   47    Iowa 

11,  539 

Harris    v.    Lemming,   etc.,    Co. 

(Tenn.),  43  S.  W.  Rep.  869,      585 
v.  McGregor,  29  Cal.  124,  36 

v.  Norvell,  1  Abb.  N.  Cas.  127,     635 
v.  Tumbridge,  83  N.  Y.  92,  494 

v.  Stevens,  7  N.  H.  454,  436 

Harrison  v.   Arkansas,   etc.,    R. 

Co..  4  McCrary  264,  348 

v.  Mexican  R.  Co.,  L.  R.  19  Eq. 
358,  319 

Harshman  v.  Bates  Cotfnty,  92  TJ. 

S.  569,  195 

Harter  v.  Kernochan,  103  U.  S. 

562,  195 

Hartford,  etc.,  R.  Co.  v.  Boorman, 

12  Conn.  530,  492 

Hartford,  etc.,  R.  Co.  v.  Croswell, 
5  Hill  (N.  Y.)383, 

406,  528,  529,  532 

v.  Kennedy,  12  Conn.  499,  385 

v.  New  York,  etc.,  R.  Co.,  3d 

Robertson  (N.  Y.)  411,  164 

Hartford,  etc.,  Co.  v.  Matthews, 

102  Mass.  221,  275 


TABLE    OF    CASES. 


[Beferences  are  to  Pages. ] 


Hartford,  etc.,  Co.  v.  Raymond, 

70  Mich.  485,  254,  267,  275 

Hartnettv.  Plumber's  Sup.  Assn., 

169  Mass.  229,  38  L.  R.  A.  194, 

47  N.  E.  Rep.  1002,  82,  668 

Harts    v.    Brown,    77    111.    226, 

549,  550 
Harvard  College  v.  Boston,  104 

Mass.  470,  153 

Harvey  v.  Linville,  etc.,  Co.,  118 

N.   C.  693,  32  L.  R.   A.  265, 

515,  535 
Harwood  v.    Railroad,   17   Wall. 

(U.  S.)  78,  224 

Haselman   v.  Mfg.   Co.,   97  Ind. 

365,  64 

Haskell  v.  Sells,  14  Mo.  App.  91,  372 
Hassey  v.  Gallagher,  61  Ga.  86,  150 
Hassinger  v.  Ammon,  160  Pa.  St. 

245,  73 

Hassler  v.  Philadelphia,  etc.,   14 

Phila.  233,  302,  303 

Hastings  v.  Brooklyn,  etc.,   Co., 

138  N.  Y.  473,  579 

Hastings,  etc.,  Co.  v.  Iron  Range, 

etc.,  Co.,  65  Minn.  28, 

343,  353,  356 
Hatch  v.  Dana,  101  U.  S.  205,  609 

v.  Glenn,  131  U.  S.  319,  339 

Hatcher  v.  Toledo,  etc.,  R.  Co., 

62  111.  477,  198 

Hathaway  v.  Addison,  48  Maine 

440,  534 

Hauer  v.   Carmichael,    82    Iowa 

288,  595 

Hause  v.  Mannheimer,  67  Minn. 

194,  69  N.  W.  Rep.  810,  73,  74,  410 
Havemyer  v.  Havemyer,  11  J.  & 

S.  506,  86  N.  Y.  618,  515 

Haven  v.  Asylum,  13  N.  H.  532,  140 
Haverhill,  etc.,  Co.  v.  Prescott, 

42  N.  H.  547,  278 

Hawes  v.  Anglo-Saxon,  etc.,  Co., 

101  Mass.  385,  594 

v.  Oakland,  104  U.  S.  450, 

448,  449,  453,  455 
Hawk  v.  Marion  Countv,  48  Iowa 

472,  231 

Hawkins  v.  Glenn,  131  U.  S.  319, 

293,  609,  611,  612,  613,  638,  654 
Hawley  v.  Brumagin,  33  Cal.  394,  313 
v.  Upton,  102  U.  S.  314,         292,  338 
Hawthorn  v.  Calef,  2  Wall.  10,  88,  621 
Hayden   v.  Atlantic  Cotton  Fac- 
tory, 61  Ga.233,  335 
v.   Middlesex  T.  Co.  10  Mass. 

397,  161 

Hayes  v.  Coal  Co.,  29  Ohio  St. 

330,  174 


Hays  v.  Citizens'  Bank,  51  Kan. 

535,  183 

v.  Comw.,  82  Pa.  St.  518,  88,  521 
v.  Houston,  etc.,  R.  Co.  46  Tex. 

272  237 

Hay's  Case,  L.  R.  10  Ch.  App. 

593,  340 

Hayward  v.   Davidson,   41    Ind. 

212,  157 

Haywood   v.   Lincoln,   etc.,  Co., 

64  Wis.  639,  26  N.  W.   Rep. 

184,  182,  184,  546 

Hazard  v.  Bank,  26  Fed.  Rep.  94,  471 
Hazelhurst  v.  Savannah,  etc.,  R. 

Co.,  43  Ga.  13,  315,  316,  317 

Hazeltine  v.  Belfast,  etc.,  R.  Co., 

79  Maine  411,  1  Am.  St.  Rep. 

330,  317,  319 

v.    Mississippi   Valley   Co.,   55 

Fed.  Rep.  743,  288 

Hazlet    v.   Butler  University,  84 

Ind.  230,  40 

Hazleton,  etc.,  Co.  v.  Hazleton, 

etc.,  Co.,   142  111.  494,  28  N. 

E.  Rep.  245,  41 

Heacock  v.  Sherman,  14  Wend. 

(N.  Y.)59,  634 

Headv.  Insurance  Co.,  2  Cranch 

127,  162 

v.  Tattersall  L.  R.  7  Exch.  7,  116 
Heard  v.  Eldredge,  109  Mass.  258, 

12  Am.  Rep.  687,  426,  440 

v.  Talbot,  7  Gray  (Mass.)  113,  674 
Heaston   v.  Cincinnati,   etc.,   R. 

Co.,  16  Ind.  275,  67,  69,  76,  405 
Heath  v.  Barmore,  50  N.  Y.  302,  156 
v.  Silverthorn,  etc.,  Co.,  39  Wis. 

146,  502 

Heaton  v.  Eldridge  &  Higgins,  56 

Ohio  St.  87,  36  L.  R.  A.  817,  245 
Hebberd  v.   Southwestern,    etc., 

Co.,  55  N.  J.  Eq.  18,  36  Atl. 

Rep.  122,  336,  344 

Hedge's  App.,  63  Pa.  St.  273,  19 

Hebgen  v.  Koeffler  (Wis.),  72  N. 

W.  Rep.  745,  46 

Heeg  v.  Licht,  80  N.  Y.  579,  36 

Am.  Rep.  654,  572 

Heims,  etc.,  Co.  v.  Flannery,  137 

111.  309,  207 

Heinig  v.    Adams    &    Westlake, 

etc.,  Co.,  81  Ky.  300,  33 

Heintzelman  v. Druids,  etc.,  Assn., 

38  Minn.  138,  141,  540,  542 

Heiskell  v.  Chickasaw  Lodge,  87 

Tenn.  668,  4  L.  R.  A.  699,  256 

Hekking  v.  Pfaff,  91  Fed.  Rep.  60, 

50  U.  S.  App.  484,  654 


TABLE    OP    CASES. 


[References  are  to  Pages.] 


Helena  Nat'l  Bank  v.  Rocky,  etc., 
Co.,  20  Mont.  379,  63  Am.  St. 
Rep.  628,  576 

Heman  v.  Britton,  88  Mo.  549,  677 
Hencke  v.  Twomey,  58  Minn.  550,  625 
Hendee    v.  Pinkerton,   14  Allen 

(Mass.)  381,  178 

Henderson  v.  Indiana,  etc.,  Co., 
143  Ind.  561,  182 

v.  Railway  Co.,  17  Texas  560, 

67  Am.  Dec.  675,  395 

v.  Royal  Brit.  Bank,  7  El.  and 
B1.356,  396 

Hendrix  v.  Academy  of  Music,  73 

Ga.  437,  373 

Henriques  v.  Dutch,  etc.,  Co.,  2 

Ld.  Raymond  1532,  280 

Henry  v.  Elder,  63  Ga.  347,  447 

v.  Great  Northern  R.  Co.,  1  De 
G.  &  J.  606,  319 

Hepburn  v.  School  Directors,  23 

Wall(U.  S.)  480,  106,107 

Hern  v.  Nichols,  ISalk.  289,  481 

Herrick  v.  Wardwell,  71  Conn.  50, 492 
Herring  v.  N.  Y.,  etc.,  R.  Co.,  105 

N.  Y.  340,  671 

Herrod  v.  Hamer,  32  Wis.  164,  35 
Hersey  v.  Tully,  8  Col.  App.  110, 

44  Pac.  Rep.  854,  48 

v.  Veazie,  24  Maine  9,  525 

Hervev  v.  Railroad  Co.,  28  Fed. 

Rep.  169,  276 

Hester  v.  Rasin,  etc.,  Co.,  33  S.  C. 

609,  287 

Hibernia,   etc.,  Co.  v.  Harrison, 

93  Pa.  St.  264,  142,  143,  145 

Hickling  v.  Wilson,  104  111.  54,  74 
Hickory,  etc.,  Co.  v.  Buffalo,  etc., 

R.  Co.,  32  Fed.  Rep.  22,  157 

Higenia  Water  Ice  Co.,  140  N.  Y. 

94,  41 

Higgins  v.  Downward,  8  Houst. 
(Del.)  227,  40  Am.  St.  Rep. 
141,  90,662 

v.   Hoyden  (Neb.),  73  N.  W. 

Rep.  280,  563 

v.  Hopkins,  3  Exch.  (W.  H.  & 

G.)  163,  48 

v.  Lansingh,  154  111.  301,  315 

v.  Lansingh  (111.),  40  N.  E.  Rep. 
362,  342 

Hightower    v.   Thornton,   8    Ga. 

486,  677 

Hill  v.  Atoka,  etc.,  Co.  (Mo.  1893), 
21  S.  W.  Rep.  508,      429,  430,  494 
v.  Beach,  12  N.  J.  Eq.  31,      71,  604 
v.  Mining  Co.  (Mo.),  21  S.  W. 

Rep.  508,  124  Mo.  153,  434 

v.  Nisbet,  100  Ind.  341,  31,  186 


Hill  v.  Pine  River  Bank,  45  N.  H. 
300,  490 

v.  Pioneer,  etc.,  Co  ,  113  N.  C. 

173,  21  L.  R.  A.  560,  183 

v.  Spear,  50  N.  H.  255,  9  Am. 

Rep.  205,  264 

v.   The    Newichawanick    Com- 
pany, 71  N.  Y.  593,    428,  432,  493 
Hiller  v.  Burlington,  etc.,  R.  Co., 

70  N.  Y.  223,  286 

Hillesv.  Parrish,14  N.  J.  Eq.  380,  502 
Hills  v.  Carlton,  74  Maine  156,        249 
v.   Richmond,  etc.,  R.  Co.,  37 
Fed.  Rep.  660,  284 

Hillyer  v.  Min.  Co.,  6  Nev.  51,         539 
Hilton  v.  Eckersley,  6  El.  &  Bl. 

47,  166 

Hinsdale  Sav.  Bank  v.  N.  H. 
Banking  Co.,  59  Kan.  716,  68 
Am.  St.  Rep.  391,  616 

Hirsche  v.   Sims  (H.  L.  1894),  L. 

R.  (1894),  A.  C.  654,  550 

Hirshfield  v.  Bopp,  145  N.  Y.  84,    637 
Hiss  v.  Bartlett,  3  Gray  468,  63 

Am.  Dec.  772,  297,  298 

Hitch  v.  Hawley,  132  N.  Y.  212,     673 
Hitchcock  v.  Galveston,  96  U.  S. 

341,  221 

Hite  v.  Hite,  93  Ky.  257,  19  L.  R. 

A. 173,  445 

Hoag  v.  Lamont,  60  N.  Y.  96,  161 

Hoagland  v.  Bell,  36  Barb.  (N.Y.) 

67,  506 

Hobbs  v.  Nat'l  Bank  of  Com.,  96 

Rep.  396,  660 

Hockett  v.  State,  105  Ind.  250,  16 

Hodges  v.  New  England,  etc.,  Co., 
1  R.  I.  312,  53  Am.  Dec.  624, 

187,  566,  573,  574 
Hodgson  v.  Cheever,  8  Mo.  App. 
318,  652 

v.  Duluth,  etc.,  R.  Co.,  46  Minn. 
454,  252,  447,  501,  502,  541 

Hoffman,  etc.,  Co.  v.  Cumberland, 
etc.,  Co.,  16  Md.  456,  77  Am. 
Dec.  311  55^ 

Holbert  v.  St.  L.,  etc.,  R  Co.,  45 

Iowa  23,  262 

Holbrook  v.  Ford,  153  111.  633,  27 
L.  R.  A.  324,  674 

v.  New  Jersey,  etc.,  Co.,  57  N. 
Y.  616,  332,  476,  477 

Holder  v.  Aultman,  etc.,  Co.,  169 

U.  S.  81,  275 

Holland  v.  Duluth,  etc.,  Co.,  68 

N.  W.  Rep.  50,  375 

v.  Duluth,  etc.,  Co.,  65  Minn. 

324,  292,  368,  637 

Holliday  v.  Elliott,  8  Ore.  84,  191,  365 


lii 


TABLE    OF    CASES. 


[References  are  to  Pages.] 


Hollins  v.  Brierfield,  etc.,  Co.,  150 

U.  S.  371,  323,  324,  325,  589 

Hollis  v.  Drew  Theolog.  Semin- 
ary, 95  N.  Y.  166,  260 

Hollowell,  etc.,  Bank  v.  Hamlin, 

14  Mass.  178,  578 

Holly  Mfg.  Co.  v.  New  Chester, 
etc.,  Co.,  48  Fed.  Rep.  879,       583 

Holman  v.  State,  105  Ind.  569,        381 

Holmes  v.  Gilliland,  41  Barb.  (N. 
Y.)  568,  35 

v.  Holmes,  etc.,  37  Conn.  278, 

9  Am.  Rep.  324,  40 

v.  Willard,  125  N.  Y.  75,       171,  560 

Holmes,  etc.,  Co.  v.  Holmes,  127 

U.  S.  252,  186 

v.  Holmes,  etc.,  Co.,  127  N.  Y. 
252,  187,  207,  208,  220,  665 

Holt  v.  Bennett,  146  Mass.  437, 

549,  552 

v.  Winfield  Bank,  25  Fed.  Rep. 

812,  382 

Holton  v.  Newcastle  R.  Co.,  138 

Pa.  St.  Ill,  447 

Holyoke  Co.  v.  Lyman,  15  Wall. 

511,  100 

Home,  etc.,  Co.  v.  Sherwood,  72 

Mo.  461,  76,  367 

v.  Swigert,  128  111.  237,  4  L.  R. 

A.  473,  268 

Hooper  v.  California,  155  U.  S. 

648,  275 

Hope  v.  International,  etc.,  Soc, 

L.  R.  4  Ch.  Div.  327,  188 

Hope,  etc.,  Co.  v.  Perkins,  38  N. 

Y.  404,  265 

v.   Flynn,  38  Mo.  483,  90  Am. 

Dec.  438,  621 

Hoper  v.  Carroll,  62  Minn.  152,      630 
Hopkins  v.   Roseclare,  etc.,  Co., 

72  111.  373,  523 

Hopper  v.  Sage,  112  N.  Y.  530,  8 

Am.  St.  Rep.  771,  428,  435 

Hoppin  v.  Buffum,  9  R.  I.  513, 

505,  506,  507 

v.  Flower,  etc.,  Co.,  22  Vt.  274,  293 
Horn  v.  Ivy,  1  Modern  18,  Plow. 

91/>,  160 

v.  Silver,  etc.,  Co.,  42  Minn.  196,  561 
Horn,  etc.,  Co.  v.  Ryan,  42  Minn. 

196,  562,  574 

Hornor  v.  Henning,  93  U.  S.  228,  247 
Horton  v.  Wilder,  48  Kan.  222,  535, 541 
Hospes  v.  Northwestern,  etc.,  Co., 
48  Minn.  174,  15  L.  R.  A.  470, 

324,  325,  339,  340,  343,  631 


Hotchkiss,  etc.,  Co.  v.  Union  Nat'l 
Bank,  37  U.  S.  App.  86,  472 

v.  Union  Nat'l  Bank,  27  U.  S. 
App.  86,  491 

Hotel  Co.  v.  Wade,  97  U.  S.  13,      552 
Hough  v.  Cook  Co.,  etc.,  Co.,  73 

HI.  23,  24  Am.  Rep.  230,  157 

House  of  Mercy  v.  Davidson,  90 

Tex.  529,  265 

Houston  v.  Thornton,  122  N.  C. 

365,  65  Am.  St.  Rep.  699,  564,  567 
Houston  R.  Co.  v.  Van  Alstyne, 

56  Tex.  439,  476 

Hovelman  v.  Kansas  City,  etc.,  R. 

Co.,  79  Mo.  643,  118 

Howard  v.  Glenn,  85  Ga.  238,  531,  612 
v.  Turner,  155  Pa.  St.  349,    397,  398 
Howarth  v.  Angle,  25  Misc.  Rep. 
(N.  Y.)   551,   39   App.   Div. 
(N.  Y.)  151,  649,  657,  660 

v.  Ellwanger,  86  Fed.  R.  54,  611,  638 
Howe   v.   Boston,   etc.,   Co.,   16 

Gray  (Mass.)  493,  186 

v.  Carpet  Co.,  16  Gray  493,  187 

Howe,  etc.,  Co.  v.  Sanford,  etc., 

Co.,  44  Fed.  Rep.  231,  183 

Howell  v.  Chicago,  etc.,  R.  Co., 

51  Barb.  (N.  Y.)  378  313 

v.  Manglesdorf  &  Co.,  33  Kan. 
194,  624,  646 

Hoyle  y.  Plattsburg,  etc.,  R.  Co., 

54  N.  Y.  314,        542,  544,  549,  552 
Hubbard  v.  Manhattan  Trust  Co., 
87  Fed.  Rep.  51,  57  U.  S.  App. 
730,  30  C.  C.  A.  520,  466,  468 

v.  Weare,  79  Iowa  678,  425,  426 

Hubbell  v.  Drexel,  11  Fed.  Rep. 

115,  313 

Hudson  v.  Carman,  41  Maine  84,      42 
v.  Greenhill,  etc.,  Corp.,  113  111. 

618,  69 

v.  Tower,  156  Mass.  82,  30  N.  E. 
Rep.  465,  161  Mass.  10,  36  N. 
E.  Rep.  680,  382 

v.  Tower,  36  N.  E.  Rep.  680,        383 
v.  Weir,  29  Ala.  294,  321 

Hughes  v.  Antietam  Mfg.  Co.,  34 

Md.  316,  34,  408 

v.  Drovers',  etc.,  Bank,  86  Md. 

418,  478 

v.  Parker,  20  N.  H.  58,  504 

v.  Vermont,  etc.,  Co.,  72  N.  Y. 
207,  430 

Hughesdale  Mfg.  Co.  v.  Vanner, 

12  R.  I.  491,  34 

Huguenot  Bank  v.  Studwell,  570 

Humble  v.    Mitchell,   11   Ad.    & 
El.  205,  321 


TABLE    OF    CASES. 


liii 


[References  are  to  Pages."] 


Humboldt,  etc.,  Assn.  v.  Stevens 

(Neb.),  52  N.  W.  Rep.  568,        419 
Humboldt,  etc.,  Co.  v.  American, 
etc.,  Co.,  62  Fed.  Rep.  357,  10 
C.  C.  A.  415,  172 

v.  American,  etc.,  Co.,  62  Fed. 
Rep.  361,  130 

Humphrey  v.Mooney,  5  Colo.  2S2, 

33,  39,  597 
v.  Patrons',  etc.,  Assn,  50  Iowa 
607,  176,  205,  215,  217,  221 

Hun  v.  Cary,  82  N.  Y.  65,  37  Am. 

Rep.  546,  561,  562 

Hunt  v.  Columbian,  etc.,  Co.,  55 
Maine  290,  92  Am.  Dec.  592,      674 
v.  LeGrand,  etc.,  Co.,  143  111. 
118,  673 

Hunter  v.  New  Orleans,  etc.,  Co., 

26  La.  Ann.  13,  146 

v.  Roberts,  etc.,  Co.,  83  Mich. 

63,  47  N.  W.  Rep.  131,        421,  543 
v.  Sun,  etc.,  Co.,  26  La.  Ann.  13,  587 
Huntington  v.  Attrill,  146  U.  S. 

657,  246,  625,  627,  646 

v.   Attrill,   L.   R.  (1893)  A.  C. 
150  (P.  C),  627 

Huntley  v.  Merrill,  32  Barb.  626,    275 
Hurd  v.  Kelley,  78  N.  Y.  588,  34 

Am.  Rep.  567,  397 

Hurlbut  v.  Marshall,  62  Wis.  590,    538 
Huron,  etc.,  Co.  v.   Kittleson,  4 
S.  Dak.  520,  57  N.W.  Rep.  233, 

51,  582,  583 
Hurt  v.   Salisbury,   55   Mo.   310, 

34,  593 
Huse  v.  Ames,  104  Mo.  91,  579 

Hussey    v.    Manufactures,     etc., 

Bank,  10  Pick.  415,  494 

v.  Norfolk,  etc.,  R.  Co.,  98  N.  C. 
34,  2  Am.  St.  Rep.  312,       235,  236 
Hutchinson  v.  Green,  91  Mo.  367,    181 
v.  Lawrence,  67  How.  Pr.  38,       304. 
v.     Railway     Co.,     6     Heisk. 
(Tenn.)  634,  558 

Hutton  v.   Hotel  Co.,  2  Drew  & 

Sm.  514,  525 

v.  Joseph  Bancroft  &  Sons  Co., 

83  Fed.  Rep.  17,  447 

v.    Scarborough,    etc.,    Co.,    2 
Drew  &  Sm.  521,  316 

Huylar  v.  Cragin   Cattle  Co.,  40 
N.  J.  Eq.  392,  2  Atl.  Rep.  274, 

415,  418,  419 
Hyatt  v.   Allen,  56    N.   H.   553, 

420,  437 

Hyde  v.  Goodnow,  3  N.  Y.  266,      275 

v.  Ward,  94  U.  S.  23,  141,  299 

Hyman  v.  Coleman,  82  Cal.  650,     660 


Iasigi  v.   Chicago,   etc.,  R.  Co., 

129  Mass.  46,  494 

Illinois,  etc.,  Bank  v.  Pacific  R. 
Co.,  115  Cal.  287,  49  Pac.  Rep. 
196,  181 

Illinois,  etc.,  Co.  v.  Hough,  91  111. 
63,  585 

v.  O'Donnell,  156  111.  624,  31  L. 

R.  A.  265,  182 

v.  Pearson,  140  111.  423,  41 

Illinois,  etc.,  R.  Co.  v.  Zimmer, 

20  111.  654,  206,  367,  375,  532 

v.  Zimmer,  20  111.  658,  95 

Illinois,  etc.,  Soc.  v.  Baldwin,  86 

111.  479,  305 

Imperial,  etc.,  Hotel  Co.  v.  Hamp- 

son,  L.  R.  23  Ch.  Div.  1,   587,  588 
Inderwick  v.  Snell,  2  Mac.  &  G. 

216,  300 

Indiana,  etc.,  Co.  v.  Willis,  18 
Ind.  App.  525,  48  N.  E.  Rep. 
646,  236 

Indiana  v.  United  States,  148  U. 

S.  148,  25 

Indianapolis,  etc.,  Co.v.  Citizens', 
etc.,  Co.,  127  Ind.  369,  131 

V.   Herkimer,   46  Ind.   142, 

34  37   75 
v.  St.  Louis,  etc.,  R.  Co.,  120  U.  ' 
S.  256,  577 

Indianapolis,  etc.,  R.  Co.  v.  Jones, 

29  Ind.  465,  196 

Indianapolis   R.  Co.  v.  Morgan- 
stern,  103  111.  149,  139 
Ingwersen  v.  Edgecombe  (Neb.), 

60  N.  W.  Rep.  1032,  545 

Innerarity   v.   Bank,   139  Mass. 

332,  584 

In  re  Ambrose,  etc.,  Co.,  14  Ch. 

Div.  390,  325 

Argus  Co.,  138  N.  Y.  557, 

513,  534,  540 
Argus  Pt.  Co.  (N.Dak.),  48  N. 

W.  Rep.  347,  505 

Argus,  etc.,  Co.,  1  N.  D.  434,  26 

Am.  Rep.  639,  506 

Anglo-Austrian,  etc.,  Co.,  61  L. 
J.  Ch.  481,  7  Eng.  Rul.  Cas. 
600,  584 

Asiatic  Banking  Corp.,  L.  R.  4 

Ch.  App.  252,  186 

Bahia,  etc.,  R.  Co.,  L.  R.  3  Q. 

B.  584,  483 

Barneds  Banking  Co.,  L.  R.  3 

Ch.  105,  38,  186 

Barker,  6  Wend.  (N.  Y.)  509, 

506,  510 


I1V 


TABLE    OF    CASES. 


[References  are  to  Pages.'] 


In  re  Barned's  Banking  Co.,  L. 

R.  3  Ch.  App.  105,  186 

Barton's  Trust.  L.  R.  5  Eq.  238,  439 
Belton,  47  La.  Ann.  1614,  30  L. 

R.  A.  648,  672 

Bingham,  10  N.  Y.  Supp.  325, 

32  N.  Y.  St.  Rep.  782,  631 

Bridgeport,  etc,  Co.,  L.  R.  2  Ch. 

191,  503 

Brockway,  etc.,  Co.,  89  Maine 

121,  56  Am.  St.  Rep.  401,  323 

Brooklyn,  etc.,  R.  Co.,  75  N.  Y. 

335,  664 

Burton,  L.  J.  31  Q.  B.  62,  418 

Cameron's,    etc.,    R.    Co.,     18 

Beav. 339,  544 

Cawley  &  Co.,  L.  R.  42  Ch.  Div. 

209,  405 

Cecil,  36  How.  Pr.  (N.  Y.)  477,  509 
Chenango,  etc.,  Co.,  19  Wend. 

(N.Y.)  635,  533,  534,  535 

Columbia  Bank,  147  Pa.  422,  23 

Atl.  Rep.  626,  189 

Comstock,   3    Sawyer    (U.   S.) 

218,  278,  279 

Cooper,  93  N.  Y.  507,  270 

Cork,  etc.,  R.  Co.,  L.  R.  4  Ch. 

748,  213 

Denham  &   Co.,  25  L.  R.  Ch. 

Div.  752,  562 

Director  Germicide  Co.,  55  Hun 

606,  509 

Dronfield,  etc.,  Co.,  17  Ch.  Div. 

76,  325 

Durham     County,    etc.,     Soc, 

Lower  Courts,  12  Eq.  516,  174 

Election  of  Directors,   etc.,  19 

Wend  (N.  Y.)  135,  533,  534 

Empire  City  Bank,  18  N.  Y.  199, 

658,  659 
Forest,  etc.,  Co.,  L.  R.  10  Ch. 

Div. 450,  562 

Gibbs'  Estate,  157  Pa.  St.  59,  22 

L.  R.  A.  276,  2,  44 

Glenn   Salt  Co.,  17  App.  Div. 

234,  153  N.  Y.  688,  505 

Globe,  etc.,  Assn.,  63  Hun  (N. 

Y.)  263,  38 

Glory,   etc.,  Co.,  L.  R.    (1894) 

3  Ch.  473,  542 

Griffing,  etc.,  Co.  (N.  J.),  41  Atl. 

Rep.  931,  587 

Haebler,  149  N.  Y.  414,  44  N.  E. 

Rep.  87,  111,144,299,301 

Hohorst,  150  U.  S.653,  59 

Horburv,  etc.,  Co.,  L.  R.  11  Ch. 

Div.  109,  504 

Howe,  l  Paige  214,  199 

Insurance  Co.,  3  Biss.  452,  191 


In  re  Jarvis,  etc.,  Co.,  11  Lav» 

Times  Rep.  373,  374 

Keasby   &   M.   Co.,  160  U.   S 

221,  60 

Kernochan,  104  N.  Y.  618, 

415,  428    435 
Klaus,  67  Wis.  401,         145,458    196 
Lands,    etc.,  Co.,  L.  R.  (1894)  1 

Ch.  616,  7  Eng.  R.  Cas.  614,     574 
Le  Blanc,  75  N.  Y.  598,  428 

Lignthall  Mfg.  Co.,  47  Hun  258,   142 
Lloyd  Generale  Italiano,  L.  R. 

29  Ch.  Div.  219,  673 

London,    etc.,   Co.    (Wallace's 

Case),  L.  R.  24  Ch.  Div.  149,    398 
Long  Island  Co.,  19  Wend.  (N. 
Y.)  37,  32  Am.  Dec.  429, 

149,  297,  408,  505 
McGraw's  Estate,  111  N.  Y.  66, 

2  L.  R.  A.  387,     152,  154,  155,  156 
Matheson  Brothers,  Limited,  L. 

R.  27  Ch.  Div.  225,  674 

Millward-Cliff,  etc.,  Co.  (Pa.), 

28  Atl.  Rep.  1072,  580 

Minneapolis,   etc.,   R.   Co.,    36 

Minn.  481,  98 

Murphy,  51  Wis.  519,  471 

Newcomb   (N.    Y.),  18  N.    Y. 

Supp.  16,  503 

New  York,  etc.,  Co.,  70  N.  Y. 

327,  24 

Northern,  etc.,  Co.,  Ch.  Div.  8 

R.  Corp.  L.  J.  177,  369 

Pat.  File  Co.,  L.  R.  6  Ch.  App. 

83,  7  Eng.  Rul.  Cas.  668,  180 

Pendleton,   etc.,   Co.,   24  Ore. 

330,  220 

People's,  etc.,  Co.,  56  Minn.  180, 

314,  640 
Prospect  Park,  etc.,  Co.,  67  N. 

Y.  371, 
Providence  R.  Co.,  17  R.  I.  324, 

21  Atl.  Rep.   965, 
Reading  Iron  Works,  149  Pa. 

St.  182,  24  Atl.  Rep.  202 
Rochester,  etc.,  R.  Co.,  50  Hun 

29,  370 

Sage,  70  N.  Y.  220,  417,  419 

St.  Lawrence,  etc.,  Co.,  44  N.  J. 

L.  529,  293,  505,  506,  509,  535 

Steinway,  159  N.  Y.  250,  53  N. 

E.  Rep.  1103,  415,  418 

Suburban,  etc.,  Co.,  L.  R.  2  Ch. 

App.  737,  527 

Townsend,  18  N.  Y.  Supp.  905,    509 
ITtica.  etc.,  Co.,  154  N.  Y   268, 

48  N.  E.  Rep.  521,  '97,577 

U.  S.  Merc.  Rep.  Co.,  115  N.Y. 
176,  41 


193 


495 


TABLE    OF    CASES. 


lv 


[Beferences  are  to  Pages."] 


In  re  West  Devon  Great  Consols 
Mine,  L.  R.  27  Ch.  Div.  106,     418 
Western,  etc.,  Co.,  L.  R.  1  Ch. 
Div.  115,  351 

In  Reliance,  etc.,  Co.  v.  Sawyer, 
160  Mass.  413,  36  N.  E.  Rep. 
59,  278 

Instone  v.  Frankfort,  etc.,  Co.,  2 

Bibb  (Ky.)  576,  409 

Insurance  Co.  v.  Dhein,  43  Wis. 

420,  230 

v.  Elliott,  5  Fed.  Rep.  225,  280 

v.  Jenkins,  3  Wend.  130,  559 

v.  Kennedy,  96  Tenn.  711,  275 

v.  Matthews,  102  Mass.  221,         280 
v.  McCain,  96  U.  S.  84,  163 

v.  McMillen,  24  Ohio  St.  67,        280 
v.  Morse,  20  Wall.  445,  269,  271 

v.  New  Orleans,  1  Woods  85,        267 
v.  Walsh,  18  Mo.  229,  280 

Intermountain,  etc.,  Co.  v.  Jack, 

5  Mont.  568,  76 

Int.,   etc.,   Assn.  v.  Wallace,   83 

Mich.  336,  47  N.  W.  Rep.  338,  363 
Int.  Trust  Co.  v.  Loan,  etc.,  Co. 

(Minn.),  65  N.W.  Rep.  78,       640 
International  Bank  v.  Faber,  86 
Fed.  Rep.  443,  57  U.  S.  App. 
153,  570 

International,  etc.,  Co.  v.  Inter- 
national, etc.,  Co.,  153  Mass. 
271,  10  L.  R.  A.  758,  41 

International  Fair,  etc.,  Assn.  v. 

Walker,  88  Mich.  62,  373 

International  Frat.  All.  v.  State, 
86  Md.  550,  40  L.  R.  A.  187, 

666,  668 
Iowa,  etc.,  R.  Co.  v.  Perkins,  28 

Iowa  281,  367,  374 

Iowa  Lumber  Co.  v.  Foster,  49 

Iowa  25,  186,  191 

Ireland  v.  Globe,  etc.,  Co.,  20  R. 
I.  (Part  I)  192,  38  L.  R.  A. 
299  462 

v.  Globe,  etc.,  Co.  (R.  I),  38  Atl. 
■    Rep.  116,  38  L.  R.  A.  299,     50,  52 
v.  Globe,  etc.,  Co.  (R.  I.),  29  L. 

R.  A.  429,  459 

v.  Palestine,  etc.,  Co.,  19  Ohio 
St.  369,  617 

Iron  City   Bank  v.  Pittsburg,  37 

Pa.  St.  341  89 

Iron  Co.  v.  Drexel,  90  N.  Y.  87,      349 
Iron   R.  Co.   v.   Lawrence,    etc., 
Co.,  49  Ohio  St.  102,  30  N.  E. 
Rep.  616,  308 

Irons  v.  Mfg.  Bank,  6Biss.  (C.  C.) 

301,  182 


Irrigation  Co.  v.  Warner,  72  Cal, 

379,  77 

Irvin  v.  Railway  Co.,  27  Fed.  Rep. 

626,  524,525 

Irving,  etc.  v.  Houstoun,  4  Paton 

(Scotch),  App.  Cas.  521,  438,  439 
Isharn  v.  Buckingham,  49  N.  Y. 

216,  466 

v.  Buckingham,  49  N.  Y.  222,  508 
Ishman  v.  Post  (N.  Y.),  35  N.  E. 

Rep. 1084,  563 

Isle  Royal,  etc.,  Corp.  v.  Secretary 

of  State,  76  Mich.  162,  255,  267,  271 


Jackson  v.  Campbell,  5  Wend. 
571,  581 

v.  Ludeling,  21  Wall.  616,  184 

v.  McLean,  36  Fed.  Rep.  213,      550 
v.  Meek,  87  Tenn.  69,  10  Am. 

St.  Rep.  620,  636 

v.  Newark,  etc.,  Co.,  31  N.  J.  L. 

277,  313,  429,  458 

v.   Stockbridge,  29  Texas  394, 

94  Am.  Dec.  290,  394 

v.  Traer,  64  Iowa  469,  20  N.  W. 

Rep.  734,  348,  349,  356 

v.  Walsh,  75  Md.  304,  23  Atl. 
Rep.  778,  23,  89 

Jacksonville,     etc.,    R.     Co,    v. 

Hooper,  160  U.  S.  514,  135 

Jacobs  Pharmacy  Co.  v.  Southern, 
etc.,  Co.,  97  Ga.  573,  25  S.  E. 
Rep.  171,  171,  175 

Jacobson  v.Allen,  20  Blatcbf.  525,  639 
Jacoby-Mickolas  Co.  (Minn.),  70 

N.  W.  Rep.  1085,  171 

James  v.  R.  Co.,  46  Fed.  Rep.  47,    56 
v.  Western,  etc.,  Co.,  121  N.  C. 

523,  672 

v.  Woodruff,  2  Denio  574,  475 

Jameson  v.  People,  16  111.  257,         26 
Jarvis  v.  Manhattan   Beach  Co., 
148  N.  Y.  652,  31  L.  R.  A.  776, 

327,  328,  331,  332 
Jefferson  v.  Hewitt,  95  Cal.  535,  393 
Jefferson  Branch  Bank  v.  Skelly, 

1  Black  (U.  S.)  436,  110 

Jefferson   County   Sav.    Bank   v. 

Francis,  115  Ala.  317,  453 

Jeffersonville,  etc.,  R.  Co.  v.  Hen- 
dricks, 41  Ind.  48,  196 
v.  Rogers,  38  Ind.  116,  237 
Jefts  v.  York,  10  Cush.  (Mass.)  392, 
Jemison  v.  Citizens'  Bank,  122  N. 

Y.  135,  19  Am.  St.  Rep.  482,     216 
Jenne  v.  Sutton,  43  N.  J.  L.  257, 
39  Am.  Rep.  578,  571 


lvi 


TABLE    OF    CASES. 


[Beferences  are  to  Pages."] 


Jennings  v.  Bank,  79  Cal.  323,  5 

L.  R.  A.  233,  489,  492 

Jermain  v.  Lake  Shore  R.  Co.,  91 

N.  Y.  483,  309,  428,  435,  437 

Jerrnan  v.  Benton,   79  Mo.  148, 

622,  659 
Jersey  Citv,  etc.,  Co.  v.  Consum- 
ers', etc.,  Co.,  40  N.  J.  Eq. 
427,  100 

Jervis-Conklin,  etc.,  Co.  v.  Will- 

hoit,  84  Fed.  Rep.  514,  276 

Jessopp's  Case,  2  De  G.  &  J.  638,    475 
Jessup  v.  Carnegie,  80  N.  Y.  411, 

36  Am.  Rep.  643,  610,  652 

Jesup  v.  Illinois  Central  R.  Co., 

43  Fed.  Rep.  483,  554 

Jewelers',  etc.,  Agency  v.  Doug- 
lass, 35  111.  App.  627,  281 
Jewell  v.  Rock  River  P.  Co.,  101 

111.  57,  295,  372 

Jewett  v.  Valley  R.  Co.,  34  Ohio 

St.  601,  387,  395 

John  C.  Graffin  Co.  v.  Woodside, 

87  Md.  146,  489,  490 

John  Hancock,  M.  L.  I.  Co.  v. 
Worcester,  etc.,  R.  Co.,  149 
Mass.  214,  30,  197 

John    V.    Farwell    Co.   v.    Wolf 

(Wis.),  70  N.  W.  Rep.  289,         64 

Johns  v.  Johns,  1  Ohio  St.  250,       320 

Johnson  v.  Brooks,  93  N.  Y.  337,    495 

v.  Bush,  3  Barb.  Ch.  207,  190 

v.  Crawfordsville,  etc.,  R.  Co., 

11  Ind.  280,  37 

v.  Corser,  34  Minn.  355,  25  N. 

W.  Rep.  799,  36,  596,  599 

v.  Dexter,  2  MacArthur  530,        475 
v.  First  Nat'l  Bank,  79  Wis.  440, 

24  Am.  St.  Rep.  722,  582 

v.  Kessler.  76  Iowa  411,  37,  377 

v.  Lullman,  15  Mo.  App.  55,  88 

Mo.  567,  341,  593 

v.  Lytle,  etc.,  Agency,  L.  R.  5 

Ch.  Div.  687,  408 

v.   Schulin  (Minn.  1897),  73  N. 

W.  Rep.  147,  36.42,66 

v.  Shar,  !»  S.  Dak.  536,  373 

v.   Sliortridge    (Mo.),   6   S.  W. 

Rep.  64,  582 

v.  CTnderhill,  52  N.  Y.  202,  469 

Johnston  v.  Gumbel  (Miss.),  19 
So.  Rep.  100,  74 

v.  Laflin,  5  Dill.  65,  103  U.  S. 
800,  458,  460,  465,  468 

Johnstone  v.  Jones,  23  N.  J.  Eq. 

216,  588 

v.  Trade,  etc.,  Co.,  132  Mass. 
432,  282 


Jones  v.  Aspen,  etc.,  Co.,  21  Colo. 
263,  29  L.  R.  A.  143,        67,76,77 
v.  Avery,  50  Mich.  326,  635 

v.  Bank  of  Leadville,  10  Colo. 

464,  665 

v.  Barlow,  62  N.  H.  202,        569,  570 
v.  Concord,  etc.,  R.  Co.,  67  N. 
H.  119,  38  Atl.  Rep.  120, 

310,  419,  503 
v.  Davis,  35  Ohio  474,  309 

v.  Guaranty  Co.,  101  U.  S.  622,  174 
v.  Indemnity  Co.,  101  U.  S.  622,  180 
v.  Morrison,  31  Minn.  140, 

192,  419,  446,  456,  552,  584, 585, 586 
v.  Nat.,  etc.,  Assn.,  94  Pa.  St. 

215,  •  161 

v.  Ogle,  L.  R.  14  Eq.  419,  437 

v.  Pearl,  etc.,  Co.,  20  Colo.  417,  253 
v.  Planter's   Bank,  9   Heisk. 

(Tenn.)  455,  226 

v.  Railway  Co.,  57  N.  Y.  196, 

430,  434,  437 
v.  Sisson,  6  Gray  288,  405 

v.  Smith,  3  Gray  500,  277 

v.  Surprise,  64  N.  H.  243,  261 

v.  Terre  Haute,  etc.,  R.  Co.,  57 

N.  Y.  196,  429 

v.  Whitworth,  94  Tenn.  602,        356 
v.  Williams,  139  Mo.  1,  37  L.  R. 
A.  682,  61  Am.  St.  Rep.  437, 

575,  577 
Joslyn  v.  St.  Paul,  etc.,  Co.,  44 

Minn.  183,     328,  466,  471,  477,  481 
Jossey  v.  George,  etc.,  R.  Co.,  102 

Ga.  706,  541 

Joy  v.  Manion,  28  Mo.  App.  55, 

369,  390 
Juilliard  v.  Greeman,  110  U.  S. 

421,  445,  24 

Juker  v.  Commonwealth,  20  Pa.  St. 

484,  140 

Junction  R.  Co.  v.  Reeve,  15  Ind. 
236,  378 

K 

Kadish  v.   Garden   Citv,  etc., 

Assn.,  47  111.  App.  602,  199 

v.  Garden  Loan  Assn.,  151  111. 

531,  207,  220,  223 

Kaiser  v.  Bank,  56  Iowa  104,  599 

Kalamazoo,  etc.,  Co.  v.  McAlis- 

ter,  36  Mich.  327,  581 

Kamp  v.  Wintermute,  107  Mich. 

635,  629 

Kane  v.  Bloodgood,  7  Johnson's 

Ch.  90,  428,  437 

Kankakee,  etc.,  Co.  v.  Kampe,  38 

Mo.  App.  229,  182 


TABLE    OF    CASES. 


lvii 


[References  are  to  Pages.] 


Kansas  City,  etc.,  R.  Co.  v.  Alder- 
man, 47  Mo.  349,  378 
Kansas  City,  etc.,  Co.  v.  Harris, 

51  Mo.  464,  410 

v.  Hunt,  57  Mo.  126,  410 

v.  Phillips,  98  Ala.  159,  235 

Kansas,  etc.,  R.  Co.  v.  Smith,  40 

Kan.  192,  30,  194 

Kansas,   etc.,   Co.   v.   DeVol,   72 
Fed.  Rep.  717,  577 

v.   Topeka,    etc.,   R.    Co.,   135 
Mass.  34,  46  Am.  Rep.  439, 

282,  645 

v.  Wilder,  43  Kan.  731,  271 

Katama,  etc.,  Co.  v.  Holley,  129 

Mass.  540,  385 

v.  Jernegan,  126  Mass.  155,  373,  409 

Katzenberger  v.  Aberdeen,  121  U. 

S.  172,  26 

Kaufman  v.  Woolen  Mills  Co  ,  93 
Va.  673,  25  S.  E.  Rep.  1003, 

421,  427,  429,  435 
Kean  v.  Johnson,  9  N.  J.  Eq.  401, 

525,  528 
v.  Union,  etc.,  Co.,  52  N.  J.  Eq. 
813,  535 

Kearney  v.  Andrews,  10  N.  J.  Eq. 

70,  140 

Keener  v.  Harrod,  2  Md.  63,  567 

Keenev  v.  Converse  (Mich.  1894), 

58'N.  W.  Rep.  325,  549 

Keintzelman  v.  Druid,  etc.,  Assn., 

38  Minn.  138,  150 

Kellar  v.  Eureka,  etc.,  Co.,  43  Mo. 

App.  84,  483 

Kelley  v.  Newburyport,  etc.,  Co., 

141  Mass.  496,  547 

Kellogg  v.  Schuvler,  2  Denio,  634 

v.  Stockwell,  75  111.  68,  469 

Kelly  v.  Board,  etc.,  75  Va.  263,     158 
v.    Fourth    of    July,    etc.,   Co. 
(Mont.),  53  Pac.  Rep.  959,  42 
L.  R.  A.  621,  352 

Kelner  v.  Baxter,  L.  R.   2  C.  P. 

174,  593 

Kelsey   v.  Fermentation  Co.,  51 

Hun  (N.  Y.)  636,  416 

v.  Northern,  etc.,  Co.,  45  N.  Y. 
505,  378 

Kennebec,  etc.,  R.  Co.  v.  Jarvis, 
34  Maine  360,  368 

v.  Kendall,  31  Maine  470,     142,  385 
v.  Palmer,  34  Maine  366,  362 

v.   Portland,   etc.,   R.    Co.,    59 

Maine  9,  180 

v.   Portland,    etc.,  R.   Co.,    59 
Maine  23,  120 

Kennedy  v.  Cal.  Sav.  Bank,  101 
Cal.  495,  186,187,217 


Kennedy  v.  Gibson,  8  Wall.  (U. 
S.),  498,  658 

v.  McKay,  43  N.  J.  L.  288,  390 

Kennett  v.  Wood  worth  Mason  Co. 

(N.  H.),  39  Atl.  Rep.  585,  36 

Kent  v.  Freeland,  etc.,  Co.,  L.  R. 

4  Eq.  588,  393 

v.  Quicksilver,  etc.,  Co.,  78  N. 
Y.  159,  142,  143,  174,  218,  315,  316 
Kenton,  etc.,  Co.  v.  McAlpin,  5 

Fed.  Rep.  737,  '336,  502,  607 

Keokuk  &  W.  R.  Co.  v.  Missouri, 

152  U.  S.  301,  111,112,194 

Kerr  v.  Dougherty,  79  N.  Y.  327,    265 

v.  Urie,  86  Md.  72,  38  L.  R.  A. 

119,  631 

Keyser  v.  Hitz,  133  U.  S.  138,  366,  658 

Keystone,  etc.,  Co.  v.  Bate,  187 

Pa.  St.  460.  549 

v.  McCluney,  8  Mo.  App.  496,     341 
Kid  v.  Mitchell,   1  Nott  &  McC. 

334,  494 

Kilgore  v.  Smith,  122  Pa.  St.  48,     280 
Kilpatrick  v.  Bridge  Co.,  49  Pa. 

St.  118,  586 

Kimball  v.  Union,  etc.,  Co.,  44 

Cal.  173,  496 

Kincaid  v.  Dwinelle,  59  N.  Y. 

548,  664,  672 

Kindel  v.  Beck,  etc.,  Co.,  19  Colo. 
310,  35  Pac.  Rep.  538,  276 

v.  Lithograph  Co.,  19  Colo.  310,   277 
King  v.  Bank,  etc.,  2  Barn.  &  Aid. 
620,  423 

v.  Barnes,  109  N.  Y.  267,  381,  515 
v.  Int.,  etc.,  Assn.,  170  111.  135,  142 
v.  National,  etc.,  Co.,  4  Mont.  1, 

276 
v.  Paterson,  etc.,  R.  Co.,  29  N. 

J.  Law  504,  430,  433 

v.  Railroad   Co.,  29  N.  J.  Law 

82,  428 

v.  Westwood,  4  Barn.  &  C.  798,   141 
Kingsley  v.  New  England,  etc., 

Co.,  8  Cush.  (Mass.)  393,  144 

Kisseberth  v.  Prescott,  95  Fed. 

Rep.  357,  640 

Kisterbrock's  App.,  127  Pa.  St. 

601,  483 

Kitchen,  etc.,  Co.  v.  St.  Louis,  etc., 

Co.,  69  Mo.  224,  555 

Kittel  v.  Augusta,  etc.,  R.  Co.,  78 

Fed.  Rep.  855,  193 

Kneeland  v.  Braintree,  etc.,  R. 
Co.,  167  Mass.  161,  45  N.  E. 
Rep.  86,  174 

v.  Gilman,  24  Wis.  39,  231 

Knight  v.  Barber,  16  Mee.  &  W. 
66,  321 


lviii 


TABLE   OF   CASES. 


[Beferences  are  to  Pages. ] 


Knights  of  Honor  v.  Mickser,  72 

Tex.  257,  303 

Knox  v.  Baldwin,  80  N.  Y.  610, 

570,  571,  625 
v.  Eden  Musee,  etc.,  Co.,   148 

N.  Y.  441,  31  L.  E.  A.  779, 

327,  331,  333,  478,  479,  480,  557 
v.  Protection,  etc.,  Co.,  9  Conn. 

430,  25  Am.  Dec.  33,  62 

Knowles  v.  Sandercock,  107  Cal. 

629,  184,  187 

Knowlton  v.  Congress,  etc.,  Co., 

57  N. Y.  518,  334 

Koehler    v.    Black    River  Falls, 

etc.,  Co.,  2  Black  (U.  S.)  715, 

184,  544,  545,  547 
v.  Dodge,  31  Neb.  328,  584 

Koenig  v.  Chicago,  etc.,  R.  Co., 

27  Neb.  699,  153 

Kohl  v.  Lilienthal,  81  Cal.  378,       606 
Kolff  v.  St.  Paul,  etc.,  Exchange, 

48  Minn.  215,  142,  144 

Kortright  v.  Buffalo,  etc.,  Bank, 

L'O'Wend.  90,  494 

Kothe     v.     Krag-Reynolds     Co. 

(Ind.  App.),   50  N.  E.  Rep. 

594,  415 

Kraniger  v.  People's   Building 

Soc,  60  Minn.  94,  176,  215 

Kroeger  v.  Pitcairn,  101  Pa.  St. 

311,  47  Am.  Rep.  718,  567 

Kurtz  v.  Paola,  etc.,  Co.,  20  Kan. 

397,  70,  675 


Labouchere  v.  Earl  of  Wharn- 
cliffe,  L.  R.  13  Ch.  Div.  346, 

303,  305,  306 

La  Burgogne,  79  L.  T.  Rep.  331 

(1898-99),  283 

Ladywell,  etc.,  Co.  v.  Brookes, 
':;.-)  Ch.  Div.  400,  17  Am.  & 
Eng.  C.  C.  22,  44 

La  Farge  v.  Exchange,  etc.,  Co., 
22  N.  Y.  352,  62 

!.:i  Fayette  Ins.  Co.  v.  French,  18 

How.  (U.S.) 404,  56,269,271,  288 

Laffin  v.  Travelers',  etc.,  Co.,  121 

N.  Y.  713,  289 

I.. i  Grange,  "tc,  R.  Co.  v.  Rainey, 
7  Coldw.  (Tenn.)  432,  70 

Laing  v.  Burley,  101  111.591,  632 

Lake  Ontario,  etc.,  R.  Co.  v.  Our- 
tiss,  80  N.  V.  219,       363,  368,  385 
v.  Mason,  16  N.  Y.  451,        369,  405 

Lake  Roland,  etc.,  R.  Co.  v.  Hal- 
tin  .on-,  77  Md.  352,  20  L.  I;. 
A.  126,  116,  177 


Lake  Shore  R.  Co.  v.  Hutchins, 
37  Ohio  282,  196 

v.  Prentice,  147  U.  S.  101,  235 

Lake  Shore,  etc.,  R.  Co.  v.  Smith, 

173  U.  S.  684,  89,  91 

Lake  Superior,  etc.,  Co.  v.  Drexel, 

90  N.  Y.  87,  190 

Lamb  v.  Bowser,  7  Biss.  C.C.372,  275 

v.  Bowser,  7  Biss.  315,  280 

v.  Cecil,  25  W.  Va.  288,  181 

v.  Lamb,  6  Biss.  420,  613 

Lamsom  v.  Beard  (C.  C.  App.), 

94  Fed.  Rep.  30,  579 

Lancaster  v.  Amsterdam  Imp.  Co., 

140N.Y.576,  35N.E.Rep.964, 

24  L.  R.  A.  322, 

39,  65,  67,  71,  260,  262,  605 
v.  Armstrong,  etc.,  Co.,  140  N. 

Y.  576,  24  L.  R.  A.  322,  260 

Land  Grant  R.  Co.  v.  Coffey  Co., 

6  Kan.  245,  251,  604 

Land,  etc.,  Co.  v.  Lord  Fermoy, 

L.  R.  5  Ch.  763,  563 

Landis  v.  Saxton,  105  Mo.  486,  24 

Am.  St.  Rep.  403,  430 

Lane  County  v.  Oregon,  7  Wall. 

(U.S.)  71,  102 

Lane  v.  Brainerd,  30  Conn.  565,     378 
Lang  v.  Lang's  Exrs.  (N.  J.),  41 

Atl.  Rep.  705,  445 

Langan  v.  Francklyn,  29  Abbott 

N.  Cas.  102,  554 

Langer's  Case,  37  L.  J.  Ch.  N.  S. 

292,  387 

Lare  v.  Westmoreland,  etc.,  Co., 

155  Pa.  St.  33,  395 

Lamed  v.  Andrews,  106  Mass.  435,  277 

v.  Beal  (N.  H.),  23  Atl.  Rep.  149,  598 

Larrabee  v.  Baldwin,  35  Cal.  155,   622 

Larson  v.  James  (Colo.),  29  Pac. 

Rep.  183,  626 

Lasher  v.  Stimpson,  145  Pa.  St.  30,  567 
Late  Corp.   of   Church  of  Jesus 

Christ  v.  United  States,  136 

U.S.I,  677 

Lathrop    v.  Commercial  Bank,  8 

Dana  (Ky.)  114,  33  Am.  Dec. 

481,  260 

v.  Kneeland,  46  Barb.  432,  380 

Latimer  v.  Citizens'  State  Bank, 

102  Iowa  161,  186,637 

v.  Railway  Co.,  43  Mo.  105,  97 

Am.  Dec.  378,  285,  286 

Lauder  v.   Peoria,   etc.,  Soc,  71 

111.  App.  475,  157 

Lauman    v.  Lebanon    Valley   R. 

Co.,  30  Pa.  St.  42,     22,  88,  95,  527 


TABLE    OF    CASES. 


lix 


[References  are  to  Pages.~\ 


Laurel  Springs,  etc.,  Co.  v.  Fouge- 

ray,  50  N.  J.  Eq.  756,  421 

Lauter  v.  Jarvis-Conklin,  etc., 
Co.,  85  Fed.  Rep.  894,  29  C. 
C.  A.  473,  276 

Lea  v.  Iron,  etc.,  Co.  (Ala.),  24 
So.  Rep.  28,  353 

Leavenworth  Co.  Com.  v.  Chicago, 

etc.,  R.  Co.,  134  U.S.  688,        554 

Leavenworth  Co.  v.  Chicago,  etc., 

R.  Co.,  25  Fed.  Rep.  219,    31,  193 

Leavitt  v.  Mining  Co.,  3  Utah  265,  540 
v.  Oxford,  etc.,  Co.,  3  Utah  265, 

542,  543 
v.  Palmer,  3  N.  Y.  19,  228 

Leazure  v.   Hillegas,   7   Serg.   & 

Ravvl.  (Pa.)  313,  152,153 

Lebanon   Sav.    Bank   v.   Hollen- 

beck,  29  Minn.  322,  260 

Lee  v.  Imbrie,  13  Ore.  510,  377 

Leebke  v.  Knapp,  79  Mo.  22,  335 

Leech  v.  Harris,  2  Brewst.  571,       304 

Leekins  v.  Nordyke,  etc.,  Co.,  66 

Iowa  471,  161 

Leese  v.  Atchison,  etc.,  R.  Co.,  24 

Neb.  143,  8  Am.  St.  Rep.  179,  666 

LeFrance,  etc.,  Co.  v.  Mt.  Ver- 
non, 9  Wash.  142,  279 

Leegett  v.  Bank,  24  N.  Y.  283,        490 
v.  Ladd,  23  Ore.  26,  151 

v.  New  Jersey,  etc.,  Co.,  1  N.  J. 
Eq.  541,  23  Am.  Dec.  729,         152 

Legendre  &  Co.  v.  Association,  45 

La.  Ann.  669,  419 

LeGrange,  etc.,  R.  Co.  v.  Rainey, 

7  Coldw.  (Tenn.)  420,  664 

Lehman,   etc.,   Co.  v.  Glenn,   87 

Ala.  618,  612 

Lehigh  Valley,  etc.,  Co.  v.  Agri- 
cultural Works,  63  Wis.  45, 

135,  180,  218 

Lehigh,  etc.,  R.  Co.  v.  Pennsyl- 
vania, 145  U.  S.  192,  104 

Lehigh,  etc.,  Co.  v.  Lehigh,  etc., 
Co.,  4Rawle  (Pa.)  9,  669 

v.  Northampton  Co.,  8  Watts  & 
S.  (Pa.)  334,  112 

Leighton  v.  Campbell,  17  R.  I.  51,  176 

Leitch  v.  Wells,  48  N.  Y.  585,         471 

Leland  v.  Havden,  102  Mass.  542, 

191,  312,  440 

Leloup  v.  Mobile,  127  U.  S.  640,  109 
Lemcke  v.  Tredway,  45  Mo.  App. 

507,  94  Mo.  410,  611 

Leonard  v.  American  Ins.  Co.,  97 

Ind.  299,  162 

LeRoy  v.  Insurance  Co     2  Edw. 

Ch.  (N.  Y.)  657,  427 


Lesseps  v.  Architect's  Co.,  4  La. 

Ann.  316,  407 

Lester  v.  Howard  Bank,  33  Md. 

558,  229, 278 

v.  Webb,  1  Allen  34,  480 

Levenworth  v.  Chicago,  etc.,  Co., 

134  U.  S.  688,  549 

Luxton    v.    North    River   Bridge 

Co.,  153  U.  S.  525,  25 

LeWarne  v.  Meyer,  38  Fed.  Rep. 

191,  213 

Leweys  Island  R.  Co.  v.  Bolton, 

48  Maine  451,  373,  381 

Lewis  v.  American,   etc.,  Assn., 

98  Wis.  203,  73  N.  W.   Rep. 

793,  39  L.  R.  A.  559, 

132,  223,  251,  674 

v.  Brainerd,  53  Vt.  510,  416 

v.  Brainerd,  53  Vt.  519,        415,  419 
v.  Berryville,  etc.,  Co.,  90  Va. 

683,  492 

v.  Fisher,  80  Md.  139,  26  L.  R. 

A.  278,  182 
v.  Mill  Co.  (Tex.  Civ.  App.),  23 

S.  W.  Rep.  338,  382 

v.  Publishing  Co.,  77  Mo.  App. 

434,  578 

v.  Tilton,  64  Iowa  220,  19  N.  W. 

Rep.  911,  52  Am.  R.  436,  20,  567 
Lexington,  etc.,  Co.  v.  Bridges,  7 

B.  Mon.    (Ky.)  556,  46   Am. 
Dec.  528,  409,  432 

v.   Page   &   Richardson,   17  B. 
Mon .  ( Kv. )  412,    183,  426, 433, 546 
Leyson  v.  Davis,  17  Mont.  220,  31 

L.  R.  A.  429,  467 

Lewis  v.  Wilson,  121  N.  Y.  284, 

24  N.  E.  Rep.  474,  305 

Libbey  v.  Hodgdon,  9  N.  H.  394, 

281,283 

Libby  v.  Tobev,  82  Maine  397, 

356,  492,  637 

Liblong  v.  Kansas,  etc.,  Co.,  82 

Pa.  St.  413,  289 

Lickbarrow  v.  Mason,  2  D.  &  E.  70,  481 
Life  Assn.  v.  Fassett,  102  111.  315, 

671,  676 
Life  Ins.  Co.  v.  Mechanic,  etc., 
Co.,  7  Wend.  (N.  Y.)  31, 

132,  199,  201,  577 

Liggett  v.  Glenn,  2  C.  C.  A.  285,  506 
Lilly  v.  Tobbein,  103  Mo.  477,  23 

Am.  St.  R.  887,  18 

Limer  v.  Traders'  Co.,  44  W.  Va. 

175,  575 

Lincoln   Bank  v.  Richardson,   1 

Greenl.  79,  10  Am.  Dec.  34,        23 


lx 


TABLE    OF    CASES. 


[Beferences  are  to  Pages.] 


Lincoln,  etc.,  Co.  v.  Sheldon,  44 

Neb.  279,  62  N.  W.  Rep.  480, 

85,  374 
Linev.  Bellamy,  etc.,  Co.,  12  N. 

H.  205,  37  Am.  Dec.  203,  582 

Linkauf  v.  Lombard,  137   N.  Y. 

417,  220,  221 

Lionberger  v.  Rouse,  9  Wall.  (U. 

S.)  468,  108 

Lipnitt  v.  American,  etc.,  Co.,  15 

R.  I.  141,  2  Am.  St.  Rep.  886, 

467,  468,  471,  492 
Litchfield    Bank    v.   Church,    29 

Conn.  137,  398 

Little  Rock,  etc.,  R.  Co.  v.  Page, 

35  Ark.  304,  547 

Liverpool,  etc.,  Co.  v.  Massachu- 
setts, 10  Wall.  (U.  S.)  566, 

27,  256,  267 
Livesey  v.  Omaha  Hotel,  5  Neb. 

50,  373 

Livezev  v.  N.  P.  R.  Co.,  157  Pa. 

St."  75,  494 

Livingston  v.  Lynch,  4  John.  Ch. 

573,  525,  528 

Livingston  Co. v.  First  Nat'l  Bank, 

128  U.  S.  102,  195 

Lloyd  v.  Preston,  146  U.  S.  630,      355 
v.    Washington,     etc.,    Co.,    1 

Mackey  (D.  C.)  331,  81 

Lockhart    v.     Van    Alstyne,    31 

Mich.  76,      176,  316,  317,  319,  420 
Lockwood    v.    Mechanics'    Nat'l 

Bank,  9  R.  I.  308,  141    489 

Lodge  v.  Graham,  96  Iowa  592,  31 

L.  R.  A.  133,  40 

v.  Weller  (Va.),  25  S.  E.  Rep. 

891,  140 

Loftus  v.  Farmers',  etc.,  Assn., 

87  S.  Dak.  201,  448 

Logan   Co.,  etc.,  Bank  v.  Town- 
send,  60  Vt.  459,  213 
Lombardo  v.   Case,  45  Barb.  (N. 

Y.)  95,  435 

Lone    Co.    v.    Oregon,    7    Wall. 

(U.S.)  71,  102 

Long  v.  Georgia,  etc.,  R.  Co.,  91 

Ala.  519,  24  Am.  St.  Rep.  931, 

204.  208,  212 
v.  Gird  wood,   150  Pa.  St.   413, 

23  L.  R.  A.  33,  250 

Longmont,  etc.,  Co.  v.  Coffman, 

II  Coin.  551,  498,  539 

Longworlliv,   Receiver,  v.   Gard- 

mg  I  Minn.),  77  N.   W.  Rep. 

207,  277,  280,  612 

Lonkcv   v.    Keyes,   etc.,   Co.,  21 

Nev.  312,  17  L.  R.  A.  351,         288 
Lord  v.  Brooks,  52  N.  H.  72,  445 


Lord  v.  Yonkers,  etc.,  Co.,  99  N. 

Y.  547,  180 

Lorillard  v.  Clyde,  86  N.  Y.  384,     336 

Loring  v.  Brodie,  134  Mass.  453,     582 

v.  Boston,  7  Mete.  (Mass.)  409,  384 

v.   Salisbury   Mills,   125   Mass. 

138,  486 

Loubat  v.  Leroy,  15  Abb.  (N.  C.) 

1,  304 

Louisville  Banking  Co.  v.  Eisen- 
man,  94  Ky.  83,  42  Am.  St. 
Rep.  335,  19  L.  R.  A.  684, 

39,  600,  662,  672 

Louisville,   etc.,    Co.    v.    Carson 

(111.),  38  N.  E.  Rep.  140,  549 

v.  Kaufmann  (Kv.),  48   S.  W. 

Rep.  434,  601,672 

v.  Louisville,  etc.,  Co.,  92  Ky. 

233,  14  L.  R.  A.  579,  248 

Louisville,  etc.,  R.  Co,  v.  Boney, 

117  Ind.  501,  3  L.  R.  A.  435,     196 
v.  Carson,  151  111.  444,  551 

v.  Flannagan,   113  Ind.  488,  3 

Am.  St.  Rep.  674,  221 

v.  McNay,  98  Ind.  391,  575 

v.  N.  A.  &  C.  R.  Co.,   75  Fed. 

Rep.  433,  56 

v.  Railway  Co.,  75   Fed.   Rep. 

433,  47 

Louisville   Gas   Co.  v.   Citizens', 

etc.,  Co.,  115  U.  S.  683,         88,  96 
Louisville  Trust  Co.  v.  Louisville, 

etc.,  R.  Co.    (C.  C.  App.),  75 

Fed.  Rep.  433,  43  U.  S.  App. 

550,  23,  132,  173,  186,  195 

Louisville  Water  Co.  v.  Clark,  143 

U.  S. 1,  85 

Love  v.  Sierra,  etc.,  Co.,  32  Cal. 

639,  91  Am.  Dec.  602,  180 

Low  v.  Conn.,  etc.,  R.  Co.,  45  N. 

H.  370,  54 

v.  Railway  Co.,  52  Cal.  53,  172 

Lowe  v.  Pioneer,  etc.,  Co.,  70  Fed. 

Rep.  646,  189 

Lowndes  v.  Cooch,  87    Md.  478, 

40  L.  R.  A.  380,  320 

Lowry  v.  Bank,  Taney  310,  485 

Lubroline  Oil  Co.  V.  Athens  Sav. 

Bank  (Ga.),30  S.  E.  Rep.  409,  181 
Lucas  v.  White  Line,  etc.,  Co.,  70 

Iowa  541,  59  Am.  Rep.  449, 

176,  205 
Lucky,  etc.,  Co.  v.  Abraham,  26 

Ore.  282,  578 

Luling   v.  Atlantic,  etc.,  Co.,  45 

Barbour  (N.  Y.)  510,  431 

Lumbard  v.  Aldrich,  8  N.  H.  31, 

38  Am.  Dec.  381,  260 


TABLE    OF    CASES. 


lxi 


[Beferences  are  to  Pages. ~\ 


Lund  v.  Wheaton,   etc.,  Co.,   50 

Minn.  36,  52  N.  W.  Rep.  268, 

466,  471,  477 
Luttrel  v.  Martin,  112  N.  C.  593,  217 
Lycoming,  etc.,  Co.  v.  Wright,  55 

Vt.  526  278,  658 

Lyndonville  Nat'l  Bank  v.  Tolson, 

7  N.  M.  611,  472 

Lynn  v.Freemansburg,etc.,Assn., 

117  Pa.  St.  1,  143 

Lyon  v.  American,  etc.,  Co.,  16 

R.  I.  472,  17  Alt.  Rep.  61, 

416,  417,  418 
Lyon-Thomas  H.  Co.  v.  Perry, 

etc.,  Co.,  86  Texas  143,  22  L. 

R.  A.  802,  182,  183 

Lyons  v.  Orange,  etc.,  R.  Co.,  32 

Md.  18,  23 

Mc 

McAllen  v. Woodcock,  60  Mo.  174,  549 
McAllister  v.  Kuhn,  96  U.  S.  87,  320 
v.  Plant,  54  Miss.  106,  180 

McArthur  v.  Times,  etc.,  Co.,  48 

Minn.  319,  50,  51 

McAuley  v.  Colo.,  etc.,  R.  Co.,  83 

111.  348,  27,  71 

McCall  v.  American,  etc.,  Co.,  99 

Ala.  427,  12  So.  Rep.  806,  280 

v.  California,  136  U.  S.  104,  110,  255 
v.  Manufacturing  Co.,  6  Conn. 

428,  541 

McCallion  v.  Hibernia,  etc.,  Co., 

70  Cal.  163,  35 

McCanna,   etc.,  Co.   v.  Citizens', 

etc.,   76    Fed.    Rep.   490,    39 

IT.  S.  App.  332,  35   L.  R.  A. 

236,  277 

McCartee    v.    Orphans'    Asylum 

Soc,  9  Cow.   (N.  Y.)  437,  18 

Am.  Dec.  516,  151,  154,  156 

McCarthy  v.  Lavasche,  89  111.  270, 

31  Am.  Rep.  83,  69,  73,  77,  295 
McClelland  v.  Whitely,  15   Fed. 

Rep.  332,  366 

MeClure  v.  People's,  etc.,  Co.,  90 

Pa.  St.  269,  95,  293,  363 

McComb  v.  Barcelona,  etc., Assn., 

134  N.  Y.  598,  555,  577 

McCormick  v.  Market  Nat'l  Bank, 

165  U.  S.  538,  205,  215 

McCrary  v.  Beaudry,  67  Cal.  120,  81 
McCulloch  v.  Maryland,  4  Wheat. 

(U.  S.)  316,  24,  25,  104,  108 

McCul lough  v.   Massachusetts,   5 

Denio  (N.  Y.)  567,  524 

v.  Norwood,  58  N.  Y.  562,  676 

McCutcheon  v.  Merz,  etc.,  Co.,  71 

Fed.  Rep.  787,  187 


McDaniels  v.  Flower  Brook,  etc., 

Co.,  22  Vt.  274,  502,  534 

McDonald  v.  Williams,  174  U.  S. 

397,  433,  606 

McDonnell  v.  Alabama,  etc.,  Co., 

85  Ala.  401,  88 

McDowall  v.  Sheehan,  129  N.  Y. 

200,  636 

McDowell  v.  Ackley,  93  Pa.  St. 

277,  150 

McFadden  v.  Los  Angeles  Co.,  74 

Cal.  571,  144,  146 

McFall   v.   Buckeye,   etc.,   Assn. 

(Cal.),  55  Pac.  Rep.  253,  474 

v.  McKeesport,  etc.,  Co.  (Pa.), 

16  Atl.  Rep.  478,  594 

McGee   v.   Pacific,   etc.,   Co.,   98 

Cal.  678,  221 

McGinty  v.  Athol,  etc.,  Co.,  155 

Mass.  183,  462 

McGourkey  v.   Toledo,    etc.,   R. 

Co.,  146  U.  S.  536,  546 

McGowan  v.  American,  etc.,  Co., 

121  U.  S.  575,  594 

McGregor  v.  Home,  etc.,  Co.,  33 

N.  J.  Eq.  181,  317,  319 

McGrew  v.  Citv  Produce   Exch., 

85  Tenn.  572,  4  Am.  St.  Rep. 

771,  595 

Mclndoe  v.  St.  Louis,  10  Mo.  575,  173 
McKean  v.   Biddle,  181   Pa.   St. 

361,  426 

McKenney  v.  Haines,  63  Maine 

74,  494 

McKierman  v.  Lenzer,  56  Cal.  61,  159 

McKim  v.  Glenn,  66  Md.  479,  630 

v.  Odom,  3  Bland's  Ch.  407,  15 

v.  Odom,  3  Bland's  Ch.  418,  9 

McKinley  v.  Chicago,  etc.,  R.  Co., 

44  Iowa  314,  24  Am.  Rep.  748,  240 
McLaren  v.  Pennington,  1  Paige 

(N.  Y.)  102,  38,  90 

McLaughlin  v.  O'Neill  (Wvo.),  51 

Pac.  Rep.  243,  655 

v.  Railroad  Co.,  8  Mich.  99,  427 

McLellan  v.  File  Works,  56  Mich. 

579,  171,578 

McLeod  v.   American,  etc.,  Co., 

100  Ala.  496,  14  So.  Rep.  409,  267 
McLonth  v.  Hunt,  154  N.  Y.  179, 

39  L.  R.  A.  230,  438,  439, 445 

McMahon   v.  Morrison,   16  Ind. 

173,  79  Am.  Dec.  418,  30,  194 

McMillan  v.  Railway  Co.,  15  B. 

Mon.  218,  370,  407 

McNabb  v.  McNabb,  etc.,  Co.,  62 

Hun  (N.  Y.)  18,  421 

McNeely  v.  Woodruff,  13  N.  J.  L. 

352,  507 


lxii 


TABLE    OF    CASES. 


[References  are  to  Pages. ] 


McNeil  v.    Boston    Chamber    of 

Com.,  154  Mass.  277,  580 

v.  Tenth  Nat'l  Bank,  46  N.  Y. 
325,  7  Am.  Rep.  341, 

293,  332,  466,  471,  481,  506 
McQueen  v.  Middleton,  etc.,  Co., 

16  John.  (N.  Y.)  5,  283 

McTighe  v.  Macon,  etc.,  Co.,  94 
Ga.  306,  32  L.  R.  A.  208, 

67,  69,  158 
McVicker  v.  Jones,  70  Fed.  Rep. 

954,  638,  643,  646 

M 

Macedon,  etc.,  Co.  v.  Lapham,  18 

Barb.  (N.  Y.)  312,  528 

Machinists'  Nat'l  Bank  v.  Field, 

126  Mass.  345,  479,  482 

Mack  v.  DeBardeleben,  etc.,  Co., 

90  Ala.  396,  9  L.  R.  A.  650, 

506,  520 
Mack's  Appeal  (Pa.),  7  Atl.  Rep. 

481,  377 

Mackey  v.  Bank  of  New  Bruns- 
wick, 5  P.  C-  394,  236 
Mackintosh  v.  Flint,  etc.,  R.  Co., 

34  Fed.  Rep.  582,  317 

Macomber  v.  Wright,  108  Mich. 

109,  65  N.  W.  Rep.  610,  629 

Macon,  etc.,  Co.  v.  Vason,  57  Ga. 

314,  404,  408,  409 

Madden  v.  Electric  Light  Co.,  181 

Pa.  St.  617,  282 

v.  Pennsylvania,  etc.,  Co.,  181 

Pa.  St.  617,  38  L.  R.  A.  638,      257 
Madow  v.  Gray,  30  Maine  547,  76 

Magee  v.   Improvement  Co.,  98 

Cal.  678,  207,  222 

Mahan  v.  Wood,  44  Cal.  462,  368 

Main  v.  Casserly,  67  Cal.  127, 

218,  221,  576 
v.  Mills,  6  Biss.  (C.  O.)  98, 

424,  426,  433 
Maine  v.  Railroad  Co.,  142  U.  S. 

217,  104 

Maine,  etc.,  Co.  v.  Cox,  146  Ind. 

107,  276 

v.  Southern,  etc.,  Co.  (Maine), 
13  Atl.   Rep.  24,  629,  634 

Malecfe  v.  Tower  Grove,  etc.,  R. 

Co.,  57  Mo.  17,  238 

Mallet  v.  Simpson,  94  N.C.  37,  55 

A  in.  Rep.  594,  LSI,  152,  157 

Mallory  v.  Oil    Works,  86  Tenn. 

698,  173,  183 

Malone  v.  Lancaster  Gas  Co.,  128 

Pa.  St.  :;()'.»,  135 

v.  Trans.  Co.,  77  Cal.  38,  539 


Manchester,  etc.,  R.  Co.  v.  Coil- 
cord  R.  Co.,  66  N.  H.  100,  20 
Atl.  Rep.  383,  208,  220,  221 

v.  Fisk,  33  N.  H.  297,  543 

Mandel  v.  Swan,  etc.,  Co.,  154 
111.  177,  27  L.  R.  A.  313, 

246,  409,  610 

Mandlebaum    v.    Mining   Co.,   4 

Mich.  464,  466,  471,  482 

Manhattan,    etc.,    Co.  v.     Fields 

(Tex.  1894),  26   S.    W.    Rep. 

280,  251 

v.   Forty-second   St.,  etc.,  Co., 

139  N.  Y.  146,  557 

v.  Harned,  27  Fed.  Rep.  484,        329 
Manheim,  etc.,  Co.  v.  Arndt,  31 

Pa.  St.  317,  529 

Manning  v.  Ancient,  etc.,  86  Ky. 

136.  5  S.  W.  Rep.  385,  150 

Mann  v.  Cooke,  20  Conn.  178,         610 
Manning  v.  San  Antonio  Club,  63 

Tex.  166,  51  Am.  Rep.  639,        303 
Mansfield,  etc.,  R.  Co.  v.  Brown, 

26  Ohio.  St.  223,  384 

Manson  v.  Jacobs  (Mo.),  6  S.  W. 

Rep.  246,  634 

Manufacturers',  etc..  Bank  v.  Big 

Muddy,  etc.,  Co.,  97  Mo.  38,    547 
Manufacturers',  etc.,  Co. v.  Loud, 

99  Mass.  146,  101 

Manufacturing  Co.  v.  Beecher,  97 

N. Y.  651,  625 

v.  Runnells,  55  Mich.  130,  20  N. 

W.  Rep.  823,  78 

Marble  Co.  v.  Harvey,  92  Tenn. 

115,  184 

Marbury   v.   Ehlen,   20  Am.    St. 

Rep.  467,  286,  478,  485 

March  v.  Railway  Co.,  40  N.  H. 

548,  525 

v.  Eastern  R.  Co.,  43  N.  H.  515, 

423,  434,  435,  437,  454 
Marcy  v.  Clark,  17  Mass.  330,  475 

Maria  v.  Garrison,  13  Abb.  New 

Cas.  (N.  Y.)  210,  509 

Marine   Bank  v.    Ogden,    29   111. 

248,  173 

Marine,  etc.,  Exchange  v.  West- 
ern Union,  etc.,  Co.,  22  Fed. 

Rep,  23,  82 

Marion,    etc.,    Co.    v.  Perry,   74 

Fed.  Rep.  425,  41   U.  S.  App. 
14,  33  L.  R.  A.  252, 

92,  259,  664,  H7.r> 

Market  St.   R.   Co.  v.   Hellman, 

109  Cal.  571,         186,503,507,509 

Markham  v.   Jaudon,  41  N.   Y. 

235,  494 


TABLE    OF    CASES. 


lxiii 


[Beferences  are  to  Pages. ] 


Marlborough,  etc.,  Co.  v.  Smith, 

2  Conn.  579,  414,  471 

Marshall  v.  Bank,  108  N.  C.  639, 
13  S.  E.  Rep.  182,  43 

v.  Baltimore,  etc.,  R.  Co.,  16 

How.  (U.  S.)  314,  226 

v.  Sherman,  148  N.  Y.  9,  34  L. 
R.  A.  727,  51  Am.  St.  Rep. 
654,        246,  610,  623,  624,  641, 

648,   649,  658 
Marshall  Foundry  Co.  v.  Killiam, 
99  N.  C.  501,  6  Am.  St.  R.  539, 

31,  321 
Marson  v.  Deither,  49  Minn.  423, 

313,  376,  404,  611 
Marten  v.  Burns,  etc.,  Co.,  99  Cal. 

355,  397 

Martin  v.  Deetz,  102  Cal.  55,  36 

Pac.  Rep.  369,  34,  64,  68 

v.  Fewell,  79  Mo.  401,  73,  595,  597 
v.  Nashville,   etc.,    Assn.,   2 

Coldw.  (Tenn.)  418,  140 

v.  Niagara,  etc.,  Co.,  122  N.  Y. 

165,  171, 577 

v.  Pensacola,  etc.,  R.  Co.,  8  Fla. 

370,  372 

v.  Railway  Co.,  14  Phila.  10,        542 
v.  South  Salem,  etc.,  Co.,  94  Va. 
28,  26  S.  E.  Rep.  591,  75,  400 

Martindale  v.  Wilson-Case  Co., 
134  Pa.  St.  348,  19  Am.  St. 
Rep.  706,  584 

Martine  v.  International, etc.,  Soc, 

53  N.  Y.  339,  605 

Marve  v.  B.  &  O.  R.  Co.,  127  U. 

S.  117,  102,  103 

Maryland,  etc.,  Works  v.  West 
End  Imp.  Co.,  87  Md.  207,  39 
L.  R.  A.  810,  34,  76,  77 

Marysville,  etc.,  Co.  v.  Johnson, 

93  Cal.  538,  363,  382 

Mason  v.  Alexander,  44  Ohio  St. 

318,  7  N.  E.  Rep.  435,  630 

v.  Davol  Mills,  132  Mass.  76,  419 
v.  Haile,  12  Wheat.  (U.  S.)  370,  621 
v.  Mining  Co.,  133  U.  S.  50,  671 

v.  Supreme  Court,  77  Md.  483,     673 
Masonic  Temple   Assn.  v.  Chan- 
nel!, 43  Minn.  353,      372,  373,  374 
Massachusetts  &  R.  R.  B.  Co.    v. 

Prince,  34  Minn.  79,  23 

Masson  v.  Decker,  72  N.  Y.  595,     321 
Masurv  v.  Arkansas  Nat'l  Bank, 

87"  Fed.  Rep.  381,  471,472 

Mathews  v.  Columbus  Nat'l  Bank, 

79  Fed.  Rep.  558,  510 

Mathias  v.  White,  etc.,  Assn. 
(Mont.),  48  Pac.  Rep.  624,        577 


Mathis  v.  Pridham,  1  Tex.  Civ. 

App.  58,  20  S.  W.  Rep.  1015, 

397,  658 
Matson  v.  Alley,  141  111.  284,  579,  581 
Matter  of  Cecil,  36  How.  Pr.  (N. 

Y.)477,  534 

Waite,  99  N.  Y.  433,  657 

Matthews  v.  Associated  Press,  136 

N.  Y.  333,  142,  144,  149 

v.  Hoagland,  48  N.  J.  Eq.  455, 

473,  480 
v.  Kinker,  62  Mo.  339,  153 

v.  Massachusetts  Nat'l  Bank,  1 

Holmes  396,  478 

Maurer  v.  Staples,  32  Minn.  284,    406 
Maux,  etc.,  Co.  v.  Branegan,  40 

Ind.  361,  584 

Maxim-Nordenfelt,    etc.,    Co.   v. 

Nordenfelt,    2   The    Reports 

298,  11  The  Reports  1,  169 

May  v.  Black,  77  Wis.  101,       650,  651 
v*.  Cleland  (Mich.),  44  L.  R.  A. 

163,  471 

Mayer  v.  Child,  47  Cal.  142,  321 

v.  Thompson,  etc.,  Co.,  104  Ala. 

611,  28  L.  R.  A.  453,  568,  571 

Mayor  v.  Inman,  etc.,  Co.,  57  Ga. 

370,  355,  550 

v.  Norwich,   etc.,   R.   Co.,  109 

Mass.  103,  91,  124 

Mayor,  etc.,  of  New  York  v.  New 

York,  etc.,  Co.,  64  N.  Y.  622,  241 
Mayor  of  Norwich  v.  Norwich  R. 

Co.,  4  El.  &  Blk.  443,  162 

Mead  v.  New  York,  etc.,  R.  Co., 

45  Conn.  199,  27,  193 

Meadow   Dam    Co.    v.    Gray,   30 

Maine  547,  528 

Mechanics'   Bank  v.  Merchants' 

Bank,  45  Mo.  513,  100  Am. 

Dec.  388,  465 

v.  New  York,  etc.,  R.  Co.,  13  N. 

Y.  599,  314,  328,  329,  497 

Mechanics',  etc.,  Bank  v.  Burnet, 

etc.,  Co.,  32  N.  J.  Eq.  236,  535 
Mechanics',  etc.,  Co.  v.  Hall,  121 

Mass.  272,  385,  409 

Mechanics'  Sav.  Bank  v.  Fidelitv, 

etc.,  Co.,  87  Fed.  Rep.  113,  640,  646 
Medford,  etc.,  R.  Co.  v.  Somer- 

ville,  111  Mass.  232,  117 

Medical    and     Surgical     Soc.    v. 

Weatherlv,  75  Ala.  248,  302,  303 
Medill  v.  Collier,  16  Ohio  St.  599,  608 
Medlerv.  Albuquerque,  etc.,  Co., 

6  N.  Mex.  331,  354 

Meeker  v.  Winthrop,  etc.,  Co.,  17 

Fed.  Rep.-48,  109  U.  S.  180, 

524,  552 


lxiv 


TABLE    OF    CASES. 


{^References  are  to  Pages."] 


Meherin  v.   San  Francisco,  etc., 

Exch.,  117  Cal.  215,  306 

Melhado  v.  Porto  Alegre,  etc.,  R. 

Co.,  L.  R.  9  C.  P.  503,  51 

Melhads  v.   Hamilton,   29  L.  T. 

(N.  S.)  364,  315 

Melvin  v.  Insurance  Co.,  80  111. 

446,  379 

v.  Lamar,  etc.,  Co.,  80  111.  446,     372 
Memphis   City  v.  Dean,  8  Wall. 

(U.  S.)  64,  448,  449 

Memphis,  etc.,  Co.  v.  Gaines,  97 

IT.  S.  697,  111 

v.   Memphis,  etc.,   R.  Co.,  85 

Tenn.  703,  5  S.  W.  Rep.  52,       171 
v.  Shelbv  Co.,  109  TJ.  S.  398,        110 
v.   William,   9  Heisk.   (Tenn.) 
314,  453 

Memphis,  etc.,  R.   Co.  v.  Beck- 

with,  129  U.  S.  26,  80 

v.  Dow,  120  U.  S.  287,  359 

v.  Railroad  Com'rs,  112  U.   S. 

609,  113,  122,  133,  124 

v.  Woods,  88  Ala.  630,  16  A*m. 
St.  Rep.  81,  7  L.  R.  A.  605, 

187,  508,  510,  546,  554 
Menashav.  Hazard,  102  U.  S.  81,  195 
Mendelsohn    v.    Anaheim,    etc., 

Co.,  40  Cal.  637,  -        237 

Menier  v.  Hooper's,  etc.,  Works, 

L.-R.  9  Ch.  App.  Cas.  350,  456,  512 
Menson  v.  Manufacturing  Co.,  9 

Met.  (Mass.)  562,  240 

Mercantile   Bank  v.  New  York, 

121  U.  S.  139,  106,  107,  108 

Mercantile  Co.  v.  Hulnre,  7  Mont. 

566,  28 

Mercantile,  etc.,  Co.  v.  Kneale, 

51  Minn.  263,  95 

Mercantile  Nat'l  Bank  v.  Parsons, 

54  Minn.  56,  11 

Mercantile  Trust  Co.  v.  Kiser,  91 

<4a.  636,  171 

Merc»r  Co.  v.   Hackett,  1  Wall. 

(U.  S.)  83,  162 

Merchants'  Bank  v.  Bliss,  35  N. 

Y.  412,  569,  660 

v.  Cook,  4  Pick.  405,         11,  293,  507 
v.  Shoase,  102  Pa.  St.  488,  489 

v.  State  Bank,  10  Wall.  (U.  S.) 
ci 1 1,  L9  Led.  1008  230,332 

Merchants'   Nat'l    Bank    v.    Citi- 
sftns',  etc.,  Co.,  159  Mass.  505, 

538,  580,  581 
v.    Detroit,     etc.,     Works,     68 

Mich.  620,  171 

v.  Livingston,  74  N.  Y.  223,         481 
v.  Lovitt,  114  Mo.  519,  582,  584 


Merchants'  Nat'l  Bank  v.  North- 
western, etc.,  Co.,  48  Minn. 
349,  624,  625,  660 

v.  Richards,  6  Mo.  App.  454,  74 
Mo.  77,  471 

Merchants  &  P.  Line  v.  Wagner, 

71  Ala.  581,  662,  665 

Meredith    v.   New    Jersey,    etc., 

Co.,  55  N.  J.  Eq.  211,        420,  456 

Meroney  v.  Atlantic,  etc.,  Assn.,* 

112  N.  C.  842,  263 

Merrick  v.  Van  Santvoord,  34  N. 

Y.  208,  250,  259,  605 

Messenger  v.  Pennsylvania  R. 
Co.,  37  N.  J.  Law  531,  165 

Metcalf  v.  Arnold,  110%Ala.  180,       71 

Methodist  E.  Church  V  Pickett, 
19  N.  Y.  482,  .  73 

Metropolitan,  etc.,  Exchange  v. 
Chicago  Board  of  Trade,  15 
Fed.  Rep.  847,  82 

Metropolitan,  etc.,  R.  v.  Manhat- 
tan, etc.,  Co.,  14  Abbott  N.  C. 
103,  11  Daly  373,  553 

Metzner  v.  Bauer,  98  Ind.  425,         658 

Mexican  Central  R.  Co.  v.  Pink- 

ney,  149  TJ.  S.  194,  283 

Meyer  v.  Blair,  109  N.  Y.  600, 

372,  379 

v.  Child,  47  Cal.  142,  321 

Miami,  etc.,  Co.  v.  Hotchkiss,  17 

111.  App.  622,  68 

Middlebrooks  v.  Springfield,  etc.,  • 

Co.,  14  Conn.  301,  283 

Middlesex,  etc.,  Corp.  v.  Locke, 

8  Mass.  268,  532 

Middlesex,  etc.,  R.  Co.  v.  Boston, 

etc.,  R.  -Co.,  115  Mass.  351,        120 
•  v.  Boston,  etc.,  R.  Co.,  115  Mass. 

347,  121 

Middletown    Bank    v.   Magill,   5 

Conn.  28,  629 

Midland,   etc.,  R.  Co.  v.  McDe- 

mid,  91  111.  170,  284,  287 

Mikolas  v.  Hiram  Walker  &  Sons 

(Minn.),  76  N.  W.  Rep.  36,       285 
Milam,   etc.,   Co.  v.  Gortem,    93 

Tenn.  590,  26  L.  R.  A.  135, 

256,  272 

Milbank  v.  Railwav  Co.,  64  How. 

Pr.  (N.  Y.)  320,  184 

Mildam    Foundry    v.    Hovey,   38 

Mass.  417,  378 

v.  Hovev,  21  Pick.  417,  634 

Miller  v.  Barber,  66  N.  Y.  558,  48 

v.  Bradish,  69  Iowa  278,        426,  427 

v.  Coal  Co.,  31  W.  Va.  836,  663 

V.  English,  21  N.  J.  L.  317,  503 


TABLE    OF    CASES. 


lxv 


[Beferences  are  to  Pages."] 


Miller  v.  Ewer,  27  Maine  509,  46 
Am.  Dec.  619,  23,  252,  500 

v.  Great  Republic,  etc.,  Co.,  50 

Mo.  55,  458 

v.  Guerrard,  67  Ga.  284,  439 

v.   Hanover  Junction,  etc.,  R. 

Co.,  87  Pa.  St.  95,  372 

v.   Hillsborough,   etc.,   Co.,  44 
.     N.  J.  Ea.  224,  144 

v.  Houston  City  R.  Co.,  16  C.  C. 

A.  128,  69  Fed.  Rep.  63,  459 

v.  Insurance  Co.,  92  Tenn.  167, 

21  S.  W.  Rep.  39,  93,  135,  213 

v.  Murray,  17  Colo.  408,  506 

v.  Newburgh,  etc.,  Co.,  31  W. 

Va.  836,  70,  71,  671 

v.  New'York,  15  Wall.  478,  89 

v.  Pittsburgh,  etc.,    R.  Co.,  40 
Pa.St.237,  80  Am.  Dec.  570,  318,379 
v.  Railroad  Co.,  8  tfeb.  219,         235 
v.  Rattermau,  47  Ohio  .St.  141, 

24  N.  E.  Rt»p.  496,       317,  318„506 

y.  White,  50  N^Y.  137,  570,  625 

v.  Wildcat,  57  Ind.  241,  390 

Mills  v.  Railway  Co.,  L.  R.  5  Ch. 

App.  622,    "  '589 

v.  Stewart,  41  N.  Y.  384,  385 

Milroy  v.  Spurr   Mountain,   etc., 

Co.,  43  Mich.  231,  636 

Milwaukee,  etc.,  Co.  v.  Armes,  91 

U.  S.  489,  237 

v.  Dexter,  99  Wis.  214,  74  N. 
W.  Rep.  976,  40  L.  R.  A.  837,     46 
Miner  v.  Belle   Isle   Ice  Co.,  93 
Mich.  97,  17  L.  R.  A.  412, 
421,525,  527,  540,  546,  550,  552,  585 
Miners'  Bank  v.  United  States,  1 
Greene  553  (Iowa),  43   Am. 
Dec.  115,  90 

Miners'  etc.,  Co.  v.  Zellerbach,  37 
Cal.  543,  99  Am.kDec.  300, 

16,  205,  230 
Mining  Co.  v.  Anglo  Cal.  Bank,    , 
104  IT.  S.  192,  580 

v.   Field,   64   Md.   151,  20  Atl. 
Rep.  1039,  257 

Minneapolis  v.  Swinburne  Co.,  66 

Minn.  378,  640 

Minneapolis,  etc.,  Co.  v.  City 
Bank,  66  Minn.  441,  38  L.  R. 
A.  415,  640 

v.Crevier,  39  Minn.  417,  385 

v.  Davis,  40  Minn.  110, 

362,  372,  377,  381,  382,  385 
v.  Libby,  24  Minn.  327,  376 

v.  Nimocks,  53  Minn.  381,  540 

Minneapolis,  etc.,  R.  Co.  v.  Beck- 

with,  129  U.  S.  26,  32L.  ed.  585,  248 
v — Private  Corp. 


Minneapolis,   etc.,    Co.   v.    Railroad 
Commissioners,  44  Minn.  336, 
46  N.  Y.  Rep.  559,  81 

Minneapolis  Paper  Co.  v.  Swin- 
burne Co.,  66  Minn.  378,  637 
Minnehaha,  etc.,'  Assn.  v.  Legg, 

50  Minn.  333,  149 

Minn.,  etc.,  Co.  v.  Denslow,  46 

Minn.  171,  73 

Minnesota,  etc.,  Co.  v.  Langdon, 

44  Minn.  37,  433,  606 

v.  Langdon,  44  Minn.  43,  202 

Minot  v.  Paine,  99  Mass.  101,  96 

Am.  Dec.  705,  439,  440 

Miss.  &  M.  R.  Co.  v.    Cromwell, 

91  U.  S.  643,  495 

Missouri,  etc.  R.  Co.  v.  Faulkner, 

88  Texas  649,  579 

v.  Reinhard,  114  Mo.  218, 

251,  252,  605 
v.  Richards,  8  Kan.  101,  236,  587 
v.  Richmond,    73   Tex.  568,    15 

Am.  St.  Rep.  794,  236 

v.  Sidell,  67  Fed  Rep.  464,  576 

Missouri  Pac.  R.  Co.  v.  Mackey, 

127  U.  S.  205,  '  57 

v.  Meech,  69  Fed.  Rep.  753,  30 

L.  Pfc," A.  250,  *    56 

v.  Tygard,  84  Mo.  263,  378 

Mitchell  v.  Beckman,  64'Cal.  117, 

»  313,  376 

v.  Hotchkiss,  48  Conn.  9, "  626 

v.  Lycoming,  etc.,  Co.,  51  Pa. 

St.  402,  144 

v.  Reynolds,  1  P.  Wms.  181,         142 
v.  Rubber  Co.  (N.  J.  Ch.),  24 
Atl.  Rep.  407,  417 

.  v.  Vermont,  etc.,  Co.,  67  N.  Y. 
280,  252 

v.  Vermont,  etc.,  Co.,  8  Jones 
&  Spen.  406,  408 

Mobile,  etc.,  R.  Co.  v.  Nicholas, 
98  Ala.  92,  '  514,  515 

v.  Tennessee,  153  U.  S.  486,  424 

Mobile,   etc.,   Co.,  v.  Gilmer,  85 

Ala.  422,  198 

Moffatt  v.  Farquhar,  L.  R.  7  Ch. 

Div.  591,  460,  464 

Mohawk  Nat'l  Bank  v.  Schenec- 
tadv  Bank,  28  N.  Y.  Supp. 
1100,  78  Hun  90,  489 

Mobrv.  Elevator  Co.,  40   Minn.     • 
343,  41  N.  W.  Rep.  1074,    620,  633 
Mok  v.  Association,  30  Mich.  511,     77 
Mokelumne    Hill,     etc.,    Co.    v. 

Woodbury,  14  Cal. "425,        '       34 
Monongahela,  etc.,  Co.  v.  Coon, 
6  Pa.  St.  352,  89 


lxvi 


TABLE    OF    CASES. 


[References  are  to  Pages. ] 


Montgomery  v.  Forbes,  148  Mass. 
249,  19  N.  E.  Eep.  342, 

600,  603,  604 
Montgomery,  etc.,  Assn.  v.  Rob- 
inson, 69  Ala.  413,  631 
Montgomery,    etc.,    Co.   v.   City 

Council  (Ala.),  4  L.R.  A.  616,  116 
v.  Dienelt,  133  Pa.  St,  585,  590 

Montgomery,    etc.,    R.     Co.    v. 
Matthews,  77  Ala.  357,  54  Am. 
Rep.  60,  394 

v.  Baring,  51  Ga.  582,  197 

Montpelier,  etc.,  R.  Co.  v.  Lang- 
don,  46  Vt.  284,  369 
Monument  Nat'l   Bank  v.  Globe 
Works,  101  Mass.  57, 

171,  175,  177,  217 
Moore  v.  Bank,  52  Mo.  377,  460 

v.  Bank  of  Commerce,  52  Mo. 

377,  458,  490 

v.  Hanover,  etc.,  R.  Co.,  94  Pa. 

St.  324,  532 

v.  Mayor,  etc.,  73  N.  Y.  238,  29 

Am!  Rep.  134,  230 

v.  Metropolitan  Nat'l  Bank,  55 

N.  Y.  41,  41  Am.  Rep.  173,        332 
v.  Moore,  4  Dana  (Ky.)  354,  29 

Am.  Dec.  417,  152 

v.  Schoppert,  22  W.  Va.  282,        664 
v.  Wayne  Ct.  Judge,  55  Mich. 
84,  284 

Moore,  etc.,  Co.  v.  Towers,  etc., 
Co.,  87  Ala.  206,  13  Am.  St.  R. 
23,  6  So.  Rep.  41,  11,52 

Moores  v.  Citizens'  Nat'l  Bank, 
111  U.  S.  156,  28  L.  ed.  385, 

330,  333,  476,  557 
Morehead  v.  Western,  etc.,  R. 
Co.,  96  N.  C.  362,  2  S.  E.  Rep. 
247,  471,  494 

Morgan  v.  Allen,  103  U.  S.  498,  321 
v.  Bank,  8  Serg.  &  R.  (Pa.)  73,  489 
v.   E.  Tenn.   R.   Co.,   48  Fed. 

Rep.  705,  60 

v.  Louisiana,  93  TJ.  S.  223,  113 

v.  Louisiana,  93  U.  S.  217,  124 

v.  Skiddy,  62  N.  Y.  319,  49,568 

Morgan  Co.  v.  Thomas,  76  111.  120, 

579 
Morley  v.  Thayer,  3   Fed.  Rep. 

737,  622 

Morrill  v.  Boston,  etc.,  R.  Co.,  55 
N.  H.531,  453 

v.   Little    Fall",   etc.,    Co.,    53 
Minn.  371,  21  L.  I!.  A.  174, 

502,  505,  522,  523 

v.  Smith  Co.,  89Tex.  529,  193 

Morris  v.  Glenn,  87  Ala.  028,  610 

v.  Hall,  41  Ala.  510,  264 


Morris  v.  Keil,  20  Minn.  531,  139 

v.  Metalline,  etc.,  Co.,  164  Pa. 

St.  326,  27  L.  R.  A.  305,  408 

v.    St.    Paul,   etc.,   R.    Co.,   19 
Minn.  528,  Gil.  459, 
Morris,   etc.,   R.    Co.   v.   Sussex, 

etc.,  R.  Co.,  20  N.  J.  Eq.  542,    227 
Morrison  v.  Dorsey,  48  Md.  462,      141 
v.  Mullin,  34  Pa.  St.  12,  411 

Morrow  v.  Nashville,  etc.,  Co.,  87 
Tenn.  262,  3  L.  R.  A.  37, 

336,  345,  348,  372,  380 
v.  Superior  Court,  64  Cal.  383,     625 
Morton  v.  Hamilton  College  (Ky.), 
38  S.  W.  Rep.  1,  35  L.  R.  A. 
275,  48,  52 

Morton,  etc.,  Co.  v.  Wysong,  15 

Ind.  4,  141 

Morville  v.  Tract  Soc,  123  Mass. 

129,  213- 

Moseby  v.  Burrow,  52  Tex.  396, 

671,  672 

Moseman  v.  Heitshousen,50Neb. 

420,  69  N.  W.  Rep.  957,  18 

Moses  v.  Scott,  84  Ala.  608,  4  So. 

Rep.  742,  517 

v.  Tompkins,  84  Ala.  613,       404,  639 
Moss'   App.,    83   Pa.   St.   264,   24 

Am.  Rep.  164,  443 

Mossv.  Averell,  ION.  Y.  449,    135,  505 
v.  Oakley,  2  Hill  (N.  Y.)  265, 

616,  629 
v.   Syers,   32  L.  J.   Ch.   Div. 

(N.  S.)  711,  315 

Mott  v.  Railroad  Co.,  30  Pa.  St.  9,    110 
Moulin  v.   Trenton,  etc.,  Co.,  24 

N.  J.  L.  222,  285,  287 

Mount  v.  Radford,  etc.,  Co.,  93 

Va.  427,  448 

Mt.  Holly,  etc.,  Company's  App., 

99  Pa.  St.  513,  326 

Mt.  Holly,  etc.,  Co.  v.  Ferree,  17 

N.J.  Eq.  117,  471,481 

Mt.  Pleasant  v.  Beckwith,  100  U. 

S.  514,  -  196 

Mowbrav  v.  Antrim,  123  Ind.  24, 

23  N.  E.  Rep.  858,  561,566 

Mower  v.  Staples,  32  Minn.  284,     454 
Mowing,  etc.,  Co.  v.  Caldwell,  54 

Ind. 270  278 

Mowrey  v-.  Farmers',  etc.,  Co.,  76 

Fed.  Rep.  38,  356 

v.  Indianapolis,  etc.,  R.  Co.,  4 

Biss.  <C.  C.)  78,  95,454 

Mover  v.  Fast  Shore,  etc.,  Co.,  41 

S.  C.  300,  25  L.  R.  A.  48,  147 

v.    Pennsylvania    Slate    Com- 
pany, 7i  Pa.  St.  293,  635 


TABLE    OF    CASES. 


lxvii 


[References  are  to  Pages."] 


Mozley  v.  Alston,  1  Ph.  Ch.  790, 

450,  451 
Mugler  v.  Kansas,  123  U.  S.  623,  99 
Mullanphv  Bank  v.  Schott,  34  111. 

App.  500,  s.  c.  26  N.  E.  Rep. 

640,  549 

Mullen  v.  Beech  Grove  Park,  64 

Ind.  202,  393 

v.  Reed,  64  Conn.  240,  24  L.  R. 

A.  664,  246 

Muller  v.  Dows,  94  U.  S.  444,  55 

Mulligan  v.  New  York,  etc.,  R. 

Co.,  14  L.  R.  A.  791,  237 

Mulrev  v.  Insurance  Co.,  4  Allen 

(Mass.)  116,  151 

Mulrov  v.   Supreme  Lodge,  etc., 

28  Mo.  App.  463,  297 

Mulvane  v.  O'Brien,  58  Kan.  463,  544 
Mumford   v.   Hawkins,   5   Denio 

355,  578 

Mumnia   v.   Potomac  Co.,  8  Pet. 

'(U.S.)  281,  91,663,675 

Muncie,  etc.,  Co.  v.  Green,  143 

Pa.  St.  269,  13  Atl.  Rep.  747,  382 
Munger  v.  Jacobson,  99  111.  349,  639 
Mann  v.  Illinois,  94  U.  S.  113,  16 

Munson  v.  Syracuse  R.  Co.,  103 

N.  Y.  58,  50,  52,  547,  552 

Murdock's  Case,  7  Pick.  (Mass.) 

303,  304 

Murphy's  App.,  51  Wis.  519,  472 

Murray  v.  Bush,  L.  R.  6  H.  L.  37,    296 

v.  Charleston,  96  U.  S.  432,  521 

v.  Stevens,  110  Mass.  95,  496 

Muscatine,  etc.,  v.  Funck,  18  Iowa 

469,  675 

Muscatine,  etc.,  Co.  v.  Muscatine, 

etc.,  Co.,  85  Iowa  112,  139 

Musgrave  v.  Morrison,  54  Md.  161, 

296,  374 
Mustard  v.  Union  Nat'l  Bank,  86 

Maine  177,  .430 

Mut.  Ben.  Assn.  v.  Warner,  24 

111.  App.  357,  145 

Mut.  Endow.  Soc.  v.  Essenden,  59 

Md.  463,  145 

Mutual,  etc.,  Co.  v.  Bales,  92  Pa. 

St.  352,  ,  277 

v.  House,  89  Tenn.  438,  271 

v.  Phoenix,  etc.,  Co.,  108  Mich. 

170,  62  Am.  St.  R.  693,  34  L.    • 

R.  A.  694,  11,  405.  610,  612 

v.  Swigert,  120  111.  36,  11  N.  E. 

Rep.  410,  271 

Mylrea  v.  Railroad  Co.  (Wis.),  67 

N.  W.  Rep.  1138,  665 

Myrick  v.  Brawley,  33  Minn.  377,    90 
M.  B.  Faxon  Co.  v.  Lovett  Co.,  60 

N.  J.  128,  274 


M.  &  St.  L.  R.  Co.  v.  Bassett,  20 
Minn.  536,  375 

v.  Beckwith,  129  U.  S.  26,  57 

M.  S.  O.  Co.  v.  Hawkins,  4  Hurl. 
&  N.  146,  417 

•N 

Nagle  v.  Alexandria,  etc.,  R.  Co., 

83  Va.  707,  121 

Nash  v.  Minnesota,  etc.,  Co.,  163 

Mass.  574,  236 

Nashua,  etc.,  Corp.  v.  Boston,  etc., 
Corp.,  157  Mass.  268,  31  N.  E. 
Rep.  1060,  223 

v.  Boston,  etc.,  Corp.,  136  U.  S. 
356,  56 

Nashua,   etc.,  R.   Co.  v.  Boston, 

etc.,  R.  Co.,  164  Mass.  222,        213 
Nashua  R.  Co.  v.  Lowell  R.  Co., 

136  U.  S.  356,  55 

Nashville,  etc.,  R.  Co.  v.  Starnes, 

9  Heisk.  52,  236 

Nassau  Bank  v.  Jones,  95  N.  Y. 

115,  184,221,365 

Natchez  v.  Mallerv,  54  Miss.  499,    221 
Nathan  v.  Tompkins,  82  Ala.  437,  588 
v.   Whitlock,  9  Paige   (N.  Y.) 
152,  475 

Nat'l  Bank  v.  Atkinson,  55  Fed. 
Rep.  465,  171 

v.  Case,  99  U.  S.  628,  187,  630 

v.  Colby,  21  Wall.  (U.  S.)  609,  676 
v.  Com.,  118  U.S.  526,  110 

v.    Exchange    Nat'l    Bank,   92 

U.  S.  122,  189 

v.  Gustin,  etc.,  Co.,  42  Minn. 
327,  6  L.  R.  A.  678,  18  Am. 
St.  Rep.  510,  650 

v.  Insurance  Co.,  104  U.  S.  54,  671 
v.  I.  &  W.  L.  Co.,  101  Wis.  247,  352 
v.  McDonnell,  92  Ala.  387,  366 

v.  Matthews,  98  U.  S.  621, 

228,  229,  678 
v.  Port  Townsend,  etc.,   Co.,  6 

Wash.  597,  '  471 

v.  Rochester,  etc.,  Co.,  172  Pa. 

St.  614,  490 

v.  Savward,  86  Fed.  Rep.  45,  655 
v.  Stewart,  107  U.  S.  676,  192 

v.  Van  Drewerker,  74  N.  Y.  234,  367 
v.  Watsontown  Bank,  105  U.  S. 

217,  313,  474,  490 

v.  Wells,  79  N.  Y.  498,  171 

v.  Whitman,  76  Fed.  Rep.  697,  624 
v.  Whitney,  103  U.  S.  99 

157,  220,  228 
Nat'l  Bank  of  Republic  v.  Young, 
41  N.  J.  Eq.  531,  7  Atl.  Rep.  488, 
171,  175 


ixviii 


TABLE    OF    CASES. 


[Beferences  are  to  Pages."] 


Nat'l  Com.  Bank  v.  McDonnell, 
92  Ala.  387,  9  So.  Rep.  149, 

366,  367,  630 
Nat'l  Park  Bank  v.  German,  etc., 

Co.,  116  N.  Y.  281,  171,  175 

Nat'l  Security  Bank  v.  Cushman, 

121  Mass.  490,  583 

Nat'l    State  Bank  v.  Vigo,  etc., 

Bank,  141  Ind.  352,  538,  577 

National  Ben.  Co.  v.  Union  Hos- 
pital Co.,  45  Minn.  272,  169 
National,  etc.,  Co.  v.  Ballou,  146 

U.S.  517,  637 

v.  Du  Bois,  165  Mass.  117,  30  L. 

R.  A.  628,  281 

v.  Grav,  12  App.  Cas.  (D.  C.)  276,  481 

v.  Quick,  67  Fed.  Rep.  130,  166,  170 

v.  Rockland  Co.  iC.  C.  A.),  94 

Fed.  Rep.  335,  538,  585 

National  Tube  Works  v.  Ballou, 

146  U.  S.  517,  651 

Natusch  v.  Irving.  Gow  on  Part- 
nership (3d  ed.)  576,  Lindley 
on  Partnership  511,  528 

Naugatuck  Water  v.  Nichols,   58 

Conn.  403,-8  L.  R.  A.  637,         387 
Neal  v.  Moultrie,  12  Ga.  104,  247 

Neall  v.  Hill,  16  Cal.  145,  76  Am. 

Dec.  508,  535,  588 

Neb.,  etc.,  Co.  v.  Nine,  27  Neb. 

507,  43  N.  W.  Rep.  348,  40 

Neiller  v.  Kelley,  69  Pa.  St.  403, 

309,  320 
Nelligan   v.    Campbell,   20  N.  Y. 

Supp.  234,  559,  567 

Nelms  v.  Edinburg,  etc.,  Co.,  92 

Ala.  157,  289 

Nelson  v.  Blakey,  54  Ind.  29,  373 

v.  Hubbard,  96  Ala.  238,  17  L. 
R.  A.  375,  92,  671 

Nesbit  v.  Macon,  etc.,  Co.,  12  Fed. 

Rep.  686,  475 

Nesmith   v.  Washington  Bank,  6 

Pick.  (Mass.)  324,  462 

Nester  v.  Brewing  Co.   (Pa.),  29 

Atl.  Rep.  102,  168 

Neucbatel,  etc.,  Co.  v.  The  Mayor, 
30  N.  Y.  Sup.  252,  155  N.  Y. 
373,  275 

Neunev  v.  Waddill  (Texas  1894), 

25  8.  W.  Rep.  308,  297 

Neustadt  v.  Railroad  Co.,  31  111. 

is),  110 

New  Bedford,  etc.,  R.  Co.  v.  Old 

Colony  R.  Co.,  120  Mass.  397,  197 
Newberrv  v.  Detroit,  etc.,  Co.,  17 

Midi.  1  in,  471 

v.  Fox, 37  Minn.  141,51  Am.  St. 
Rep.  830,  207 


New  Buffalo  v.  Iron  Co.,  105  U. 

S.  73,  195 

Newburg,  etc.,  Co.  v.  Weare,  27 

Ohio  St.  343,  250,  281 

Newby  v.  Colts,  etc.,  Co.,  L.  R. 

7  Q.  B.  293,  283 

Newcastle,  etc.,   R.  Co.  v.  Simp- 
son, 21  Fed.  Rep.  533,  345 
Newell  v.  Great,  etc.,  R.  Co.,  19 
Mich.  336,  285 
v.  Williston,  138  Mass.  240,  472 
New  England  Com.  Bank  v.  New- 
port Steam  Factory,  6  R.  I.  1, 
75  Am.  Dec.  688,  631 
New  England,  etc.,  Co.  v.  Abbott, 
162  Mass.  148,  27  L.  R.  A.  271, 

462,  465,  495 
v.    Farmington,    etc.,    Co.,    84 

Maine,  284,  538 

v.  Phillips,  141  Mass.  535,  535 

v.  Robinson,  25  Ind.  536,  158 

New  Hampshire,  etc.,  R.  Co.  v. 

Johnson,  30  N.  H.  390,  386 

New  Haven  Nail  Co.  v.  Linden 
Spring  Co.,  142  Mass.  349, 

610,  624,  645 
New  Jersey  v.  Wilson,  7  Cranch 

164,  88 

New  Orleans,   etc.,  Co.  v.  Dela- 

more.  114  U.  S.  501,  117,123 

NewOrleans,  etc.,  R.  Co.v.  Bailey, 

40  Miss.  395,  237 

v.  Burke,  53  Miss.  200,  237 

v.  Wallace,  50  Miss.  244,  282 

New  Orleans  Gas  Co.v.  Louisiana, 

etc.,  Co., ,115  U.  S.  650,  96,  98, 195 
Newton  v.  Fay,  10  Allen  (Mass.) 

505,  475 

Newton  Nat'l  Bank  v.  Newbegen, 
20  CCA.  339,  74  Fed.  Rep. 
135,  33  L.  R.  A.  727,  399 

New  York  Cable  Co.v.  Mayor,  104 

N.  Y.  1,  35 

New    York,   etc.,   Co.   v.   Ely,   5 

Conn.  560,  199 

v.  Fulton  Bank,  7  Wend.  (N.  Y.) 

412  156 

v.   Higgins,  29  N.  Y.  Supp.  416,  563 

v.  Martin,  13  Minn.  417,  384 

v.  Van  Horn,  57  N.  Y.  473,  375 

New  York,  etc.,  R.  Co.  v.  Boston, 

etc.,  R.  Co.,  36  Conn.  196,  90 

v.  Bristol,  151  U.  S.  556,  99 

v.  Haring,  47  N.  J.  L.  137, 

235,  558,  559 
v.  Ketchum,  27  Conn.  170,  54,  584 
v.  Nickals,  119  U.  S.  296, 

318,  319,  421 
v.  Pennsylvania,  158  U.  S.  431,    109 


TABLE    OP    CASES. 


lxix 


[Beferences  are  to  Pages."] 


New  York,  etc.,  R.  Co.  v.  Schuy- 
ler, 34  N.Y.  30,     294,  310,  326, 

327,329,330,332,471,481,  482 
v.  State,  50  N.  J.  L.  303,  53  N. 
J.  L.  244,  239 

Niantic,  etc.,  Bank  v.  Town  of 
Douglass,  5  111.  App.  (Brad.) 
579,  .  195 

Nichols  y.   Northampton  Co.,  42 

Conn.  103,  110 

v.  Railroad  Co.,  42  Conn.  193,      111 
v.  Stevens  (Mo.),  27  S.  W.  Rep. 
613,  637 

Nickels  v.  Building  Assn.,  93  Va. 
380,       -  280 

Nickerson  v.  Wheeler,  118  Mass. 

295,  247 

Nickum  v.   Burckhardt,   30  Ore. 

464,  60  Am.  St.Rep.  822,   407,  411 

Nicoll  v.  New  York,  etc.,  R.  Co., 

12  N.  Y.  121,  156,  157,  178 

Nicollet  Nat'l  Bank  v.  City  Bank, 
38  Minn.  85,  8  Am.  St.  Rep. 
643,  466,  494,  507 

v.  Fisk-Tumer  Co.,  71  Minn. 
413,  621 

Nicols'  Case,  3  DeG.  &  J.  387,         398 

Nimick  v.  Mingo,  etc.,  Co.,  25  W. 

Va.  184,  592,  651 

Nims  v.  Mt.  Hermon  Boys' 
School,  160  Mass.  177,  22 
L.  R.  A.  364,         225,  236, 557,  558 

Nippenose,  etc.,  Co.  v.  Stadon,  68 
Pa.  St.  256,  372 

Noble  v.  Turner,  69  Md.  519,  16 
Atl.  Rep.  124,  471 

Nolan  v.  Hozen,  44  Minn.  1178,      631 

Norfolk,  etc.,  R.  Co.  v.  Pennsyl- 
vania, 136  U.  S.  114,  ,110,  248,  255 

Norris  v.  Irish,  etc.,  Co.,  8  El.  & 
Bl.  512,  496 

v.  Stops,  Hobart  211a,  140 

v.  Wrenschall,  34  Md.  492,     88,  621 

North  v.  Forest,  15  Conn.  400,         321 
v.  Phillips,  89  Pa.  St.  250,  494 

v.  State,  107  lnd.  356,  8  N.  E. 
Rep.  159,  64 

Northampton  Bank  v.  Peopoon, 

11  Mass.  288,  539 

North  Carolina,  etc.,  Co.  v.  Caro- 
lina, etc.,  R.  Co.,  83  N.  C. 
489,  124 

N.  C.  R.  Co.  v.  Comm.,  91  N.  C. 

454,  102 

North  Chicago,  etc.,  R.  Co.  v. 
Gastka,  128  111.  613,  556 

N.  Cent.  R.  Co.  v.  Eslow,  40 
Mich.  222,  368 


Northern,   etc.    R.   Co.   v.  Com- 
monwealth, 90  Pa.  St.  300,        238 
Northern  Trust  Co.  v.  Columbia, 

etc.,  Co.,  75  Fed.  Rep.  936,       336 
North,  etc.,  Co.  (Wis.),  45  L.  R. 

A.  174,  611 

v.  People,  147  111.  234,  24  L.  R. 

A.  462,  666 

North,  etc.,  R.  Co.  v.  Miller,  10 

Barb.  (N.  Y.)  260,  529 

v.  Spullock,  88  Ga.  283,        403,  405 
North    Hudson,    etc.,    Assn.    v. 

Childs,  86  Wis.  292,  52  N.  W. 

Rep.  600,  563,  568 

v.  Childs,  82  Wis.  460,  52  N.  W. 

Rep.  600,  544,  498,  560 

North   Mo.    R.   Co.   v.   Akers,  4 

Kan.  453,  283 

v.  Maguire,  20  Wall.  (U.  S.)  46,    110 
North  Point,  etc.,  Co.  v.  Utah, 

etc.,  Co.,  16  Utah  246,40  L. 

R.  A.  851,  52  Pac.  Rep.  168, 

35,  85,  224 
Northwestern,   etc.,    Ins.   Co.  v. 

Cotton,  etc.,  Co.,  70  Fed.  Rep. 

155,  352 

Northwestern,  etc.,  Co.  v.  Hyde 

Park,  97  U.  S.  659,  99 

v.  Overholt,  4  Dillon  (C.   C.) 

287,  276,  277 

v.  Shaw.  37  Wis.  655,  213,  214 

Nortin  v.  Berlin  Bridge,  51  N.  J. 

Law  442,  283 

Norton  v.  Shelby  Co.,  118  U.  S. 

426,  67 

Nulton  v.  Clayton,  54  Iowa  425, 

369,  384 
Nugent  v.  Supervisors,  19  Wall. 

(U.  S.)  241,  193,  531 

Nunnelly  v.  Southern,  etc.,  Co., 

94  Tenn.  397,  28  L.  R.  A.  421, 

567,  568,  571 
Nute    v.    Hamilton,   etc.,   Co.,  6 

Gray  174,  142 

Nye  v.  Storer,  168  Mass.  53,  46  N. 

E.  Rep.  402,  153 

N.  O.  R.  Co.  v.  Delamore,   114 

U.  S.  501,  119,  120 

N.  W.  F.  Co.  v.  Hyde  Park,  97 

U.  S.  659,  100 


0 


Oak  Bank,  etc.,  Co.  v.  Crum,  L. 

Rep.  8  App.  Cas.  65,  431 

Oakdale,  etc.,  Co.  v.  Garst,  18  R. 

I.  484,  23  L.  R.  A.  639,  28  Atl. 

Rep.  973,  281,  605 


lxx 


TABLE   OF   CASES. 


[Beferences  are  to  Pages."] 


Oakes  v.   Cattaraugus,  etc.,    Co., 

143  N.  Y.  430,  26  L.  R.  A.  544,     51 
v.   Hill,  14  Pick.   (Mass.)  442, 

662,  673 
v.  Turquand  &  Harding,  L.  R. 
2  H.  L.  325,  388,  396 

Oakland,  etc.,  Bank  v.  State 

Bank,  113  Mich.  284,  489 

Oakland  R.  Co.  v.  Oakland,  etc., 
R.  Co.,  45  Cal.  365,  13  Am. 
Rep.  181,  90,  125 

O'Bear,  etc.,  Co.  v.  Volfer  &  Co., 

106  Ala.  205,  28  L.  R.  A.  707,    324 
O'Brien  v.  Grant,  146  N.  Y.  163,     299 
v.  Wetherell,  14  Kan.  616,  251 

Occidental,  etc.,  Co.  v.  Ganzhorn, 

2  Mo.  App.  205,  387,  395 

Ochiltree  v.  Railroad  Co.,  21  Wall. 

(U.  S.)  249,  621 

O'Conner,  etc.,  Co.  v.  Coosa,  etc., 
Co.,  95  Ala.  614,  36  Am.  St. 
Rep.  251,  548,  552,  553 

Odd   Fellows  v.  Bank,  42  Mich. 

461,  581 

O'Donald  v.  Railroad  Co.,  14  Ind. 

259,  377 

O'Donnell  v.  Johns,  76  Tex.  363,      40 
Ogden  v.  St.  Joseph,  90  Mo.  522,  3 

S.  W.  Rep.  25,  102 

Oglesby  v.  Attrill,  105  U.  S.  605, 

134.  453,  455 

Ogilvie  v.   Currie,  3  L.  J.  N.  S. 

541,  398 

v.   Knox,   etc.,   Co.,    22    How. 
(U.  S.)  380,  396,  398 

O'Herron  v.  Gray,  168  Mass.  573, 

40  L.  R.  A.  498,  313 

Ohio    College    v.-  Rosenthal,    45 

Ohio  St.  183,  318 

Ohio,  etc.,  Co.  v.  Merchants',  etc., 
Co.,  11  Humph.  (Tenn.)  1,  53 
Am.  Dec.  742,  265,  309,  617 

v.  Nunnemacher,  15  Ind.  294,      419 
Ohio,  etc.,  R.  Co.  v.  Indianapolis, 
etc.,  R.  Co.,  5  Am.  Law  Reg. 
N.  S.  733,  164 

v.    McPherson,    35   Mo.    13,  86 

Am.  Dec.  128,  501,  582 

v.  People,  123  111.  467,  30 

v.  State,  49  Ohio  St.  668,  514 

Ohio  R.  Co.  v.  Weber  Co.,  102  Pa. 

St.  190,  308 

Oil  City,  etc.,  Co.  v.  Porter,  99  Ky. 

254,  395 

Oil  Creek,  etc.,  R.  Co.  v.  Pennsyl- 
vania, etc.,  ( '...,  83  Pa.8t.  mo,  220 
Oldhimi  v.  .Mt.  Sterling,  etc.,  Co. 
(Ky.),  45  S.  W.  Hep.  779,  51 


Old  Town,  etc.,  R.  Co.  v.  Veazie, 

39  Maine  571,  528 

Olds    v.    Phillipsburg,    etc.,   Co. 

(Tenn.),  48  S.  W.  Rep.  285,      578 
O'Leary  v.  Board  of  Com'rs,  79 
Mich.   281,  19  Am.   St.  Rep. 
169,  26 

Oler  v.  Baltimore,  etc.,  R.  Co.,  41 

Md.  583,  380 

Olery    v.    Brown,   51    How.   Pr. 

(N.  Y.)  92,  306 

Oliphant  v.  Woodburn,  etc.,  Co., 

63  Iowa  332,  337 

01iverv.Gilmore,52Fed.  Rep.562,  166 
Oliver's   Est.,  136  Pa.  St.  43,  20 

Am.  St.  Rep.  894,  443 

Olmstead  v.  Farmer,  etc.,  Co.,  50 

Mich.  200,  305 

Olney  v.  Chadsey,  7  R.  I.  224,         577 

v.  Conanicut  Land  Co.,  16  R.  I. 

597,  5  L.  R.  A.  361,  183 

Olsen  v.  Cook,  57  Minn.  522,  637 

Olson  v.  State  Bank,  57  Minn.  552, 

59  N.  W.  Rep.  635,  629 

Omaha  Bridge  Cases,  51  Fed.  Rep. 

309,  2  C.  C.  A.  174,  133 

Omaha,  etc.,  Co.  v.  Burns,  49  Neb. 

229,  578 

Omaha,  etc.,  R.  Co.  v.  Cable,  etc., 

Co.,  30  Fed.  Rep.  324,  100 

Oneida  Bank  v.  Ontario  Bank,  21 

N.  Y.  490,  229 

Ooregum,  etc.,  Co.  v.  Roper  (H. 
L),  61  Law  J.  (N.  S.)  337, 
Law  Rep.  App.  Cases  (1892) 
125,  337 

Opinion  of  Judges  (N.  C),  28  S. 

E.  Rep.  18,  91 

Oregon,  etc.,   Co.  v.  Roper,  1892 

App.  Cas.  125,  219 

Oregon  R.  Co.  v.  Oregonian  R. 
Co.,  130  U.  S.  1, 

36,  124,  134,  179,  184 
O'Reilly  v.  Bard,  105  Pa.  St.  569,  661 
Ormsby  v.  Vermont,  etc.,  Co.,  56 

N.  Y.  623,     250,  252,  253,  500,  501 

Orr  v.  Bracken  Co.,  81  Ky.  593,  88,91 

v.  IT.  S.  Bank,    1  Ohio  36,   13 

Am.  Dec.  588,  235 

Orrick  v.  Boehm,  49  Md.  72,  156 

Osborn  v.  Crosby,  63  N.  H.  583,      362 

v.  McMasters,  40  Minn.  103,        573 

Osborne  v.  Shawmut,  etc.,  Co.,  51 

Vt.  278,  288 

v.  United  States  Bank,  9  Wheat. 
738,  24,  25 

Oacaloosa,  etc.,  Works  v.  Park- 
hurst,  54  Iowa  357,  6  N.  W. 
Rep.  547,  382 


TABLE   OF   CASES. 


Ixxi 


[References  are  to  Pages."} 


Oscillating  Carousal  Co. v.  McCool 

(N.  J.  Ch.),  35  Atl.  Rep.  585,   173 
Osgood  v.  King,  42  Iowa  478,  349 

Ossipee  Mfg.  Co.  v.  Canney,  54 

N.  H.  295,  176,  177 

Oswald  v.  Minneapolis  Times  Co., 

65  Minn.  249,  176,  617,  636 

v.  St.  Paul,  etc.,  Co.,  60  Minn. 

82,  61  N.  W.  Rep.  902,  447 

Otis  v.  Gardner,  105  111.  436,  481 

Otto  v.  Union,  75  Cal.  308, 

303,  305,  306 
Ottumwa  Screen  Co.  v.  Stodghill, 

103  Iowa  437,  471,  472 

Overseers  v.  Gibbs,  L.  R.  5  H.  L. 

480,  544 

v.  Sears,  22  Pick.  (Mass.)  125,       17 
Owen  v.  Routh,  14  C.  B.  327,  494 

v.  Shepherd,  59  Fed.  Rep.  746, 

8  C.  C.  A.  224,  244,  42.  65 


Pacific  Bank  v.  Stone  (Cal.),  53 
Pac.  Rep.  634,  578 

Pacific  Nat'l  Bank  v.  Eaton,  141 

U.  S.  227,  376 

Pacific  R.  Co.  v.  Hughes,  22  Mo. 

291  531 

v.  Missouri  Pac.  R.  Co.,  23  Fed. 

Rep.  565,  56 

v.  Renshaw,  18  Mo.  210,       531,  532 
v.  Seeley,  45  Mo.  212,  100  Am. 

Dec.  369,  157 

v.  Seibert,  142  U.  S.  339,  109 

Paddock  v.  Fletcher,  42  Vt.  389,       48 
Paducah,  etc.,  R.  Co.  v.  Parks,  86 

Tenn.  554,  8  S.  W.  Rep.  842,    380 
Page  v.  Heineberg,  40  Vt.  81,  94 

Am.  Dec.  378,  151,  156 

v.  Fall  River,  etc.,  Co.,  31  Fed. 
Rep.  257,  580 

Paine  v.  Central  Vermont  R.  Co., 

118  U.  S.  152,  659 

v.  Lake  Erie,  etc.,  R.  Co.,  31 

Ind.  283,  196 

v.  Stewart,  33  Conn.  516,  652 

Painsville,  etc.,  R.  Co.  v.  King,  17 

Ohio  St.  534,  318,  427 

Pairpoint,  etc.,  Co.  v.  Watch  Co., 

161  Pa.  St.  17,  265 

Palace  Car  Co.  v.  Central  Trans- 
portation Co.,  171  XL  S.  138,     130 
Palmer  v.  Van  Santvoord,  153  N. 

Y.  612,  38  L.  R.  A.  402,      182,  635 
Palmeri  v.  Manhattan  R.  Co.,  133 

N.  Y.  261,  16  L.  R.  A.  136,        237 
Palmetto    Lodge    v.    Hubbell.   2 
Strob.  (S.  C.)  457,  144 


Paris  v.  Paris,  10  Ves.  Jr.  185,         439 
Parish  v.  Stearns,  21  Pick.  (Mass.) 
148,  534 

v.  Wheeler,  22  N.  Y.  494,  207 

Park  v.  Grant,  etc.,  Works,  40  N. 

J.  Eq.  114,  421,  426 

v.  Thomas,  66  N.  Y.  559,  432 

Parke  v.  Commonwealth,  etc.,  Co., 

44  Pa.  St.  422,  283 

Parker  v.  Bethel  Hotel  Co.,  96 
Tenn.  252,  31  L.  R.  A.  706, 

10,  415,  466,  666,  667,  669,  672 
v.  Lamb,  99  Iowa  265,  34  L.  R. 

A.  704,  612 

v.  Nickerson,   112  Mass.  195, 

545,  547 
.  v.  Nickerson,  137  Mass.  487,        552 
v.   N.  Cent.   R.   Co.,  33  Mich. 

23,  367,  368 

v.  Thomas,  19  Ind.  213,  81  Am. 

Dec.  385,  393 

v.  Railway  Co.,  7  Man.  &  G. 

288,  101,  131 

v.  Sun,  etc.,  42  La.  Ann.  fl72,    313 
Parks  v.  Evansville,  etc.,  R.  Co., 

23  Ind.  567,  377 

Parrott  v.  Byers,  40  Cal.  614,  486 

Paterson  v.  Arnold,  45  Pa.  St.  410,   595 

Patterson  v.  Lynde,  112  111.  196,     651 

v.  Minnesota,  etc.,  Co.,  41  Minn. 

84,  569 

v.  Robinson,  116  N.  Y.  193,  163 

v.  Stewart,  41  Minn.  84,  660 

Paul  v.  Virginia,  8  Wall.  <TJ.  S.) 

168,  254,  255,  256 

v.  Virginia,  8  Wall.  (U.S.)  181,  119 
Paulimo  v. Portuguese,  etc.,  Assn., 

18  R.  I.  165.  64 

Pauly  v.  Pauly,  107  Cal.  8,  48  Am. 
St.  Rep.  98,  539,  554 

v.  State  Loan,  etc.,  Co.,  56  Fed. 
Rep.  430,  58  Fed.  Rep.  666,  7 
C.  C.  A.  422,  165  U.  S.  606, 

630,  631 
Paxton  v.  Bacon,  etc.,  Co.,  2  Nev. 

259  (new  ed.)  768,  51,  55 

Paxton,  etc.,  Co.  v.  First  National 
Bank,  21  Neb.  621,  33  N.  W. 
Rep.  271,  52,  53 

Payne  v.  Bullard,  23  (1  Cushman 

88)  88,  405 

v.  Elliott,  54  Cal.  339,  309,  313 

v.  Elliott,  54  Cal.  504,  320 

v.  Goldbach,  14  Ind.  App.  100, 

42  N.  E.  Rep.  642,  119 

Pay  son  v.   Hadduck,  8  Biss.   (C. 

C  )  293  631 

v.  Withers,  5  Biss.  C.  C.  269,        272 


Ixxii 


TABLE    OF   CASES. 


[References  are  to  Pages."] 


Peabody  v.  Flint,  6  Allen  52,  450 

v.  Speyers,  56  N.  Y.  230,  321 

Peake  v.  R.  Co.,  18  111.  88,  43 

Pearce  v.  Madison,  etc.,  R.  Co., 
21  How.  (U.  S.)  441, 

159,  175,  192,  204,  215 
Pearsall  v.  Great  Northern  R.,  161 

U.  S.  646,      30,  86,  89,  93,  111,  131 
v.  Western,  etc.,  Co.,  124  N.  Y. 
256,  146 

Pearson  v.  Concord,  etc.,  R.  Co. 
62.  N.  H.  537,  13  Am.  St. 
Rep.  590,  184,  185,  292,  552,  554 
Peatman  v.  Centerville,  etc.,  Co., 
100  Iowa  245,  69  N.  W.  Rep. 
541,  455 

Peck  v.  Bank  of  America,  16  R.  I. 

710,  478,  487,  488 

v.   Coalfield,   etc.,   Co.,  11   111. 

App.  88,  354 

v.  Elliott,  79  Fed.  Rep.  10,  47 
U.  S.  App.  605,  38  L.  R.  A. 
616,  311,  658 

v.  Miller,  39  Mich,  594,  651 

v.  Providence,,  etc.,  Co.,  17  R.  I. 
275,  23  Atl.  Rep.  967,         468,  488 
Peck-Williamson,  etc.,  Co.  v.  Ok- 
lahoma Board  of  Ed.  (Okla.), 
50  Pac.  Rep.  236,  171 

Peckham    v.    North    Parish,    16 

Pick.  274,  283 

v.  Van  Wagenen,  83  N.  Y,  40, 

427,  429,  430 
Peek  v.  Gurney,  L.  R.   6  H.  L. 

377,  49 

Pehlan  v.  Hazard,  5  Dill.  (C.C.)45,  354 
Pell's  Case,  L.  R.  5  Ch.  11,  492 

Pellatt's   Case,   2  Ch.  App.  Cas. 

527,  369 

Pembina  Mining  Co.  v.  Pennsyl- 
vania, 125  U.  S.  181,  31  L.  ed. 
650,  2  Inters.  Com.  Rep.   24, 

57,  248,  255,  267 
Pender  v.  Lushington,  L.  R.  6  Ch. 

Div.  70,  512 

Peninsular  Savings  Bank  v.  Black, 
etc.,  Co.,  105  Mich.  535, 

340,  348,  351 
1'ciin,  etc.,  Co.  v.  Hapgood,  141 

Mass.  145,  7  N.  E.  Rep.  22,         52 
Penniman's  Case,  103  U.  S.  714,     100 
Pennsylvania    Co.    v.    Franklin, 
etc.,  Co.,  181  Pa.  St.  40,   L. 
R.  A .  780,  333,  482 

Pennsylvania  R.  Co.  v.  Duncan, 

111  Pa.  St.  352,  89 

v.  St.  Louis,  etc.,  R.  Co.,  118 
U.  S.  290,  61,  179,  213 


Pennoyer  v.  Neff,  95  U.  S.  714,        654 
Pennypacker  v.  Insurance  Co.,  80 

Iowa  56,  276 

Penobscot,  etc..  R.  Co.  v.  Bartlett, 

12  Gray  (Mass.)  244,  71  Am. 

Dec.  753,  610,  645 

v.  Dunn,  39  Maine  587,  384,  385 

v.  White,  41  Maine  512,  381 

Penobscot  R.  Co.  v.  Dummer,  40 

Maine  172,  375 

Pensacola,  etc.,  Co.  v.  Western, 

etc.,  Co.,  96  IT.  S.  1,  108,255 

People  v.  Albany,  etc.,  R.  Co.,  5 

Lans.  25,  588 

v.  Am.  Bell,  etc.,  Co.,  117  N.  Y. 

251,  272 

v.    Assessors,   1    Hill    (N.   Y.) 

620,  2 

v.  Bachelor,  22  N.  Y.  128,  504 

v.  Baker,  141  N.  Y.  251,  424 

v.  Bank,  24  Wend.  (N.  Y.)  431,    84 
v.  Barric,  49  Cal.  342,  44 

v.  Batchelor,  22  N.  Y.  128,  502 

v.  Beach,  19  Hun  (N.  Y.)  259,       36 
v.  Board,  11  Mich.  222,  546 

v.  Board  of  Assessors  (N.  Y.), 

N.  Y.  Law  Journal   (May  3, 

1899),  605 

v.  Board  of  Trade,  80  111.  134, 

150,  305,  306 
v.  Board   of  Underwriters,   54 

How.  Pr.  240,  142 

v.  Buffalo,  etc.,  Co.,  131  N.  Y. 

140,  15  L.  R.  A.  240,  570 

v.  Building  Assn. ,35  Ohio  St.  258,  82 
v.  Campbell,  144  N.  Y.  166,  135 

v.  Chambers,  42  Cal.  201,  34 

v.  Cheeseman,  7  Colo.  376, 

26,  33,  36 
v.  Chicago,  etc.,  130  111.  268,  17 

Am.  St.  R.  319, 

33,  85,  134,  167,  168,  184,  185,  202 
v.  Chicago,  etc.,  Co.,  8  L.  R.  A. 

497,  166 

v.  Chicago,  etc.,  R.  Co.,  118  111. 

113,  117 

v.  Chicago  Live  Stock  Ex.,  170 

111.  556,  39  L.  R.  A.  373, 

82,  301,  666,  667 
v.  Coleman,  133  N.  Y.   279,  31 

N.  E.  Rep.  96,  19,  20,  309 

v.  Cook,  110  N.  Y.  443,  111   N. 

Y.  688,  30 

v.  Commissioners,  23  N.Y.  192,    308 
v.  Comrs.,94  11.  S.  415,  105 

v.  Comrs.,  4  Wall.  (U.  S.)  244,     105 
v.  Crockett,  9  Cal.  112,  496 

v.  Crossley,  69  111.  195, 

140,  141,  504,  509 


TABLE    OF    CASES. 


lxxiii 


[References  are  to  Pages.] 


People  v.  Cummings,  72  N.  Y.  433, 

535,  539 
v.  England,  27  Hun  (N.  Y.)  139,  567 
v.  Fidelity,  etc.,  Co.,  153  111.  25, 

26  L.  R.  A.  295,  263,  266,  269 

v.  Fire  Assn.  of  Philadelphia, 

92  N.  Y.  311,  44  Am.  Rep.  380 

248,  260,  268 
v.  Frank,  28  Cal.  507,  44' 

v.  Goss,  etc.,  Co.,  99  111.  355,       496 
v.  Hawkins,  106  Mich.  479,  267 

v.  Higgins,  15  111.  110,  300 

v.  Holden,  82  111.  93,  377 

v.  Kipley,  171  111.  44,  241 

v.  La  Rue,  67  Cal.  530,  71,  151 

v.  Londoner,  13  Colo.  303,  6  L. 

R.  A.  444,  536 

v.  Louisville,  etc.,  R.  Co.,  120 

111.  48,  198 

v.  Mauran,  5  Denio  (N.  Y.)  389, 

156,  157 
v.  Maynard,  15  Mich.  463,  26 

v.  Med.  Soc,  24  Barb.  (N.  Y.) 

570,  300 

v.  Med.  Soc,  32  N.  Y.  187, 

298,  300,  303 
v.   Milk   Exchange,   145  N.   Y. 

267,  27  L.  R.  A.  437,  168,  674 

v.  Montecito,  etc.,  Co.,  97  Cal. 

276,  33,  34,  35 

v.  Musical,  etc.,  Union,  118  N. 

Y.  101,  150 

v.  Musical,  etc.,  Union,  101  N. 

Y.  680,  303 

v.   Mutual,  etc.,  Co.,  38  Mich. 

154,  117 

v.  Nelson,  46  N.  Y.  477,  24 

v.  New  York  Com.   Assn.,   18 

Abb.  Pr.  271,  301,  303 

v.  New  York,  etc.,  Exchange,  8 

Hun  216,  299 

v.  New  York,  etc.,  R.  Co.,   15 

N.  Y.  Supp.  635,  30 

v.  NewYork  Produce  Exchange, 

149  N.  Y.  401,  301,  305 

v.   North   River,  etc..  Co.,   121 

N.  Y.  582,  24  N.  E.  Rep.  834, 
13,  32,  83,  165,  166,   167,  173,  187 
199,  666 
V.   Northern  R.  Co.,   42  N.  Y. 

217,  541 

v.   O'Brien,  111   N.    Y.    1,    52 

N.  Y.  Sup.  Ct.  519,  2  L.  R.  A. 

255,  7  Am.  St.  Rep.  684, 

91,  92,  117,  133,  156,  663,  676 
v.  Overyssel,  11  Mich.  222,  550 

v.  Paton,  20  Abb.  N.  Cas.  195,      419 
v.  Peck,  11  Wend.  (N.  Y.)  604,    504 


People  v.  Phoenix  Bank,  24  Wend. 
(N.  Y.)  431,  666 

v.   Pullman,   etc.,  Co.,  175  111. 

126,  82,  131,  136,  152,  181 

v.  Robinson,  64  Cal.  373,  294 

v.  San  Francisco  Sav.  Union,  72 

Cal.  199,  427 

v.  St.  Franciscus,  etc.,  Soc.  24 

How.  Pr.  (N.  Y.)  216,        145,  150 
v.  St.  Louis,  etc.,  R.  Co.,  35  L. 

R.  A.  656,  318 

v.  St.  Stephen's  Church,  53 

N.  Y.  103,  300 

v.  Selfridge,  52  Cal.  331,  36 

v.  Sheldon  (N.Y.)  34  N.  E.  Rep. 

785,  166 

v.  Sheldon,  139  N.  Y.  251,  168 

v.  Silver,  etc.,  Co.,  105  N.Y.  76,  273 
v.  Stanford,  77  Cal.  360,  26 

v.  State  Treasurer,  24  Mich.  468,  448 
v.  Stearling,   etc.,   Co.,  82  111. 

457,  141 

v.  Stockton,  etc.,  R.  Co.,  45  Cal. 

306,  33,  34 

v.  Supervisors,  4  Hill  (N.  Y.) 

20,  425 

v.  Suburban  R.  Co.,  188111.  594,  115 
v.  Thurber,  14  111.  554,  267 

v.  United   States,  etc.,  Co.,  20 

Abb.  New.  Cas.  192,  416 

v.  Utica,  etc.,  Co.,  15  Johns.  358, 

61,  62,  83 
v.  Walker,  9  Mich.  328,  417,  419 
v.  Wemple,  138  N.  Y.  1,  104 

People's  Bank  v.  Gridlev,  91  111. 

457,  471 

v.  Kurtz,  99  Pa.  St.  344,        332,  479 
v.   St.    Anthonv's,    etc.,    R.    C. 

Church,  39  Hun  (N.  Y.)  498,    498 
People's,  etc.,  Bank  v.  Cupps,  91 

Pa.  St.  315,  148 

v.  Sup.  Court,  104  Cal.  649,  29 

L.  R.  A.  844,  48  Am.  St.  Rep. 

147,  510 

People's,  etc.,  Co.  v.  Balch,  8  Gray 

(Mass.)  330,  407 

v.  Wemple,  131  N.  Y.  64, 

255,  256,  273 
v.  Westcott,  14  Gray  (Mass.), 

440,  404,  503 

Peoria,  etc.,  R.  Co.  v.  Preston,  35 

Iowa  118,  373,  532 

v.  Thompson,  103  111.  187,  220,  358 
Perkins  v.  Savage,  15  Wend.  412,  367 
Perkins,  etc.,  Co.  v.  Bradley,  24 

Yt.  66,  581 

Perrim  v.  Grand  Lodge,  48  Minn. 

82,  73 


lxxiv 


TABLE    OF    CASES. 


[Beferences  are  to  Pages."} 


Terry  v.  Cotton  Seed  Oil,  etc., 

Co.,  93  Ala.  364,  545 

v.  Hale,  143  Mass.  540,  395 

v.  Oil  Mill  Co.,  93  Ala.  364,  588 

v.  Railroad  Co.,  44  Ark.  383,  54 

v.  Tuscaloosa,  etc.,  Co.,  93  Ala. 

364,  509 

v.  Tuscaloosa,  etc.,  Co.  (Ala),  9 
So.  Rep.  217,  560 

Peter  v.  Union,  etc.,  Co.,  56  Ohio 

St.  81,  630 

Peters  v.  Foster,  10  N.  Y.  Supp. 

389,  657 

v.  Union,  etc.,  Co.  (Ohio),  46 
N.  E.  Rep.  894,  348 

Petition  of  Brown,  14  R.  I.  371,      441 
Philadelphia,  etc.,  R.  Co.,   187 
Pa.  St.  123,  667 

Pew  v.     First    Nat'l    Bank,    130 

Mass.  391,  584 

Pfister  v.  Gerwig,  122  Ind.  567,  144 
Pfohl  v.  Simpson,  74  N.  Y.  137,  639 
Phelps    v.    Farmers'     Bank,    26 

Conn.  279,  309 

v.     Farmers',    etc.,    Bank,    26 
Conn.  269,  435 

Philadelphia  v.  Ridge  Ave.  R.  Co. 

143  Pa.  St.  444,  196 

v.  Ridge  Ave.  R.  Co.,  102  Pa. 
St.  190,  308 

Philadelphia,  etc.,  Assn.  v.  New 

York,  119  U.  S.  110,  271 

Philadelphia,  etc.,  R.  Co.  v.  Cow- 
ell,  28  Pa.  St.  329,  70  Am. 
Dec.  128,  430 

v.  Hickman,  28  Pa.  St.  318,  373 

v.  Md.  10  How.  (U.  S.)  376,         111 
v.  Quiglev,  21  How.  202,  237 

Philadelphia  &  S.  S.  Co.  v.  Penn- 
sylvania, 122  IT.  S.  326,  104 
Philips  v.  Wickham,  1  Paige  Ch. 

(N.  Y.)  590,  504 

Phillips'    Academy   v.    King,    12 

Mass.  564,  151,  199 

Phillips  v.  Bury,  2  T.  R.  346,  80 

.    Campbell,  43  N.  Y.  271,  581 

v.  Covington,  etc.,  Bridge  Co., 

2  Mete.  (Ky.)  219,  381,382 

v.    Eastern  R.  Co.,  138  Mass. 

122,  425 

v.  Library  Co.,  141  Pa.  St.  462, 

284,  285 

v.  Providence,  etc.,  Co.  (R.  I. 

1899),  !:;  All.  Rep.  598,  526 

v.  Wickham,    I    Paige  Ch.   (N. 

V.)  .".'.id,  509,  662 

V.  Winslow,   18  B.  Mon.  (Ky.) 

431,  68  Am.  Dec.  729,  180 


Phinizy  v.  Murray,  83  Ga.  747,  20 
Am.  St.  Rep.  342,  428 

v.  R.  Co.,  62  Fed.  Rep.  678,  74 

Phoenix,  etc.,  Bank  v.  Balcheller, 

151  Mass.  589,  8  L.  R.  A.  644,  249 
Phoenix,  etc.,  Co.  v.  Burdett,  112 

Ind.  204,  254,  256,  267 

v.  Commonwealth,  113  Pa.  St. 

563,  416,  417 

v.   Com.,  5  Bush  (Ky.)  68,  96 

Am.  Dec.  331,  267 

v.  Welch,  29  Kan.  672,  254,  268 

Phoenix  W.  Co.  v.   Badger,  67  N. 

Y.  294,  75,  369,  403,  406 

v.  Badger,  67  N.  Y.  489,  372 

Pier  v.  Hanmore,  86  N.  Y.  95,  573,  625 
Pierce  v.  Commonwealth,  104  Pa. 

St.  150,  16,  521 

v.  Emery,  32  N.  H.  484,         123,  180 
v.  Milwaukee,  etc.,  R.  Co.,  24 
Wis.  551,  123 

Pike  v.  Railway   Co.,  68  Maine 

445,  405 

Pine  v.  Lake  Erie,  etc.,  R.  Co., 

31  Ind.  283,  195 

Pinkerton  v.  Manchester,  etc.,  R. 

Co.,  42  N.  H.  424,       471,  472,  494 
Pinkus     v.    Minneapolis     Linen 

Mills,  65  Minn.  40,  455 

Pioneer,   etc.,  Assn.   v.  Cannon, 
96  Tenn.  599,  33  L.  R.  A.  112, 

272,  273 

Piscataqua,  etc.,  Co.  v.  Jones,  39 

N.  H.  491,  372,  394 

Pitcher   v.   Board,   etc.,   121   111. 

412,  302 

Pittsburg,   etc.,  Co.  v.  Quintrell, 

91  Tenn.  693,  50 

v.  Reese,  118  Pa.  St.  355,  578 

Pittsburg,  etc.,  R.  Co.  v.  Alle- 
gheny Co.,  63  Pa.  St.  126,  318 
v.  Applegate,  21  W.  Va.  172,  367 
v.  Biggaf,  34  Pa.  St.  455,  369,  370 
v.  Byers,  32  Pa.  St.  22,  411 
v.  Clarke-Thaw,  29  Pa.  St.  146,  490 
v.  Com.,  66  Pa.  St.  77,  101 
v.  Commonwealth,   100  Pa.  St. 

192,  238 

v.  Keokuk,  etc.,  Co.,  131  U.  S. 

371,  205,209,213,215 

v.  Reich,  101  111.  157,  195 

v.  Stewart,  41  Pa.  St.  54,  371 

Pittsburg  Min.  Co.  v.  Spooner,  74 

Wis.  307,  42  N.  W.  Rep.  255,      45 
Pixlev  v.  West.  Pac.  R.   Co.,  33 

Cal.  is:;,  L61,  162,  231 

Plank,  etc.,  Co.   v.  Burkhard,  87 

Mich.  182,  49  N.  W.  Rep.  562.  382 


TABLE    OF    CASES. 


lxxv 


[References  are  to  Pages."] 


Plank  Road  v.  Thatcher,  1  Kern 

(N.  Y.)  102,  529 

Plant  v.  Macon,  etc.,  Co.,  103  Ga. 

666,  30  S.  E.  Rep.  567,  179 

Planters'  Bank  v.  Whittle,  78  Va. 

737,  183 

Planters',  etc.,  Bank  v.  Padgett, 

69  Ga.  159,  597 

Planters',  etc.,  Ins.  Co.  v.  Sehna, 

etc.,  Bank,  63  Ala.  585,  459 

Plaquemines,  etc.,  Co.  v.  Buck,  52 

N.  J.  Eq.  219,  27    Atl.    Rep. 

1094,  45,  46,  51 

Plimpton  v.    Bigelow,   93  N.   Y. 

592  309 

Plymouth  R.  Co.  v.   Colwell,   39 

Pa.  St.  337,  179 

Pocock  v.  Lafayette,  etc.,  Assn., 

71  Ind.  357,  199,  222 

Polhemus   v.    Fitchburg    R.   Co., 

123  N.  Y.  502,  197 

Polk  v.  Plummer,  2  Humph. 

(Tenn.)  500,  37  Am.  Dec.  666,     17 
Pollard  v.   First  Nat'l  Bank,  47 

Kan.  406,  427 

Polleys  v.  Ins.  Co.,  14  Maine  141,     11 
Pond   v.    Framingham,    etc.,    R. 

Co.,  130  Mass.  194,  589 

v.  Railway  Co.,  12  Blatchf.  280,  525 
Poole  v.  Middleton,  29  Beav.  646, 

458,  464 
Poole's  Case,  9  Ch.  Div.  322,  339 

Pope  v.  Brandon,  2  Stev.  (Ala.) 

401,  11 

v.  Capital  Bank,  20  Kan.  440,        65 
v.  Hanke,  155  111.  617,  28  L.  R. 

A.  568,  261,  264 

v.   Terre   Haute,   etc.,   Co.,   87 

N   Y   137  285 

Port  v.  Russell,  36  Ind.  60,  538 

Port  Edward  R.,  etc.,  Co.  v.  Ar- 

pin,  80  Wis.  214,  49  N.  W.  Rep. 

828,  374 

Portland,  etc.,  Co.  v.  East  Port- 
land, 18  Ore.  21,  6  L.  R.  A. 

290,  159 

v.  State,  135  Ind.  54,  21  L.  R.  A. 

639,  81 

Porter  v.  Bank  of  Rutland,  19  Vt. 

410,  486 

v.  Rockford,  etc.,  R.  Co.,  76  111. 

561,  101 

v.  Sabin,  149  U.  S.  473,  449 

v.  State,  141  Ind.  488,  40  N.  E. 

ReD.  1601,  42 

Porter's  Case,  1  Co.  Rep.  22,  154 

Post  v.  Beacon,  etc.,  Co.  (C.  C. 

App.),  84  Fed.  Rep.  371,  193 


Post  Express,  etc.,  Co.  v.  Coursey 

(N.  Y.),  10  N.  Y.  Supp.  497,       82 
Post  &  Co.  v.  Toledo,  etc.,  R.  Co., 

144   Mass.  341,  59  Am.  Rep. 

86,  247,  624,  645,  656 

Postal,  etc.,  Co.  v.  Charleston,  153 

IT.  S.  692,  109 

Pott  &  Co.  v.  Schmucker,  84  Md. 

535,  57  Am.  St.  Rep.  415,  415 

Potter  v.  Machine  Co.,  127  Mass. 

592,  636 

Potts  v.  Wallace,  146  U.  S.  689, 

406,  576,  577 
Poultney  v.  Bachman,  31  Hun  49,  150 
Powder  River,  etc.,  Co.  v.  Custer 

Co.,  9  Mont.  145,  22  Pac.  Rep. 

383,  272,  280 

Prall  v.  Tilt,  28  N.  J.  Eq.  479,  481 

Pratt  v.  Read  &  Co.,  33  Conn.  446, 

421,  543 

v.  Short,  79  N.  Y.  437,  228 

v.  Trustees,  93  111.  475,  384 

Pray  v.  Mitchell,  60  Maine  430,      321 

Predyman   v.   Wodry,  Cro.   Jac. 

109,  154 

Presby  v.  Parker,  56  N.  H.  409,      390 
President,  etc., Assn.  v.  Allen,  105 

Ind. 593,  142 

President,  etc.,  Hibernia  Road  v. 

Henderson,  8  Sergt.  &  Rawle 

(Pa.)  219,  375 

Preston  v.   Grand,  etc.,  Co.,   11 

Sim.  237,  191 

Price  v.  Anderson,  15  Sim.  473,       438 
v.  Coal  Co.  (Ky.)  32  S.W.  Rep. 

267,  189 

v.  Holcomb,  89  Iowa  123,  56  N. 

W.  Rep.  407,  526,  672 

v.  Price,  6  Dana  (Ky.)  107,  320 

Priest  v.  White,  89  Mo.  609,  356 

Prince  Inv.  Co.  v.  St.  Paul,  etc., 

Co.,  68  Minn.  121,      467,  489,  505 
Pritchitt  v.  Nashville,   etc.,   Co., 

96  Tenn.  472,  33  L.  R.  A.  856,  445 
Procter,   etc.,   Co.   v.   Finley,  98 

Ky.  505,  520 

Proprietors  v.  Ipswich,  153  Mass. 

42,  26  N.  E.  Rep.  239,  Denny, 

etc.,  Co.  v.  Schram,  6  Wash. 

134,  61 

Proprietors'  Union  Locks  v. 

Towne,  1  N.  H.  44,  406 

Protection,  etc.,  Co.  v.  Foote,  79 

111.  361,  538 

Protective,  etc.,  Co.  v.  Osgood,  93 

111.  69,  341 

Prouty   v.   Lake   Shore,  etc.,   R. 

Co.,  52  N.  Y.  363,  197 


lxxvi 


TABLE    OF    CASES. 


[References  are  to  Pages.'} 


Prouty  v.  Michigan,  etc.,  R.  Co., 

1  Hun  IN.  Y.)  655,  319 

Providence    Bank  v.   Billings,  4 

Pet.  (TJ.  S.)  514,  131 

Prov.  Inst,  for  Sav.  v.  Boston,  101 

Mass.  575,  107 

Prov.,  etc.,  Co.  v.  Brown,  9  TJ.  C. 

C.  C.  P.  286,  387,  395 

Pugh   v.  Hurtt,  52  How.  Pr.  22, 

610,  657 
Pugh  and  Sherman's  Case,  L.  R. 

13  Eq.  566,  396 

Pulbrook  v.  Richmond,  etc.,  Co., 

L.  R.  9  Ch.  Div.  610,  542 

Pullan  v.  Cincinnati,  etc.,  R.  Co., 

4  Bissell  35,  123 

Pullen  v.  Hillman,  84  Maine  129,  249 
Pullman,    etc.,    Co.    v.    Central, 

etc.,  Co.,  171  U.  S.  138,  209 

v.   Missouri  Pac.   R.   Co.,    115 

U.  S. 587,  30,  194,  196 

v.  Penn.,  141  U.  S.  18,  103 

Pulsford  v.  Richards,  22  L.  J.  Ch. 

559,  392 

Putnam  v.  City  of  New  Albany,  4 

Biss.  365,  370 

Pyles  v.  Riverside,  etc.,  Co.,  30 

W.  Va.  123,  128 

Q 

Queen  v.  Arnaud,  16  L.  J.  N.  S. 

C.  L.  50,  11 

Quick  v.  Lemon,  105  111.  578,  377,  385 
Quincy  Bridge  Co.  v.  Adams,  88 

111.  615,  56 

Quiner  v.  Marblehead,  etc.,  Co., 

10  Mass.  475,  459 

Quinlin  v.  Houston,  etc.,  R.  Co., 

89  Tex.  356,  23 


R 


Rabb  v.  Reed,  5  Rawle'sRep.  151, 
28  Am.  Dec.  650,  305 

Rabe  v.  Dunlap,  51  N.  J.  Eq.  40, 

25  Atl.  Rep.  959,  95,  453 

Ragan  V.  McElroy,  98  Mo.  349,      157 

Railroad  v.  Carv,  28  Ohio  St.  208,     60 
v.  Dow,  r.t  Fed.  Rep.  388,  174 

v.  Dow,  120  IT.  S.  287,  346 

v.  Echternacht,  21  Pa.  St.  220,  384 
v.  Gaines,  97  U.  S.  697,  131,521 
v.  Georgia,  98  U.  B.  359,  111,  194 
v.  Ham,  INC.  S.  587,  323,  325 

v.  Harris,  12  Wall.  05,  283 

v.   Humphries   (Miss.),  7  So. 
Rep.  522,  436 


Railroad  v.   Ketchum,  27   Conn. 
170,  586 

v.  Koonz,  104  TJ.  S.  5,  250 

v.  Maine,  96  U.  S.  499,  111 

v.  Maryland,  10  How.  (U.  S.) 

376,  112 

v.  Peniston,  18  Wall.  (TJ.  S.)  5, 

102,  104 

v.  Pennsylvania, 15  Wall.  (TJ.  S.) 

300,  102 

v.  Pratt,  22  Wall.  (TJ.  S.)  123,  164 
v.  Quigley,  21  How.  202,  235 

v.  Railroad  Co.,  06  N.  H.  100,  164 
v.  Roberson,  61  Fed.  Rep.  592,  56 
v.  Schuyler,  34  N.Y.  30,  235 

v.  State,  29  Ala.  573,  663 

v.Tierman  (Kan.),  15 Pac.  Rep. 
544,  587 

Railroad  Co.  v.  Belfast,  77  Maine 

445,  319 

v.  Berks  Co.,  6  Pa.  St.  70,  112 

Railroad  Commission  Cases,  116 

TJ.  S.  307,  16 

Railroad  Tax  Cases,  13  Fed.  Rep. 

722,  101 

Railway  Co.  v.  Allerton,  18  Wall. 

(U.  S.)  233,  2,  356,  546 

v.  Dewey,  14  Mich.  477,  550 

v.  James,  16L.U.  S.  545,  57 

v.  Knoxville,  98  Tenn.  1,  376 

v.  McCarthy,  96  U.  S.  276,  210,  214 
v.  Philadelphia,  101  TJ.  S.  528,  100 
v.  Smith,  48  Ohio  St.  219,  317 

v.  Weber,  96  111.  443,  104 

v.  Wilkerson,  83  Mo.  235,  384 

Raleigh   v.  Fitzpatrick,  43  N.  J. 

Eq.  501,  549 

Ramsey  v.  Gould,  57  Barb.   (N. 

Y.)  398,  461 

Rand  v.  Hubbell,  115  Mass.  461, 

15  Am.  Rep.  121,        439,  440,  441 
Randall    v.    Evening    News,    97 
Mich.  136,  235 

v.  Van  Vechten,  19  John.  60,       161 
Rathbone  v.  Frost,  9  Wash.  162,     279 
v.  Gas  Co.,  31  W.  Va.  798,  448 

v.  Parkersburg,  etc.,  Co.,  31  W. 
Va.  798,  8  S.  E.  Rep.  570,  414 

Rathbun  v.  Snow,  i23  N.  Y.  343, 

10  L.  R.  A.  355,  146,  147 

Rathlmrn  v.  Snow,  22  N.  Y.  S.  R. 

227,  147 

Ratterman  v.  Western,  etc.,  Co., 

I '27,  U.  8.411,  109 

Raub  v.  Balirtown,   etc.,    Assn., 

66  N.  J.  L.  262,  577 

Re   Argus,  etc.,   Co.,  1   N.    Dak. 
434,  26  Am.  St.  Rep.  639,  541 


TABLE    OF    CASES. 


lxxvii 


[References  are  to  Pages."] 


Re  Bates,  etc.,  Co.,  91  Fed.  Rep. 
625,  543 

Concession  Trust  (1896),  2  Ch. 

757,  341 

Fair  Hope,  etc.,  Estate,  183  Pa. 

St.  96,  635 

Gibbs*  Estate,  157  Pa.  St.  59,  22 

L.  R.  A.  276,  66 

Nassau,  etc.,  Co.,  2  Ch.  D.  610,     38 
Newcomb,  42  N.  Y.  St.  442,  535 

Olympia,  67  L.  J.  Ch.  N.  S.  433,    45 
Prime  Estate,  136  N.  Y.  347,  18 

L.  R.  A.  713,  257 

Rotherham  Alum  Co.,  L.  R.  25 

Ch.  Div.  103,  54 

Scottish,  etc.,  Co.,  L.  R.  23  Ch. 

Div.  413,  396 

South  Durham,  etc  ,  Co.,  L.  R. 
31  Ch.  Div.  261,  315 

Read  v.  Buffuni,    79   Cal.   77,    12 

Am.  St.  Rep.  131,  579 

Read  v.  Cumberland,  etc.,  Co.,  93 
Tenn.  482,  27  S.  W.  Rep.  660, 

324,  486 
Read  v.  Frankfort  Bank,  23  Maine 

318,  90,  663 

Rece  v.  Newport  News  R.  Co.,  32 

W.  Va.  164,  3L.  R.  A.572,    56,255 
Red  Wing,  etc.,  Co.  v.  Friedrich, 

25  Minn.  112,       362,  363,  370,  378 
Reed   v.    Bank   of    Newburgh,   6 

Paige  (N.  Y.)  337,  509 

v.  Boston,  etc.,  Co.,  141  Mass. 

554,  410 

v.  Copeland  50  Conn.  479,  467 

v.  Home  Saw  Bank,  130  Mass. 

443,  39  Am.  Rep.  468,        234,  236 
v.  Richmond,  etc.,  R.  Co.,  50 

Ind.  342,  35 

v.  Walker  (Tex.  1893),  21  S.  W. 
Rep.  687,  280 

Reese  River  Co.  v.  Smith,  L.  R.  4 

H.  L.  64,  395 

Reeve  v.  Ladies',  etc.,  Assn.,  56 

Ark.  335,  18  L.  R.  A.  129,  262 

Reeves  v.  Harper,   43   La.  Ann. 

516,  272 

Reg  v.  Birmingham,  etc.,  R.  Co., 

9  C.  &  P.  469,  238 

v.  Charwood,  etc.,  Co.,  1  C.  & 

F.  419,  496 

v.  Great  North.,  etc.,  R.  Co.,  2 

Cox  Or.  Cas.  70,  238 

v.  Liverpool,  etc.,  Co.,  21  L.  J. 
Q.  B.  (N.  S.)  284,  496 

Regents  v.  Detroit,  etc.,  Soc,  12 

Mich.  138,  151 

v.  Williams,  9  Gill.  &  J.  (Md.) 
232,  16 


Rehm  v.  German,   etc.,  Co.,  125 

Ind.  135,  288 

Rehoboth  v.  Rehoboth,  23  Pick. 

(Mass.)  139,  154 

Reichwald  v.  Commercial  Hotel, 

106  111.  439,  174,  183,  251,  542,  598 
Reid  v.  Eatonton,  etc.,  Co.,  40  Ga. 

98,  2  Am.  Rep.  563,  606 

Reile  v.  Rundle,  103  U.  S.  222,  654 
Reisner  v.  Strong,  24  Kan.  410,  71 
Relfe  v.  Rundle,  103  TJ.  S.  222, 

215,  216,  658 
Remington,  etc.,  v.  Samara  Bay 

Co.,  140  Mass.  494,  611,637 

Renick  v.  Bank,  13  Ohio  Rep.  298,  674 
Rensselaer,  etc.,  Co.  v.   Barbon, 

16  N.  Y.  457,  367 

Republican,  etc.,  Mines  v.  Brown, 
19  U.  S.  App.   203,   58   Fed. 
Rep.  644,  24  L.  R.  A.  776,  7  C. 
C.  A.  412,     257,  448,  454,  672,  673 
Rex  v.  Amerv,  1  T.  R.  575,  23 

v.  Bank  of  "England,  Doug.  524,  161 
v.  Decant,  1  Str.  536,  520 

v.    Fraternity   of   Hostmen,    2 

Strange  1223,  418 

v.  Ginever,  6  T.  R.  732,  520 

v.  Head,  4  Burr.  2515,  141 

v.  Merchant,  etc.,  Co.,  2  Barn. 

&  Adol.  115,  418 

v.  Rabb,  3  Term  R.  579,  418 

v.  Richardson,  1  Burr.  Rep.  517, 

298,  587 
v.  Shelley,  3  Term  R.  141,  418 

v.  Spencer,  3  Burr.  1827,  141 

v.  Varlo,  1  Cowp.  248,  522 

v.  Westwood,  2  Dow.  &  Clark 

21  23   141 

v.  W.  &  B.  C,  etc.,  Co.,  3  Ad.' 
&  El.  477,  419 

Reyer  v.  Odd  Fellows  Assn.,  157 

Mass.  367,  288 

Reynolds   v.    Bridenthal   (Neb.), 

77  N.  W.  Rep.  658,  506 

v.  Crawfordsville  Bank,  112  U. 

S.  405,  220 

v.  Taylor,  43  Ala.  420,  622 

Rhode  Island,  etc., Co. v.  Moulton, 

82  Fed.  Rep.  979,  629,  630 

Rhodes  v.  Missouri,  etc.,  Assn., 
175  111.  621,  42  L.  R.  A.  93, 

262,  263 

v.  U.  S.  Nat'l  Bank,  24  TJ.  S. 
App.  607,  66  Fed.  Rep.  512,  34 
L.  R.  A.  742, 

246,  624,  638, 643,  646 

v.  Webb,  24  Minn.  292,        546,  577 
Rice  v.  Hoisery  Co.,  56  N.  H.  114,  624 


lxxviii 


TABLE    OF    CASES. 


[References  are  to  Pages.] 


Rice  v.   Merrimac,   etc.,  Co.,  56 

N.  H.  114,  652 

v.  National  Bank,  126  Mass.  300,     40 
v.  Railroad  Co.,  1  Black  (U.  S.) 

358,  100 

v.  Rockefeller,  134  N.  Y.  174, 

461,  494 
Richards  v.    Clarksburg,   30    W. 

Va.  491,  298 

V.Minnesota, etc., Bank  (Minn.), 

77  X.  W.  Rep.  822,  669 

v.  Pattinson,  Barnes,  Notes  Cas. 
235,  418 

Richardson  v.  Buhl,  77  Mich.  632, 

167,  425 
v.  Graham  (W.  Va.),  30  S.  E. 

Rep.  92,  47,  51 

v.  Green,  133  U.  S.  30,  321 

v.  Pitts,  71  Mo.  128,  595 

v.  Richardson,  75  Maine  570,  46 

Am.  Rep.  428,  446 

v.  Union  Cong.   Society,  58  N. 

H.  189,  522 

v.  Vermont,  etc.,  R.  Co.,  44  Vt. 
613,  423,  503 

Richardson's  Exrs.  v.  Green,  133 

U.  S.  30,  344,  358 

Richelieu,  etc.,  Co.  v.  Interna- 
tional, etc.,  Co.,  140  111.  248, 
29  N.  E.  Rep.  1044, 

159,  362,  363,  382,  383,  385,  393 
Richie  v.  McMullen,  79  Fed.  Rep. 

522,  25  C.  C.  A.  50,  449 

Richmond  v.   Irons,  121  IT.  S.  27, 
,  469,  624,  626,  633 

Richmond,  etc.,  R.  Co.  v.  Louisa. 

R.  Co.,  13  How.  (U.  BO  71, 
Richmond  Fac.  Assn.  v.   Clarke, 
61  Maine  351,  75 

98,  100,  131 
Richwald   v.    Commercial  Hotel, 

106  111.439,  51,180,181,335,671 
Ricker  v.  Larkin,  27  111.  A  pp.  625,  37 
Rickerson,   etc.,    Co.    v.    Farrell, 

etc.,  Co.,  75  Fed.  Rep.  554,  348 
Ricketts  v.  Ches.,  etc.,  R.  Co.,  33 

\V.  Va.433,  7  L.  R.  A.  354,        121 
Rider  v.   Fritchey,  49  Ohio    St. 
285,  634 

v.  Morrison,  54  Md.  429,  475 

Rider,  etc.,  Co.  v.  Roach,  97  N.  Y. 

221 
Riddicfe  v.  Amelin,  1  Mo.  5,  23 

Riddle  v.    Railway  Co.,  39  Fed. 

Rep.  290,  60 

Riggs  v.  Cragg,  89-N.  Y.  479,  445 

v.  Cragg,  26  Hun  89,  445 

Rikhoff  v.    Brown,  etc.,  Co.,  68 

Ind.  388,  75 


Ringo  v.  Biscoe,  13  Ark.  563,  181 

Rio  Grande,  etc.,  Co.  v.  Burns,  82 

•  Tex.  50,  17  S.  W.  Rep.  1042,     494 
Ritchie    v.    McMullen,    79    Fed. 
Rep.  523  (C.  C.  A.)  64  Fed. 
Rep.  253,  55,  449 

Rivanna,  etc.,  Co.  v.  Dawson,  3 
Grat.  (Va.)  19,  46  Am.  Dec. 
183,  151,  152 

Road  Co.  v.  Branegan,  40  Ind.  31,  586 
Roane,  etc.,  Co.  v.  Wis.  Tr.  Co., 

74  N.  W.  Rep.  818  (Wis.),  32 

Robbins   v.    Shelbv   Taxing  Dis- 
trict, 120  U.-S/489,  255 
Roberts  v.  Deming,  etc.,  Co.,  Ill 

N.  Car.  432,  162,  538 

v.  Washington  Nat'l  Bank,  11 
Wash.  550,  554,  555 

Roberts,  etc.,  Co.  v.  Schlick,  62 
Minn.  332,  64  N.  W.  Rep. 
826,  48 

Robertson  v.  Bullions,  11  N.  Y. 

243  18 

Robie  v.  Sedgwick,  35  Barb.  319,      26 
Robinson  v.  Bank  L.  R.,  1  Eq. 

32,  460 

v.  Bid  well,  22  Cal.  379,  617 

v.  Hall,  59  Fed.  Rep.  648,  563 

v.  Hall,  63  Fed.  Rep.  222,  25 
U.  S.  App.  48,  12  C.  C.  A. 
674,  561 

v.  New  Berne  Nat'l  Bank,  95 
N.  Y.  637, 

428,  430,  435,  466,  471,  508 
v.  Pittsburgh,  etc.,  R.  Co.,  32 

Pa.  St.  334,  72  Am.  Dec.  792,    390 
v.  Smith,  3  Paige  (N.  Y.)  222, 

24  Am.  Dec.  216,  .r,44,  574 

v.  Turrentine,  597  Fed.  Rep. 
551,  366 

Rochester,  etc.,  Co.  v.  Martin,  13 

Minn.  59,  Gil.  54,  100 

v.  Raymond,  158  N.  Y.  576,  53 
X.   E.   Rep.  507,  491,629 

Rochester  Ins.  Co.  v.  Martin,  13 

Minn.  59,  135 

Rockford,  etc.,  R.  Co.  v.  Sage,  65 

111.  328,  16  Am.  R.  587,  54 

Rockv  Ml.   Bank  v.   Bliss,  89  N. 

Y.  338,  637 

Rodgers  v.    Danby    Fniversalist 
Society,  19  Vt.  187,  33,  34 

v.  Gross,  67  Minn.  224,  358 

Roehler  v.  Mech.  Aid  Society,  22 

Mich.  86,  150 

Rogers  v.   Hastings,  etc.,  R.,  22 

Minn.  25,  584 

v.  Nashville,  etc.,  R.  Co.,  91 
Fed.  Rep.  299,  415,  545,  548 


TABLE    OF    CASES. 


lxxix 


[Beferences  are  to  Pages."] 


Rogers  v.  Pell,  154  N.  Y.  518,  245 

v.  Railway  Co.,  22  Minn.  25,        587 

v.  Society,  19  Vt.  187,  11 

v.  Stevens,  4  Halst.  Ch.  (N.  J.) 

167,  471 

Rohler  v.  Mechanics'Aid  Society, 

22  Mich.  86,  300 

Rollins  v.  Clay,  33  Maine  132,  525,  542 

v.   Carriage  Co.,  80  Iowa  380,      181 

v.  Shaver  Co.,  80  Iowa  380,  182,    191 

Roman  v.  Woolfolk,  98  Ala.  219,    449 

Rood  v.  Whorton,  67   Fed.  Rep. 

434,  74  Fed.  Rep.  118,  341 

Rorke  v.  Thomas,  56  N.  Y.  559,  569 
Rosborough  v.  Canal  Co.,  22  Cal. 

555,  587 

Roseboom  v.  Whittaker,  132  111. 

81,  23  N.  E.  Rep.  339,        549,  551 
Rose  Hill,  etc.,  Co.  v.  People,  115 
111.  133,  3  N.  E.  Rep.  725, 

26, 42,  44 

Ross  v.  Union  P.  R.  Co.,  1  Woolw. 

C.  C.  26,  495 

Ross-Meehan  Co.  v.  Southern  Iron 

Co.,  72  Fed.  Rep.  957,        101,  310 
Rothschild  v.  Hoge,  43  Fed.  Rep. 

97,  375 

Rothwell  v.  Robinson,  39  Minn.  1, 

447,  450,  454 
Rough  v.  Breitung  (Mich.),  75  N. 

W.  Rep.  147,  10,  77 

Rouse  v.  Merchants'  Nat'l  Bank, 

46  Ohio   St.   493,  5    L.  R.  A. 

378,  182 

Roy,  etc.,  Co.  v.  Scott,  etc.,  Co., 

11  Wash.  399,  554 

Royal  Bank  v.  Grand  Junction  R. 

Co.,  100  Mass.  445,  162 

Royal  Bank  of  India,  L.  R.  4  Ch. 

252,  38 

Rudd  v.  Robinson,  126  N.  Y.  113, 

22  Am.  St.  Rep.  816,  564 

Rue  v.  Railwav  Co.,  74  Tex.  474,  251 
Ruggles  v.  Illinois,  108  U.  S.  526,  100 
Ruhev.  Buck,  124  Mo.  178,  25  L. 

R.  A.  178,  261 

Rule  v.  Omega,  etc.,  Co.  (Minn), 

67  N.  W.  Rep.  60,  611 

Ruuk  v.  St.  John,  29  Barb.  585,  657 
Runner  v.  Dwiggins,  147  Ind.  238, 

36  L.  R.  A.  645,  638,  639 

Runvan   v.   Casters'   Lessees,    14 

Pet.  (U.  S.)  122,  254,  255,  260 

Ruse  v.  Bromberg,  88  Ala.  619,  403 
Russell  v.  Alabama,  etc.,  R.  Co., 

94  Ga.  510,  393 

v.  Jones,   101  Ala.  261,  13  So. 

Rep*.  145,  276 


Russell  v.  McLellan,  14  Pick. 

(Mass.)  63,  669 

v.  Pacific  R.  Co.,  113  Cal.  258, 

34  L.  R.  A.  747,  246,  652 

v.  Rock  River,  etc.,  Co.,  184  Pa. 

St.  102,  39  Atl.  Rep.  21,  45 

v.   Temple    (Mass.),   3    Dane's 

Abr.  108,  320 

v.  Wakefield,  etc.,  Co.,  L.  R.  20 
Eq.  474,  448 

Rust  v.  United,  etc.,  Co.,  70  Fed. 

Rep.  129,  17  C.  C.  A.  16,  285 

Rutherford  v.  Hill,  22  Ore.  218, 17 

L.  R.  A.  549,  595 

Rutland,  etc.,  Co.  v.  Bates,  6S  Vt. 

579  545 

Rutland,  etc.,  R.  Co.  v.  Thrall,  35 

Yt.  536,         316,  385,  405,  409,  531 
Rutter  v.  Kilpatrick,  63  N.  Y.  604, 

292,  376 
Ryan  v.   Leavenworth,    etc.,   R. 

Co.,  21  Kan.  365,  187,  428 

v.   Seaboard,   etc.,   R.   Co.,   89 
Fed.  Rep.  397,  510 

Ryder  v.  Railroad  Co.,  13  111.516,  434 


s 


Sacks  v.  City  of  Minneapolis 

(Minn.  1898),  77  N.  W.  Rep. 

563,  232 

Saint  v.   Wheeler,   etc.,   Co.,   95 

Ala.  362,  10  So.  Rep.  539,  583 

Salem,   etc.,   Corp.    v.    Ropes,   6 

Pick.  23,  19  Am.  Dec.  363, 

373,  374 
Salem,   etc.,  Co.  v.   Danvers,   10 

Mass.  514,  101 

Salem  Milldam  Corp.  v.  Ropes,  9 

Pick.    (Mass.)    187,    19   Am. 

Dec.  363,  367,  382,  393,  404 

Saline    Nat'l    Bank    v.     Prescott 

(Kan.),  57  Pac.  Rep.  12,  672 

Salmon  v.  Richardson,  30  Conn. 

360,  79  Am.  Dec.  255,         568,  572 
Salomon   v.   Salomon,   etc.,   Co., 

Lim.,  L.  R.  App.  Cas.  (1897), 

22,  75,  Law  Times  N.  S.  427,     603 
Salt  Lake  City  v.  Hollister,  118 

U.  S.  256,  "    110,  201,  215,  235,  236 
Salt  Lake,  etc.,  Co.  v.  Jintic,  etc., 

Co.,  13  Utah  323,  45  Pac.  Rep. 

200,  637 

Saltmarsh  v.  Spaulding,  147  Mass. 

224,  541,  549,  552,  675 

Samuel  v.    Holladay,   1   Woolw. 

(N.  Y.)  400,  447,  453 


lxxx 


TABLE    OF    CASES. 


[References  are  to  Pages."] 


Samuels  v.  Evening  Mail,  75  N.Y. 

604,  237 

Sanborn  v.  Lefierts,  58  N.  Y.  179,    570 
San    Buenaventura,    etc.,    Co.   v. 

Vassault,  50  Cal.  534,  503 

San  Diego  v.   Railroad    Co.,    44 

Cal.  106,  550 

San  Diego,  etc.,  Co.  v.  Pacific, 
etc.,  Co.,  112  Cal.  53,  33  L.  R. 
A.  788,  182,  225,  255,  554 

v.  San  Diego,  118  Cal.  556,  38 

L.  R.  A.  460,  81 

v.  San  Diego,  etc.,  Co.,  108  Cal. 

549,  29  L.  R.  A.  839,  168 

v.    San    Diego   (Cal.)   50  Pac. 
Rep.  633,  38  L.  R.  A.  460,  115 

Sanford,  etc.,  Co.  v.  Howe,   157 

IT.  S.  312,  182 

San  Francisco  v.  Flood,  64  Cal. 

504,  320 

v.  Spring  Valley  Water- Works, 

63  Cal.  329,    -  308 

v.  Spring  Valley,  48  Cal.  493,  28 

Sanger  v.  Upton,  91  U.  S.  56, 

296,  321,  458 

San  Joaquin,  etc.,  Co.  v.  West,  94 

Cal.  399,  50,  385 

San  Pedro,  etc.,  Co.  v.  Reynolds, 

121  Cal.  74,  564 

Santa  Clara  County  v.  Southern, 

etc.,  R.  Co.,  118  U.  S.  394,  30 

(L.  ed.)  118,  57,  80,  104,  248 

Santa  Clara,  etc.,  Co.  v.  Hayes, 

76  Cal.  387,  166 

v.   Meredith,   49    Md.  389,    33 

Am.  Rep.  264,  584 

Santa  Clara  Female  Academy  v. 

Sullivan,  116  111.  375,  56  Am. 

Rep.  776,  32,  260 

Santa  Cruz  R.  Co.  v.  Schwartz,  53 

Cal.  106,  377 

Santa  Fe,  etc.,  Co.  v.  Hitchcock, 

(  N.  Mex.),  50  Pac.  Rep.  332,     194 
Sargent  v.  Franklin,  etc.,  Co.,  8 

Pick.  (.Mass.)  90,  19  Am.  Dec. 

306,  143,433,458,459 

v.   Insurance   Co.,   8  Pick. 

(Mass.)  90,  489 

v.  Railway  Co.,  9  Pick.  (Mass.) 

202,  473 

v.   Webster,  13  Met.    (Mass.) 

497.  46  Am.  Dec.  743, 

502,  522,  540,  541 

Savage  v.  Bartlett,  78  Md.  501,       401 
i  v.  Hoylake  R.  Co.,  L.  R.rl 
Excli.  9,  48 

Savings   Bank  v.    I'-utrhers',  etc., 
Bank,  L30  Mo.  155,  659 


Savings  Bank  v.  Caperton,  87  Ky. 

306,  563 

Sawyer  v.  Hoag,  17  Wall.  (U.S.) 

610,  321,  338,  340,  659 

v.  Manchester,  etc.,  R.  Co.  (N. 

H.),  13  Am.  St.  Rep.  550,         505 
v.  Printing  Co.,  77  Iowa  242,        526 
Sayles  v.  Bates,   15  R.  I.  342,   5 

Atl.  Rep.  497,       473,  494,  630,  631 
v.  Brown,  40  Fed.  Rep.  8, 

310,  498,  504,  616,  625,  661 
Schaefer  v.  Missouri,  etc.,  Co.,  46 

Mo.  248,  398 

Schalucky  v.  Field,  124  111.  617,      660 
Schell  v.  Second  Nat'l   Bank,  14 

Minn.  43  (Gill.  34),  505 

Schenck  v.   Andrews,  57   N.  Y. 

133,  349 

Schenectady,  etc.,  R.  Co.  v. 

Thatcher,  11  N.  Y.  102,        37,  531 
Schertz  v.  First  Nat'l  Bank,  47  111. 

App.  124,  638 

Scbeufler    v.    Grand    Lodge,  .  45 

Minn.  256,  73,  304 

Schley  v.  Dixon,  24  Ga.  273,  575 

Schlieder  v.  Dielman  (La.),  10  So. 

Rep.  934,  663 

Schloss  v.  Montgomery  T.  Co.,  87 
Ala.  411,  13  Am.  St.  R.  51,  6 
So.  Rep.  360,  37,  74,  75,  77 

Schmidt  v.  Hennepin,   etc.,  Co., 

35  Minn.  511,  490 

Schrever  v.  Mills  Co.,  29  Ore.  1, 

43  Pac.  Rep.  719,  52 

Schuieldtv.  Smith,  131   Mo.  280, 

29  L.  R.  A.  830,  182,  183 

Schultz  v.  Insurance  Co.,  77  Fed. 
Rep.  375  (C.  C.  A.),  80  Fed. 
Rep.  337,  658 

Schurtz   v.   Schoolcraft,    etc.,   R. 

Co.,  9  Mich.  269,  381 

Scott  v.  Armstrong,  146  U.  S.  499,  182 
v.  Bank,  21  Blach.  203,  15  Fed. 

Rep.  494,  458,  473 

v.  DePeyster,  1  Ed.  Ch.  513,        564 
v.  Dickson,  29  L.  J.  Ex.  62,  49 

v.  Eagle,  etc.,  Co.,  7  Paige 

(N.  Y.)  198,  423 

v.  Fire  Ins.  Co.,  7  Paige  (N.  Y.) 

198,  426,  432 

v.   Middleton,   etc.,  R.  Co.,  86 

N.  Y.  200,  578 

v.  Neely,  140  U.  S.  106,  590 

Scottish,  etc.,  R.  Co.  v.  Stewart, 

3  Macq.  382,  227 

Scoville  v.  Thayer,  105  U.  S.  143, 

310,  326,  336;  340,  404,  411,  607,  613 
Scripture   v.    Francestown,    etc., 
Co.,50N.  II.  571,  471,  476 


TABLE    OF    CASES. 


lxxxi 


[References  are  to  Pages.] 


Seabright     v.     Payne,     62    Lea 

(Tenn.)  283,  135 

Seacord    v.    Pendleton,   55    Hun 

579,  598 

Seaman  v.  Insurance  Co.,  18  Fed. 

Rep.  250,  415 

Seamans  v.  Christian  Bros.,  etc., 

Co.,  66  Minn.  205,  277 

Second   Nat'l   Bank  v.   Hall,  35 

Ohio  St.  158,  71,  605 

Security     Co.     v.    Hartford,     61 

Conn.  89,  23  Atl.  Rep.  699,       308 
Sedalia,  etc.,  R.  Co.  v.  Wilkerson, 

83  Mo.  235,  362 

Seeds,  etc.,  Co.  v.  Heyn,  etc.  Co., 

(Neb.)  77  N.  W.  Rep.  660,         183 
Seeligson  &  Co.  v.  Brown,  61  Tex. 

114,  471 

Seely  v.  Bank,  78  N.  Y.  608,  424 

Seller  v.  Potter,  etc.,  Co.,  30  N. 

Y.  Supp.  294,  275 

Sellers  v.   Greer,  172  111.  549,  40 

L.  R.  A.  589,  11 

v.  Iron  Co.,  13  Fed.  Rep.  20,        550 
v.   Phoenix,   etc.,   Co.  13   Fed. 

Rep.  20,  456 

Sells    v.   Grocery  Co.,   72  Miss. 

590,  182 

Selma,  etc.,  R.  Co.  v.  Anderson, 

51  Miss.  829,  394 

v.  Tipton,  5  Ala.  787,  405 

Semans  v.  Temple  Co.,  105  Mich. 

400,  28  L.  R.  A.  430,  261 

Semple  v.    Bank  of  Columbia,  5 

Sawyer  (U.  S.)  88,  279 

Seneca  County  Bank  v.  Lamb,  26 

Barb.  595,  142 

Senour,   etc.,   Co.   v.   Clarke,    96 

Wis.  469,  577 

Sewall  v.  Boston,  etc.,  Co.,  4  Al- 
len (Mass.)  277,  313,  482 
Seward  v.  Rising  Sun,  79  Ind.  351,  320 
Seymour  v.  Guaranty,  etc.,  Soc, 

54  Minn.  147,  220,  222 

v.   Spring  Forest,    etc.,   Assn., 

144  N.  Y.  333,  28  L.  R.  A.  859, 

221,  224,  354 
v.  Society,  34  Minn.  147,  207 

v.  Sturgess,  26  N.  Y.  134,      348,  403 
Shackelford  v.  Mississippi,  etc.,  R. 

Co.,  52  Miss.  159,  197 

Shaffer  v.  Hahn,  111  N.  C.  1,  579 

Shakman  v.  U.  S.,  etc.,  Co.,  92 

AVis.  366,  32  L.  R.  A.  383,         676 
Shakopee,   etc.,   Works  v.   Cole, 

37  Minn.  91,  33 

Shaler,  etc.,  Co.  v.  Bliss,  27  N.  Y. 

297,  570 

vi — Private  Corp. 


Sharpe  v.  Dawes,  46  L.  J.  (Q.  B.) 

104,  523 

Shaw  v.  Boylan,  16  Ind.  384,  592 

v.  Davis,  78  Md.  308,  23  L.  R. 

A.  294,  454,  455 

v.  Quincy  Min.   Co.,  145  U.  S. 

444,  55,  250,  281 

v.  Spencer,  100  Mass.  382, 

313,  479,  483,  486 
Shawhan  v.  Zinn,  79  Ky.  300,  449,  457 
Sheafe  v.  Larimer,  79  Fed.  Rep. 

921,  611,  638 

Sheffield,  etc.,  Co.  v.  Woodcock, 

7  M.  &  W.  574,  296 

Shellengton  v.  Howland,  53  N.  Y. 

371,  469,  637 

Shelmerdine  v.  Welsh,  20  Phila. 

Rep.  199,  517 

Shepley  v.  Railroad  Co.,  55  Maine 

395,  180 

Sheren  v.  Mendenhall,  23  Minn. 

92,  599 

Sheridan,  etc.,  Co.   v.  Chatham, 

etc.,  Bank,  127  N.  Y.  517,  543 
Sherma  v.  Fitch,  98  Mass.  59,  161,  538 
Sherman,  etc.,  Co.  v.  Morris,  43 

Kan.  282,  221,  557 

Sherwood  v.  Alvis,  83  Ala.  115,  3 

Am.  St.  Rep.  695,  221,  279 

v.  American  Bible  Soc,  1  Keyes 

(N.  Y.)  561,  156 

v.  American,  etc.,  Soc,  4  Abb. 

(N.  Y.  Ct.  App.  Cas.)  231,  178 
Sheufner  v.   Grand   Lodge,   45 

Minn.  256,  73 

Shewalter  v.  Pirner,  55  Mo.  218, 

157,  220 
Shickle,  etc.,  Co.  v.  Wiley,  etc., 

Co.,  61  Mich.  226,  2>5,  287 

Shickle  v.  Watts,  94  Mo.  410,  658 

Shields  v.  Clifton  Hill,  etc,  Co., 

94  Tenn.  123,  26  L.  R.  A.  509,     48 

v.  Land  Co.,  94  Tenn. ,123,  74 

v.  Ohio,  95  U.  S.  319,        91,  92,  194 

v.  State,  26  Ohio  St.  86,  30,  31 

Shipley  v.  Mechanics'  Bank,  10 

Johns.  484,  496 

Shober  v.  Association,  68  Pa.  St. 

429,  383 

Shober's  Admrs.  v.  Lancaster  Co., 

etc.,  Assn.,  68  Pa.  St.  429,  363 
Shockley  v.  Fisher,  75  Mo.  498,  181 
Shoe  Co.  v.  Hoit,  56  N.  H.  548,  383 
Shoemaker    v.   Mechanics'  Nat'l 

Bank,  2  Abb.  (U.  S.)  416,         199 
v.  Washburn,  etc,  Co.,  97  Wis. 

585,  73  N.  W.  Rep.  333,  191 

Short  v.  Medberry,  29  Hun  39,       635 


lxxxii 


TABLE    OF    CASES. 


[References  are  to  Pages."] 


Shrewsbury,  etc.,  R.  Co.  v.  Stour 
Valley  R.  Co.,  2  DeGex,  M. 
&  G.  866,  31 

Shropshire,  etc.,  R.  Co.  v.  Queen, 

L.  R.  7  H.  L.  496,  376 

ShropshireUnions  R.Co.v.  Queen, 

L.  R.  7  E.  &  I.  Apps.  496,         476 
Shuev  v.  United  States,  92  U.  S. 

73,  384 

Sibley  v.  Carteret  Club,  40  N.  J. 

L.  295,  303,  306 

v.    Quinsigamond  Nat'l   Bank, 
133  Mass.  515,  471 

Sickles  v.  Manhattan,  etc.,  Co., 

66  How.  (N.  Y.)  305,  81 

Signa,  etc.,  Co. v.  Greene,  88  Fed. 

Rep.  207,  31  C.  C.  A.  477,  458 

Silk,  etc.,  Co.  v.  Campbell,  27  N. 

J.  L.  539,  447 

Silkman    v.    Yonkers    Water 
Conirs.,  152  N.  Y.  327,  37  L. 
R.  A.  827,  81 

Sills  v.  Brown,  9  Carr.  &  P.  604,     150 
Silver  Hook  Road  v.  Greene,  12 

R.  I.  164,  404 

Silverman  v.  Lessor,  88  Maine  599,  249 
Simeral  v.  Dubuque,  etc.,  Co.,  18 

Iowa  319,  144 

Simm  v.   Anglo-Amer.  Tel.   Co., 

5  L.  R.  Q.  B.  Div.  188,  482 

Simmons,  etc.,  Co.  v.  Doran,  142 
U.  S.  417,  583 

v.  Norfolk,  etc.,  Co.,  113  N.  C. 
147,  22  L.  R.  A.  677,  666 

Simons  v.  Min.  Co.,  61  Pa.  St. 

202,  45 

v.  Vulcan  Oil  Co.,  61  Pa.  St. 

202,  45,  47 

Simnson  v.  Moore,  30  Barb.  637,     445 

Sims  v.  Thompkins,  84  Ala.  613,     543 

Singer  v.   Fleming,  39  Neb.  679, 

23  L.  R.  A.  210,  245 

v.  Given,  61  Iowa  93,  658 

v.  Talcot,  etc.,  Co.,  176  111.  48,     671 
Sinking  Fund  Cases,  99  U.  S.  700 

88,  90 
Si-son  v.  Matthews,  20  Ga.  848,  608 
Bkelly  v.  Hank,  9  Ohio  606,  110 

v.   Private,   etc.,  Soc,  13  Daly 
(N.  Y.)2,  145 

Skillman  v.  Lookman,  23  Cal.  198,    20 
Skinner  v.  Wallace,  etc.,  Co.  140 

N.  Y.    217,  544 

Bkowhegan    Bank   v.   Cutler,  49 

Maine  315,  52  Maine  509,  471 

Skrainka   v.    Allen,  7  Mo.   App. 

134,  7C  Mo,  384,  344 

Slattery  v.  Rchwannecke,  118  N. 
Y.  543,  583 


Slausonv.  Schwabacher,  etc.,  Co., 

4  Wash.  783,  278 

Slee  v.  Bloom,  5  Johns.  Ch.  (N. 
Y.)  366,  19  Johns.  (N.  Y.) 
456,  672 

v.   Bloom,   20  Johns.    (N.    Y.) 
669,  637 

Sleeper  v.  Franklyn  Lyceum,  7  R. 

I.  523,  304 

v.  Goodwin,  67  Wis.  577,  31  N. 
W.  Rep.  335,  617,  635,  637 

Slemmons  v.  Thompson,  23  Ore. 

215,  31  Pac.  Rep.  514,  494,  496 
Slipher  v.  Earhart,  83  Ind.  173,  377 
Slocum  v.  Prov.,  etc.,  Co.,  10  R. 

I.  112,  73,  77 

Small  v.  Herkimer,  etc.,  Co.,  2  N. 

Y.  330,  409 

Smith    v.   America,   etc.,   Co.,   7 

Lansing  317,  471 

v.  Association,  78  Cal.  289,  550 

v.  Board,  etc.,  38  Conn.  208,  582 
v.    Cresent,    etc.,  Co..    30  La. 

Ann.  1378,  471 

v.  Cornelius,  41  W.  Va.  59,  30 

L.  R.  A.  747,  162 

v.  Co-op.,  etc.,  Assn.,  12  Daly 

304,  447 

v.  Dorn,  96  Cal.  73,  449 

v.  Ferres,  etc.,  R.  Co.,  51  Pac 

Rep.  710,  171 

v.  Huckabee,  53  Ala.  191,  651 

v.  Hurd,  12  Mete.  (Mass.)  371, 

10,  449,  546 

v.  Insurance  Co.,  14  Allen  336,    257 
v.  Lake  Shore,  etc.,  R.  Co.,  114 
Mich.  460,  72  N.  W.  Rep.  328, 

89,91 
v.  Law,  21  N.  Y.  296,  503,  504 

v.  Los  Angeles,  etc.,  Assn.,  78 
Cal.  289,  12  Am.  St.  Rep.  53, 

540,  548 

v.  Los  Angeles  Co.,  98  Cal.  210,  197 
v.  McGroarty,  136  U.  8.  237,  182 
v.  Mayfield,  163  111.447,  64 

v.  Nashville,  etc.,  R.,  91  Tenn. 

221,  18  S.  W.  Rep.  546,  468,  486 
v.  Nelson,  18  Vt.  511,  304 

v.  Omans,  17  Wis.  395,  634 

v.  Pedigo,  145  Ind.  361,  32  L.  R. 

A.  838,  18 

v.  Pilot,  etc.,  Co.,  47  Mo.  App. 

409 ,  244 

v.  Plank  Rd.  Co.,  30  Ala.  650,  40 
v.  Poor,  40  Maine  415,  429,  575 

v.  Prior,  58  Minn.  247,  59  N.  W. 

Rep.  1016,  351,  354 

v.  Putnam,  61  N.  H.  632,  183 


TABLE    OF   CASES. 


lxxxiii 


[Beferences  are  to  Pages.] 


Smith   v.  Railroad  Co.,  64  Fed. 

Rep.  272,  521 

v.  San  Francisco,  etc.,  R.  Co., 
115  Cal.  584,  35  L.  R.  A.  309, 

507,  514 
v.  Silver,  etc.,  Co.,  64  Md.  85, 

54  Am.  Rep.  760,  23 

v.   Silver  Valley,  etc.,   Co.,  64 

Md.  85,  252 

v.  Skeary,  47  Conn.  47,  182 

v.  Smith,  62  111.  496,      146,  147,  579 
v.  Whitfield  &  Sanders,  38  Fla. 

211,  241 

v.  White  (Tex.),  25  S.  W.  Rep. 
809,  199 

Smyth  v.  Ames,  169  U.  S.  466,    16,  81 
Smythe  v.  Ames,  169  U.  S.  522,        57 
Snider's  Sons  Co.  v.  Troy,  91  Ala. 
224,  24  Am.  St.    Rep.  887,  11 
L.  R.  A.  515,  66,  74,  597,  598 

Snyder  v.  Studebaker,  19  Ind.  462, 

69,  76 
Snyder  Bros.  v.  Bailey  (111.),  46 

N.  E.  Rep.  452,         •  579 

Societe  Foncierv.  Millikin,  135  TJ. 

S.  304,  284 

Society  Perun  v.  Cleveland,  43 
Ohio  St.  481,  3  N.  E.  Rep. 
357,  66,  67,  71 

Society  v.  Commonwealth,  52  Pa. 

St.  125,  91  Am. Dec.  139,  38, 298,  306 
Solomon  v.  First  Nal'l  Bank,  72 

Miss.  854,  434 

v.  Penoyar,  89  Mich.  11,  559 

South  v.  Paulk,  24  Ga.  356,  62 

South  Bend,  etc.,  Co.  v.  Cribb  Co. 

(Wis.),  72  N.  W.  Rep.  749,       183 
South,  etc.,  Co.  v.  Fire   Assn.  of 
Philadelphia,  67  Hun  (N.  Y.) 
41,  288 

South  Nashville,  etc.,  Co.  v.  Mor- 
row, 87  Tenn.  406,  102 
South  Yorkshire  R.  Co.  v.  Great 

Northern  R.  Co.  9  Ex.  55,         227 
Southern,  etc.,  Assn.  v.  Normon, 

98  Ky.  294,  31  L.  R.  A.  41,        256 
Southern,  etc.,  Co.  v.  Cole,  4  Fla. 

359,  321 

Southern,  etc.,  R.  Co.  v.  Hixon, 

5  Ind.  165,  150,  398 

v.  Orton,  6  Sawy.  (C.  C.)  157,     157 

v.  Stevens,  87  Pa.  St.  190,  529 

v.  Denton,  146  U.  S.  202,  270 

Southern  Pac.  R.  Co.  v.  Orton,  32 

Fed.  Rep.  457,  1,  2,  85 

Southern  R.  Co.  v.  Bourknight,  70  ' 

Fed.  Rep.  442,  30  L.  R.  A.  823,  196 
Southwestern,  etc.,  R.  Co.  v.  Mar- 
tin, 57  Ark.  355,  429 


Spangler  v.  Railway  Co.,  21  111. 

275,  403 

Spanish  Ambassador  v.  Buntish, 

Bulst.  pt.  2,  322,  280 

Sparks  v.  Dispatch  Transfer  Co., 

104  Mo.  531,  24  Am.  St.  Rep. 

351,  579 

v.  Masonic,  etc.,  Assn.,  100  Iowa 

458,  282 

v.  Woodstock,  87  Ala.  294,  38 

Spartanburg  v.  Spartanburg,  etc., 

R.  Co.,  57  S.  C.  129,  666 

Spaulding  v.  Paine,  81  Ky.  416,      309 
Spear  v.  Bach,  82  Wis.  192,  321 

Spering's  Appeal,  71  Pa.  St.  11,  10 

Am.  Rep.  684,  544,  561,  562,  566 
Sperry's  App.,  116  Pa.  St.  391,  303 
Splawn  v.  Chew,  60  Tex.  532,  150 

Spooner  v.  Phillips,  62  Conn.  62, 

16  L.  R.  A.  461, 

415,  438,  439,  441,  442 
Sprague  v.  Coche  Co.  Mfg.  Co., 

10  Blatchf.  174,  477 

v.   Cutler,   etc.,   Co.,   106  Ind. 

242,  280 

v.  Nat'l  Bank  of  America,  177 

111.  149,  632 

v.  Nat'l  Bank  of  America,  172 

111.  149,  42  L.  R.  A.  606, 

330,  335,  339 
Spratt  v.  Livingston,  32  Fed.  Rep. 

507, 22  L.  R.  A.  453,  671 

Spreckles  v.   Nevada  Bank,   113 

Cal.  272,  33  L.  R.  A.  459,  459 

Spring  Co.  v.  Knowlton,  103  U.  S. 

49,  224,  229,  334 

Spring    Valley    Water-Works   v. 

Schottler,  110  U.  S.  347,        16,  90 
v.  Schottler,  62  Cal.  73,  113 

Sproule  v.  Bouch,  L.   R.   29  Ch. 

Div.  635,  438,  439 

Spurgeon  v.  Santa  Ana,  etc.,  Co., 

120  Cal.  71,  39  L.  R.  A.  701,  461 
Spurlock  v.  Railroad  Co.,  61  Mo. 

319,  465 

St.  Albans  v.  National,  etc.,  Co., 

57  Vt.  68,  102 

St.  Clair  v.  Cox,  106  IT.  S.   350, 

255,  271,  283,  284,  285,  288 
St.  Joe,  etc.,  Co.  v.  Bank,  10  Colo. 

App.  339,  50  Pac.  Rep.  1055,  549 
St.  John  v.  Erie  R.  Co.,  10  Blatch. 

(U.  S.)  271,  425 

v.  Railway  Co.,  22  Wall.  (U.  S.) 

136,  318 

St.   John's,  etc.,  Co.  v.  Munger, 

106  Mich.  90,  29  L.  R.  A.  63, 

64  N.  W.  Rep.  3,  191 

St.  Louis  v.  Shields,  62  Mo.  247,       77 


lxxxiv 


TABLE    OF    CASES. 


[References  are  to  Pages."} 


St.  Louis,  etc.,  Co.  v.  Goodfellow, 

9  Mo.  149,  490 

v.St.  Louis,  84  Mo.  202,  70 

St.  Louis,  etc.,  R.  Co.  v.  Chenault, 

86  Kan.  51,  550 

v.  Fire  Assn.,  55  Ark.  163,  281 

v.  Gill,  156  U.  S.  649,  196 

v.  James,  161  U.  S.  545,    55,  61,  281 
v.  Newsom,  56  Fed.  Rep.  951,  6 

C.  C.  A.  172,  56 

v.  Newcom,  2  C.  C.  A.  174,  60 

v.  N.,  M.  R.  Co.,  2  Mo.  App.  69,    26 
v.  Philadelphia,  etc.,  Assn.,  60 

Ark.  325,  28  L.  R.  A.  83,  281,  272 
v.  Paul,  64  Ark.  83,  62  Am.  St. 

Rep.  168,  126 

v.  Terre  Haute,  etc.,  R.  Co.,  145 
U.  S.  393,  223,  224 

St.  Louis  v.  Western,   etc.,  Co., 

148  U.  S.  96,  109 

St.  Mary's,  etc.,  Assn.  v.  Lynch 

(N.'H.),  9  Atl.  Rep.  98,  503 

St.  Paul,  etc.,  Ins.  Co.  v.  Allis,  24 

Minn.  75,  28,  29 

St.  Paul  Div.  v.  Brown,  11  Minn. 

356,  Gill.  254,  23 

St.  Paul,  etc.,   R.  Co.  v.  Parcher, 

14  Minn.  297,  123 

v.  Robbins,  23  Minn.  439,  376 

St.  Paul  v.  St.  Paul,  etc.,  R.  Co., 

23  Minn.  469,  110 

Stackpole  v.  Seymour,  127  Mass. 

104,  496 

Stacy  v.  Little  Rock,  etc.,  R.  Co., 

5  Dill.  (C.  C.)  348,  341 

Stafford  Nat'l  Bank  v.  Palmer,  47 

Conn.  443,  596 

Standard  Oil  Co.  v.  Scofield,  16 

Abb.  (N.  C.)  372,  173 

Standard,  etc.,  Co.  v.  Derm,  etc., 
Co.,  87  Wis.  127,  58  N.  W. 
Rep.  238,  «50 

Stapleton  v.Odell,47  N.Y.Supp.13,  563 
Starkweather  v.  American  Bible 
Soc,  72  111.  50,  22  Am.  Rep. 
133,  153,  155,  156 

Starrett  v.  Rockland,  etc.,  Co.,  65 

Maine  371,  362,  368 

State  v.  Ackerman   (Ohio),-24  L. 

B.    \.  296,  266 

v.  Adams,  44  Mo.  570,  304 

v.    American,    etc.,    Assn.,   64 

Minn.  349,  666 

v.  Anderson,  'M  Wis.  114,  72  N. 

W.  Rep.  386,  120 

v.  Anderson,  90  Wis.  550,  120 

v.    Alchisr.n,   etc..    R.   Co.,   24 
Neb.  143,  8  Am.  St.  Rep.   164 

31,  84.  667 


State  v.  Atchison,  etc.,   R.   Co. 

38  Kan.  744,   5  Am.  St.  Rep. 

800,  667 

v.  Auditor-Gen.,  46  Mich.  226      103 
v.  Bailey,  16  Ind.  46,  95 

v.  Baltimore,  etc.,  R.  Co.,  120, 

Ind.  298,  238 

v.   Baltimore,    etc.,   R.   Co.,  6 

Gill.  (Md.  )  363,  431 

v.  Baltimore,  etc.,  R.    Co.,   77 

Md.  489,  196 

v.   Baltimore,   etc.,  R.  Co.,  15 

W.  Va.  362,  238 

v.  Bank,  etc.,  6  Gill  &  J.  206,       181 
v.    Bank   of  New  England,  7© 
;/<  .Minn.  398,  68  Am.   St.  Rep. 
"538,  630 

v.  Barron,  57  N.  H.  498,  82 

v.  Beck,  81  Ind.  500,  33,  34 

v.  Bergenthal,  72  Wis.  314,  39 

N.  W.  Rep.  566,  416,  419 

v.  Bienville,  etc.,  Works,  28  La. 

Ann.  204,  415,  416 

v.  Bonnell,  35  Ohio  St.  10,  502 

v.  Brownton,  etc.,  R.  Co.,  120 

Ind.  337,  22  N.  E.  Rep.  316,        82 
v.  Bryce,  7  Ohio  (Pt.  2)  82,  588 

v.  Bulkelev,  61  Conn.  287,  536 

v.  Bull,  16  Conn.  179,  23 

v.  Butler,  86  Tenn.  614,  672 

v.    Butler    City,    etc.,   Co.,   18 

Mont.  199,  32  L.  R.  A.  697,  81 

v.  Cannon  River,  etc.,   Assn., 

67  Minn.  14,  669 

v.  Carey,  2  N.  Dak.  36,  49  N. 

W.  Rep.  164,  267,  271 

v.  Carr,  111  Ind.  335,  16 

v.  Carteret  Club,  40  N.  J.   L. 

295,  150 

v.  Central,  etc.,  Assn.,  29  Ohio 

St.  399,  33 

v.  Chamber,  etc.,  20  Wis.  68, 

299,  302 
v.  Chamber  of  Commerce,   47 

Wis.  670,  302,  306 

v.    Chamber    of    Commerce 

(Minn.),  79  N.  W.  Rep.  1026,  459 
v.  Cheraw,  etc.,  R.  Co.,  16  S.  C. 

524,  496 

v.  Chicago,  etc.,  R.  Co.,  77  Iowa 

442,  238 

v.  Chute,  34  Minn.  135,505,  523,  535 
V.Cincinnati,  etc.,  R. Co. ,47 Ohio 

St.  130,  23  N.  E.  Rep.  928,  81,  165 
v.  Cincinnati,  etc.,  Co.,  24  Ohio 

St.  611,  238 

v.  Citizens',  etc.,  R.  Co.,  47  Ind. 

407,  17  Am.  Rep.  702,  221 

v.  Com.  Bank,  28  Neb.  677,  321 


TABLE    OF    CASES. 


lxxxv 


\_Beferences  are  to  Pages."] 


State  v.  Commissioners,  21  Fla.  1,  471 
v.  Com'rs,  23  N.  J.  L.  510,   57 

Am.  Dec.  409,  151 

v.  Cookins,  123  Mo.  56,  33 

v.  Critchet,  37  Minn.  13,  33,  150 
v.  Cronan,  23  Nev.  437,  49  Pac. 

Rep.  41,  504 

v.  Curtis,  35  Conn.  374,  674 

v.  Curtis,  9  Nev.  335,  141 

v.  Dawson,  16  Ind.  40.  23 

v.  District  Co  art,  26  Minn.  233, 

285,  286 
v.    District   Court   (Mont.)   56 

Pac.  Rep.  219,  672 

v.  Doyle,  40  Wis.   175,  22  Am. 

Rep.  692,  239,  271 

v.  East  Fifth  St.  R.  Co.,  140  Mo. 

539,  62  Am.  St.  Rep.  743, 

118,  119,  120 
v.  Einstein,  46  N.  J.  L.  479,  416 

v.  Elizabeth  (N.  J.)  39  Atl.  Rep. 

683,  157 

v.  Felton(N.J.)19Atl.Rep.l23,  581 
v.  Ferris,  42  Conn.  560,  291,  505 

v.  Fidelity,  etc.,  Co.,   77  Iowa 

648,  268 

v.  Fidelity,  etc.,  Co.,  49  Ohio  St. 

440,  16  L.  R.  A.  611,  38,  257 

v.  Fidelity,  etc.,  Co.,  39  Minn. 

538,  41  N.  W.  Rep.  108, 

268,  269,  271,  290 
v.  Field,  49  Mo.  270,  238 

v.  First  Nat'l  Bank,  89  Ind.  302, 

471,  496 
v.  Fogarty,  105  Iowa  32,  671 

v.  Foulkes,  94  Ind.  493,  33,  34 

v.  Gaslight   Co.,  5  Rob.  (La.) 

539,  663 
v.  Georgia  Med.  Soc,  33  Ga.  608, 

95  Am.  Dec.  408,  80,  306 

v.  Great  Works,  etc.,  R.  Co., 

120  Ind.  298,  238 

v.  Greer,  78  Mo.  188,  88,  521 

v.   Goodwill,  25  Am.  St.  Rep. 

870,  57,  99 

v.  Gordon,  87  Ind.  171,  33 

v.  Habib,  18  R.  I.  558,  30  Atl. 

Rep.  462,  42,  44 

v.  Hancock,  35  N.  J.  L.  537,  134 
v.  Hannibal,  etc.,  Road  Co.,  138 

Mo.  332,  36  L.  R.  A.  457,  664 

v.  Hannibal,  etc.,  R.  Co.,  138 

Mo.  332,  39  S.  W.  Rep.  910, 

36  L.  R.  A.  457  2,  139 

v.  How,  1  Mich.  512,  77 

v.  Hunton,  28  Vt.  594,  506,  541 

v.  Insurance  Co.  (1892),  49  Ohio 

St.  440,  16  L.  R.  A.  611,  31  N. 

E.  Rep.  658,  268,  269,  290 


State  v.  Insurance  Co.,  115  Ind. 

257,  268 

v.  Insurance   Co.,  47  Ohio  St. 

167,  290 

v.   International   Inv.   Co.,   88 

Wis.  512,  33 

v.  Janesville,  etc.,  Co.,  92  Wis. 

496,  32  L.  R.  A.  391,  342,  666,  669 
v.  Leete,  16  Nev.  242,  541 

v.  Lincoln,  etc.,  Co-.  (Mo.),  46 

S.  W.  Rep.  593,  130 

v.  McGrath,  92  Mo.  355,  41 

v.  Mclver,  2  S.  C.  (N.  S.)  25,       496 
v.  Madison,  53  Maine  546,  239 

v.  Madison,  etc.,  R.  Co.,  72  Wis. 

612,  118 

v.  Maine,  etc.,  Co.,  66  Maine  488,  112 
v.  Manufactures',  etc.,  Assn.,  50 

Ohio  St.  145,  24  L.  R.  A.  252,  541 
v.  Merchant,  37  Ohio  St.  251,  534 
v.  Miller,  30  N.  J.  L.  368, 86  Am. 

Dec.  188,  521 

v.  Minnesota,  etc.,  Co.,  40  Minn. 

213,  33,  83,  113,  242,  619,  620,  666 
v.  Minn.,  etc.,  Co.,  40  Minn.  227,  189 
v.  Mississippi,  101  U.  S.  814,  86 

v.  Mo.  Pac.  R.  Co.,  29  Neb.  550, 

45  N.  W.  Rep.  785,  81 

v.  Morris,  etc.,  R.  Co.,  23  N.  J. 

360,  235 

v.  Morristown,   etc.,  Assn.,   23 

N.  J.  L. 195,  308 

v.  Murphy,  17  R.  I.  698,  24  Atl. 

Rep.  473,  42 

v.   National    School    of   Osteo- 
pathy, 76  Mo.  App.  339,  668 
v.  Nebraska,  etc.,  Co.,  17  Neb. 

126,  52  Am.  Rep.  404,  82 

v.  Nebraska,  etc.,  Co.,  29  Neb. 

700,  167,  202 

v.  Neff  (Ohio),  28  L.  R.  A.  409,      19 
•  v.  Noyes,  47  Maine  189,  90 

v.  Oberlin,  etc.,  Assn.,  35  Ohio 

St.  258,  83,  189,  666 

v.  Oftedal   (Minn.),   75  N.  Y. 

Rep.  692,  35 

v.  Ohio,  etc.,  R.  Co.,  6  Ohio  C. 

C.  415,  509 

v.  Olesen,  48  Minn.  150,  75 

v.  Oberton,  24  N.  J.  L.  435,  148 

v.   Park   &  Nelson  L.   Co.,  58 

Minn.  330,  667 

v.  Parker,  26  Vt.  357,  268 

v.  Passaic,  etc.,  Soc,  54  N.  J. 

L.  260,  24  Am.  Rep.  748,  238,  240 
v.  Payne,  129,  Mo.  468,  101,  131 
v.  Pennsylvania,  etc.,  Co.,   23 

Ohio  St.  121,  82,  83 


lxxxvi 


TABLE    OF   CASES. 


[Preferences  are  to  Pages.} 


State  v.  Phipps,50  Kan.  609, 18  L. 

R.  A.  657,  256 

v.  Phoenix,  etc.,  Co.,  92  Tenn. 

420,  254,  267 

v.  Pettineli,  10  Nev.  141,  499 

v.  Pierce,  21  Kan.  241,  29  Pac. 

Rep.  565,  521 

v.   Pullman,  etc.,  Co.,  175  111. 

125,  134 

v.  Railway  Co.,  15  W.  Va.  362,    238 
v.   Real   Estate   Bank,  5  Ark. 

595,  666 

v.  Rice,  65  Ala.,  83,  180 

v.  Rombauer,  46  Mo.  155,  496 

v.  Scougal,  3  S.  Dak.  55,  15  L. 

R.  A.  477,  51  N.  W.  Rep.  858,  113 
v.  Security  Bank,  2  S.  Dak.  538,  238 
v.  Shelbyville,  etc.,  Co.,  41  Ind. 

151,  36 

v.  Sherman,  22  Ohio  St.  411, 

122  195 
v.  Sibley,  25  Minn.  387,  23,  95^  291 
v.  Smith,  48  Vt.  266, 

189,  192,  367,  382,  539 
v.  Smith,    15   Ore.  98,    14   Pac. 

Rep.  814,  15  Pac.  Rep.  137, 

507,  541,  542 
v.    Spartanburg,    etc.,    R.    Co. 

(S.  C),  28  S.  E.  Rep.  145, 

84,  115,  667 
v.  Swift,  7  Houst.  (Del.)  137,  257 
v.  Standard  Oil  Co.,  49  Ohio  St. 

137,  30  N.  E.  Rep.  279,  2,  13,  165 
v.  Steele,  37  Minn.  428,  26 

v.  Stockley,  45  Ohio  St.  304,  521 
v.  St.  Louis,  etc.,  R.  Co.,  29  Mo. 

App.  301,  416 

v.  Sullivan,  45  Minn.  309,  11  L. 

R.  A.  272,  536 

v.  Taylor,  55  Ohio  St.  61,  44  N. 

E.  Rep.  513,  94 

v.  The   Morris,  etc.,  R.  Co.,  23 

N.  J.  L.  360,  237,  238,  239 

v.  Thompson,  23  Kan.  338,  33 

Am.  Rep.  165,  44 

v.  Travelers',  etc.,  Co.,  70  Conn. 

590,  66  Am.  St.  Rep.  138,  365 

v.  Truby,  37  Minn.  97,  150 

v.  Trustees,  5  Ind.  77,  301 

v.  Tu« lor,  5  Day  329,  509 

v.  Turnpike,  15  N.  H.  162,  85 

v.  Vanderbilt,  37  Ohio  St.  590,  193 
v.  Vermont,  etc.,  R.  Co.,  27  Vt. 

103,  238 

v.  Vickere,  14  Am.  St.  Rep.  675,  588 
v.  Waram,  6  Hill  (N.  Y.)  33,  '12 
v.  Webb,  110  Ala.  214,  356 

v.  Webb,  97  Ala.  Ill,  342,  674 


State  v.  Western,  etc.,  R.  Co.,  89 

N.  C.  584.  238 

v.  Western,  etc.,  R.  Co.,  47  Ohio 

St.  167,  8  L.  R.  A.  129,  257 

v.  Weston,  4  Neb.  216,  622 

v.  Whitvvorth,  117  U.  S.  129,         101 

v.  Williams,  75  N.  C,  134,     150,  305 

v.  Wood,  84  Mo.  378,  33 

v.  Wright,  10  Nev.  467,  535 

State  Bank  v.  Andrews,  18  N.  Y. 

167,  569 

v.  Fox,  3  Blatch.  C.  C.  431,  189 

State  Bank,  etc.,  Co.  v.  Pierce,  92 

Iowa  668,  416 

State  Board  v.  Citizens',   etc.,  R. 

Co.,  417  Ind.  407,  222 

State  Freight  Tax  Cases,  15  Wall. 

(U.  S.)232,  104,  109 

State  of  Minnesota  v.  T.  M.  Co., 

40  Minn.  213,  190 

State  Tax  Cases,  15  Wall.  (U.  S.) 

284,  104 

State  Tax  Cases,  92  U.  S.  575,  103 

State,  etc.,  Assn.  v.  Nixon-Jones, 

etc.,  Co.,  25  Mo.  App.  642,         146 
Steam,  etc.,  Co.  v.  Hubbard,  101 

U.  S.  188,  247,  626 

v.  Weed,  17  Barb.  382,  199 

Steam  Nav.  Co.  v.  Weed,  17  Barb. 

378,  222 

Steamboat  Co.  v.  Brockett,  121  U. 

S.  637,  235 

S.  S.  Co.  v.Tugman,  106 U.S.  118,     55 
Stebbins  v.  Insurance  Co.,  3  Paige 

350,  294 

v.  Merritt,  10  Cush.  (Mass.)  27, 

499,  503,  504,  523 
v.   Phoenix,   etc.,  Co.,  3  Paige 

(N.  Y.)  350,  471 

v.  Scott,  172  Mass.  356,  52  N.  E. 
Rep.  535,  610,  642 

Steel   Works    v.    Bresnahan,   60 

Mich.  332,  538 

Stein  v.  Howard,  65  Cal.  616,  340,  348 
Steinhauerv.Colmar  (Colo.  App.), 

55  Pac.  Rep.  291,  676 

Steinmetz  v.  Versailles,  etc.,  R. 

Co.,  57  Ind.  457,  404 

Stephens  v.  Fox,  83  N.  Y.  313,        638 
Stetson  v.  Northern,  etc.,  Co.,  104 

Iowa  393,  541,  551 

Stettauer  v.  New  York,  etc.,  Co., 

42  N.  J.  Eq.  46,  419 

Stevens  v.  Carp  River,  etc.,  Co., 

57  Mich.  427,  581 

v.  Corbitt,  33  Mich.  458,  377 

v.  Davidson,  18 Gratt.  (Va.)819,  141 

v.  Rutland,  etc.,  R.  Co.,  29  Vt. 

548,  528 


TABLE    OF    CASES. 


lxxxvii 


[References  are  to  Pages."] 


Stevens  v.  R.  &  B.  R.  Co.,  29  Vt. 

545,  95 

Stewart   v.    Erie,    etc.,    Co.,    17 

Minn.  372,  Gil.  348,  164,  453 

v.  Firemen's,  etc.,  Co.,  53  Md. 

564,  485 

v.  Lay,  45  Iowa  604,  625 

v.  Lehigh  Valley  R.  Co.,  38  N. 

J.  L.  505,  552 

v.  Mahoney,  etc.,  Co.,  54  Cal. 

149,  507 

v.  Northampton,  etc.,  Co.,  38  N. 

J.  L.  436,  277 

v.  Railroad  Co.,  41  Fed.  Rep. 

736,  587 

v.  Transportation  Co.,  17  Minn. 

372  (Gil.  348),  223 

Stewart,  etc.,  Co.  v.  Rau,  92  Ga. 

531,  73 

Stickle  v.   Liberty,  etc.,  Co.  (N. 

J.),  32  Atl.  Rep.  708,  132 

Stillwell,  etc.,  Co.  v.  Niles,  etc., 
Co.  (Mich.),  72  N.  W.  Rep. 
1107,  580 

Stilphen  v.  Ware,  45  Cal.  110,         412 
Stockholders',  etc.,  v.  Louisville, 
etc.,  R.  Co.,  12  Bush  (Ky.) 
62,  503 

Stockton  v.  American,  etc.,  Co., 

N.  J.  Ch.,  36  Atl.  Rep.  971,      127 
Stockton  Bank  v.  Staples,  98  Cal. 

189,  151,  178 

Stoddard    v.    Foundry    Co.,     34 

Conn.  542,  430,  434 

v.  Linn,  159  N.  Y.  265,  657 

Stofflet  v.  Strome,  101  Mich.  197, 

59  N.  W.  Rep.  411,  73 

Stohr  v.   San  Francisco,  82  Cal. 

557  145 

Stokes  v.  Stickney,  96  N.  Y.  323,    625 
Stone  v.  City  and  County  Bank,  3 

C.  P.  Div.  282,  396 

v.  Kellogg,  62  111.  App.  444,  419 

v.  Mississippi,  101  U.  S.  814,  99 

v.  Wilson,  8  Bax.  (Tenn.)  108,     415 

Stoney  v.  American,  etc.,  Co.,  11 

Paige  (N.  Y.)  635,  177 

Stoops  v.  Greensburg,  etc.,  Co.,  10 

Ind.  47,  373 

Story  v.  Furman,  25  N.  Y.  214,        657 
Stout  v.  Zulick,  48  N.  J.  L.  599,  7 
Atl.  Rep.  362,  64,  66 

v.  Railroad   Co.,   8  Fed.   Rep. 
794,  56 

Stoutimore  v.  Clark,  70  Mo.  471,      73 
Stow  v.  Wyse,   7  Conn.   214,   18 

Am.  Dec.  99,  502 

Stowe  v.  Flagg,  72  111.  397,    33,  34,  35 


Strait  v.   National,   etc.,   Co.,   18 

N.  Y.  Sup.  224,  167 

Straus  v.  Insurance  Co.,  5  Ohio  St. 

60,  130 

Streeten   v.   Robinson,    102  Cal. 

542,  579 

Stribfling  v.  Bank,  5  Rand.  (Va.) 

132,  62 

Stringer's  Case,  L.  R.  4  Ch.  App. 

475,  432 

Strong  v.  McCagg,  55  Wis.  624,       673 

v.  Railway,  93  N.  Y.  426,  424 

v.  Smith,  15  Hun  (N.  Y.)  222,      505 

Stuart  v.  Valley  R.  Co.,  32  Gratt 

146,  381 

Stuffelbeam  v.  DeLashmutt,   83 

Fed.  Rep.  449,  400 

Sturges  v.  Board  of  Trade,  86  111. 

441,  306 

v.  Carter,  114  IT.  S.  521,  102 

v.  Crowninshield,  4  Wheat. 

(IT.  S.)  122,  621 

v.  Stetson,  1  Biss.  (C.  C.)  246, 

337   338 
v.  Vanderbilt,  73  N.  Y.  384, 

70,  637,  664 
Sturtevant  v.   National,   etc., 

Works,  88  Fed.  Rep.  613, 

60  IT.  S.  App.  235,  492 

Sturtevant-Larrabee  Co.  v.  Mast, 

etc.,  Co.,  66  Minn.  437,      637,  640 
Stutz  v.  Handley,   41   Fed.   Rep. 

531;  s.  c.  139  U.S.  417,  503 

Sullivan  v.  Beck,  79  Fed.  Rep. 

200,  276 

v.  Metcalfe,  5  C.  P.  D.  455,  7 

Eng.  Rul.  Cas.  497,  49 

Supervisors  v.  M.,  etc.,  Co.,  21  III. 

338,  95 

Supply  Co.  v.  Elliott,  10  Colo.  327, 

15  Pac.  Rep.  691,  3  Am.  St. 

Rep.  586,  293,  471,  492 

Supreme  Commanderv  v.  Ains- 

worth,  71  Ala.  436,  46  Am. 

R.  332,  144,  145,  149 

Supreme    Council  v.   Perry,   140 

Mass.  580,  142 

Supreme  Lodge  v.  Zuhlke,  129  111. 

298,  303 

Supreme  Lodge  K.  of  P.  v.  Knight, 

117  Ind.  489,  3  L.  R.  A.  409, 

144,  145 
Supreme  Lodge,  etc.,  v.  Improved, 

etc.,  113  Mich.  133,  38  L.  R. 

A.  658,  41 

Supreme  Sitting,  etc.,  v.  Baker, 

134  Ind.  293,  673 

Susquehanna,  etc.,  Co.  v.  Elkins, 

124  Pa.  St.  484,  150 


lxxxviii 


TABLE    OF    CASES. 


\Beferences  are  to  Pages.] 


Sutherland  v.  Olcott,  95  N.  Y.  93, 

310,  311 
Sutton  Mfg.  Co.  v.  Hutchinson,  63 

Fed.  Rep.  496,  24  U.  S.  App. 

145,  11  C.  C.  A.  320,    184,  322,  590 
Sutton's  Hospital,  10  Rep.  306,  7 

Eng.  Rul.  Cas.  233,  139 

Swan  Laud,  etc.,  Co.  v.  Frank, 

148  U.  S.  603,  608,  637 

Swartwout  v.  Michigan,   etc.,  R. 

Co.,  24  Mich.  389, 

73,  75,  76,  370,  379,  410 
Swasey  v.  Emerson,  168  Mass.  118,  576 
Sweeny  v.  Wheeling,  etc.,  Co.,  30 

W.  Ya.  443,  553 

Sweney  v.  Talcott,  85  Iowa  103,       33 
Swentzel  v.  Bank  (Pa.),  23   Atl. 

Rep.  405,  562 

Swepson  v.  Bank,  9  Lea  (Tenn.) 

713,  182 

Swift  v.  Richardson,  7  Houst. 

(Del.)  338,  417,  419 

v.  Smith,  etc.,  Co.,  65  Md.  428, 

523,  672 
Sykes  v.  People,  132  111.  32,  23  N. 

E.  Rep.  391',  40 


Tahor  v.  Goss,  etc.,  Co.,  11  Colo. 

419,  271 

Taft  v.  Hartford,  etc.,  R.  Co.,  8  R. 

I.  310,  315,  317,  318 

v.  Ward,  106  Mass.  518,  20 

Tafft  v.  Presidio,  etc.,  R.  Co.,  84 

Cal.  131,  18  Am.  St.  Rep.  166, 

478,  482,  486 
Taggart  v.  Newport,  etc.,  R.  Co., 

16  R.  I.  668,  19  Atl.  Rep.  326,  134 
v.  West  Md.  R.  Co.,  24  Md.  563, 

75,  361,  370,  371,375,378,  531 
Talbott  v.   Fidelity,  etc.,  Co.,  74 

Md.  536,  13  L.  R.  A.  584,  22 

Atl.  Rep.  395,  268 

Talbottr  Co.  v.  Queen  Anne  Co., 

50  Md.  245,  15 

Tallmadge  v.  Fishkill,  etc.,  Co., 

I  Barb.  (N.  Y.)  382,  492 

Talmage  v.  Pell,  7  N.  Y.  328,   187,  365 
Talor  v.  Secor,  99  U.  S.  575,  112 

Tama   Water  Tower  Co.  v.  Hop- 
kins, 7<i  low  a  653,  317,  658 
Tappan   v.   Merchants'  Bank,  19 

Wall.  190,  102 

Tarpcv  v.  Deserl  Salt  Co.,  5  Utah 

494,  17  Pac.  Rep.  631, 

153,  196,  260 
Taeker  v.  Wallace,  6  Daly  (N.  Y.) 

364,  341 


Tatem  v.  Wright,  23  N.  J.  L.  429,   256 
Tavern  Co.  v.  Burkhard,  87  Mich. 

182,  49  N.  W.  Rep.  562,  384 

Tayer  v.  Tool  Co.  4  Gray  (Mass.) 

75,  636 

Taylor  v.  Branham,  35  Fla.  297, 

39  L.  R.  A.  362,  255 

v.  Bowker,  111  U.  S.  110,  660 

v.  Chichester,  etc.,  R.  Co.,  L. 

R.  2  Ex.  356,  227 

v.  Exporting  Co.,  6  Ohio   177, 

189,  191 

v.  Grand  Trunk  R.  Co.,  48  N. 

H.  304,  237 

v    Granite,  etc.,  Assn.,  136  N. 

Y.  343,  283 

v.  Griswold,  14  N.  J.  L.  222,  27 

Am.  Dec.  33,  508,  509,  520 

v.  Holmes,  127  U.  S.  489,  448 

v.  Miami,  etc.,  Co.,  6  Ohio  St. 

176,  191 

v.   Portsmouth,     etc.,     R.    Co. 

(Maine),  39  Atl.  Rep.  560,  64 

v.  South,  etc.,  Co.,  13  Fed.  Rep. 
152,  317 

Taylors  of  Ipswich,  11  Coke's  Rep. 

53,  142 

Ticonic,  etc.,  v.  Lang,  63  Maine 

480,  369 

Tidwell  v.  Chiricahua,   etc.,  Co., 

53  Pac.  Rep.  (Ariz.)  192,  157 

Tillingast  v.  Boston,  etc.,  Co.,  39 

S.  C.  484,  22  L.  R.  A.  49  245 

Tippling  v.  Pexall,  2  Bulst.  233,  2 

Tisdub  v.  Harris,  20  Pick.  (Mass.) 

9,  320 

Titus  v.  Cairo,  etc.,  R.  Co.,  37  N. 

J.  L.  98,  576 

v.  Great  Western,  etc.,  Co.,  61 
N.  Y.  237,  329,  330,  332 

Titcomb    v.    Insurance     Co.,    79 

Maine  315,  677 

Titus  &  Scudder  v.  Cairo,  etc.,  R. 

Co.,37N.  J.  L.  98,  539 

Telfair  v.  Howe,  3  Rich.  Eq.  (S.C.) 

335,  55  Am.  Dec.  637,  156 

Telegram,  etc.,  Co.  v.  Comm.,  52 

N.  E.  Rep.  445  (Mass.  1899),     241 
Telegraph  Co.  v.  Davenport,  97  U. 

S.  369,  478,  479,  483 

v.  Massachusetts,  125  U.  S.  530,  109 

v.  Purdy,  162  IT.  S.  329,  612 

v.  Texas,  105  U.  S.  460,  103,  108,   109 

Temple  v.  Dodge,  89  Tex.  68,         543 

Temple,  etc.,  R.  Co.  v.  Hellman, 

103  Cal.  634,  159 

Templin  v.  Chicago,  etc.,  R.  Co., 
73  Iowa  548,  578 


TABLE    OF    CASES. 


lxxxix 


[Beferences  are  to  Pages.] 


Ten  Broek  v.  Winn  Boiler,  etc., 

Co.,  20  Mo.  App.  19,  147 

Ten  Eyck  v.  Pontiac,  etc.,  R.  Co., 
74  Mich.  226,  16  Am.  St.  Rep. 
633,  540,  546,  552,  585 

v.  Pontiac,  etc.,  R.  Co.  (Mich.), 
72  N.  W.  Rep.  362,  342 

Tennessee  v.  Whiteworth,  117  U. 

S.  139,  100,  111,  112 

Tennessee,  etc.,  Co.  v.  Ayers 
(Tenn.),43  S.  W.  Rep.  744, 

376    4-19 

Terry  v.  Little,  101  U.  S.  216,       '  651 

v.   Merchants',   etc.,  Bank,   66 

Ga.  177, 

Texas,  etc.,  R.  Co.  v.  Cox,  145  U. 

S.  593, 

v.  Robards,  60  Tex.  545, 

Texas,   etc.,   Co.   v.   Starrow,   92 

Fed.  Rep.  5, 

v.  Worsham,  76  Tex.  556, 

Thatcher  v.  King,  156  Mass.  490, 

Thaver  v.  Nehalem,  etc.,  Co.,  31 

Ore.  437,  51  Pac.  Rep.  202, 

v.  Tyler,  10  Gray  (Mass.),  164,  289 

The  American,  etc.,  Co.  v.  Moore, 

2  Dak.  280, 
The  Binghamton  Bridge,  3  Wall. 

(U.  S.)  51, 
The  Brooklyn,  etc.,  Co.  v.  Citv  of 

Brooklyn,  78  N.  Y.  524, 
The    Delaware   Railroad  Tax,  18 

Wall.  206, 
The  Railroad  Commission  Cases, 

116  U.  S.  326, 
The  Shepaug  Voting  Trust  Cases, 

60  Conn.  (Supp.)  553, 
Thebas  v.  Smiley,  110  111.  316,  658,  659 
Thomas   v.    Brownville,   etc.,  R. 

Co.,  109  IT.  S.  522,  555 

v.  Dakin,  22  Wend.  9,        2,  136,  139 
v.  Dakin,  22  Wend.  (N.  Y.)  110, 

23   27 
v.  Frederick  School,  7  Gill  &  J .  ' 

369,  40 

v.  Gregg,  78  Md.  551,  440 

v.  Gregg,  78  Md.  545,  445,  446 

v.  Mut.,  etc.,  Union,  17  N.  Y. 
St.  Rep.  51,  49  Hun  (N.  Y.) 
171,  145 

v.  Owens,  4  Md.  189,  622 

v.  Railway  Co.,  101  U.  S.  71, 
100,  120, 121, 134, 157, 163, 180, 

187,  212 
v.  Railway  Co.,  101  U.  S.  82,  130 
v.  Railroad  Co.,  109  U.  S.  522,  552 
v.  Reno  Sav.  Bank,  19  Nev.  171 
v.  Richmond,  12  Wall.  349, 


664 

642 

135 

673 
270 
569 

576 


281 

96 

85 

87 

100 

518 


Thompson  v.  Abbott,  61  Mo.  176, 


411 
229 
196 


Thompson  v.  Hudgins,  116  Ala. 
93,  458 

v.  Lambert,  44  Iowa  239,  171,  218 
v.  Lumber  Co.,  4  Wash.  600,  182 
v.  Meisser,  108  111.  359,  659 

v.  Pfeiffer  (Kan.),  56  Pac.  Rep. 

763,  637 

v.  Reno  Sav.  Bank,  19  Nev.  103, 
3  Am.  St.  Rep.  797, 

74,  321,  410,  658 
v.  Stanley,  25  N.  Y.  Supp.  890,  478 
v.  Swoope,  24  Pa.  St.  474,  265 

v.  Waters,  25  Mich.  214, 

151,  153,  265 
v.  Williams,  76  Cal.  153,  9  Am. 
St.  Rep.  187,  504,  539,  540 

Thorne  v.  Cramer,  15  Barb.  (N. 
Y.)  112,  23 

v.  Travelers',   etc.,   Co.,  80  Pa. 
St.  15,  277 

Thorton  v.  Balcom,  85  Iowa  198, 

33,36 
v.  Marginal,  etc.,   R.  Co.,  123 
Mass.  32,  26,  32,  664,  675,  676 

Thorpe  v.  Rutland  &  Burlington 

R.  Co.,  27  Vt.  141  (1885),      87,  99 
Thresher  v.  Pike  Co.  R.  Co.,  25 

111.  340,  362,  377 

Throop  v.  Lithographing  Co.,  125 

N.  Y.  530,  182 

Thurber  v.  Crump,  86  Ky.  408, 

466,  471 
Tobey  v.  Hakes,  54  Conn.  274,  496 
Tod   v.    Kentucky,    etc.,    Co.,   57 

Fed.  Rep.  47,  171 

Toledo  Bank  v.  Bond,  1  Ohio  St. 

626,  86 

Toledo,  etc.,  R.  Co.  v.  Dunlap,  47 

Mich.  456,  195 

v.  Johnson,  49  Mich.  148,  674 

v.  Thomas,  33  W.  Va.  566,    276,  278 
Tome  v.  Railway  Co.,  39  Md.  36, 

17  Am.  Rep.  540,  329,  330,  332,  480 
Tomlinson   v.    Branch,  15   Wall. 

460,  111,  112 

v.  Bricklayers'  Union,  87  Ind. 

307,  10 

v.  Jessup,  15  Wall.  (U.  S.)  454, 

89,  112 
v.  Tomlinson,  9  Beav.  459,  320 

Topeka,  etc.,  Co.  v.  Hale,  39  Kan. 

23,  372,  471 

Topping    v.    Bickford,    4    Allen 

(Mass.)  120,  162 

Torbett  v.  Godwin,  62  Hun  407,      569 
Toronto  Gen.  T.  Co.  v.  C,  B.  &  Q. 

R.  Co.,  123  N.  Y.  37,  657 

Totten  v.  Tison,  54  Ga.  139,      315,  316 


xc 


TABLE    OF    CASES. 


[References  are  to  Pages."] 


Touchband  v.  Chicago,   etc.,  R. 

Co.,  115  N.  Y.  437,  283,  284 

Towle  v.  Am.,  etc.,  Co.,  78  Fed. 

Rep.  688,  174 

Town  v.  Bank,  2   Doug.  (Mich.) 

530,  665,  672 

Town  of  East  Lincoln  v.  Daven- 
port, 94  U.  S.  801,  195 
Town  of  McGregor  v.  Baylies,  19 

Iowa  43,  28 

Townes  v.  Nichols,  73  Maine  515,  496 
Tracv   v.   Guthrie,   etc.,  Soc,  47 

Iowa  27,  544 

v.  Talmage,  14  N.  Y.  162,      226,  229 
Tradesman's,   etc.,  Co.  v.  Wheel 

Co.,  95  Tenn.  634,  182 

Tradesman's  Pub.  Co.  v.  Knox- 

ville,  etc.,  Co.,  95  Tenn.  634, 

31  L.  R.  A.  593,  176,  569,  571,  592 
Tradesmen's  Nat'l  Bank  v.  Looney, 

99  Tenn.  278,  38  L.  R.  A.  837, 

389,  392 
Travelers',    etc.,    Co.    v.    Fricke 

(Wis.  1898),  41  L.  R.  A.  557,    271 
Travers  v.  Kansas  Pac.  R.  Co.,  63 

Mo.  421,  238 

Treadway  v.  Hamilton,  etc.,  Co., 

29  Conn.  68,  144 

Treadwell  v.  Salisbury,  etc.,  Co., 

7  Grav   (Mass.)    393,  66  Am. 

Dec.  490,  187,  670 

Tregear  v.  Etiwanda,  etc.,  Co.,  76 

Cal.  537,  9  Am.  St.  Rep.  245,     320 
Trevor  v.   Whitworth,  L.    R.   12 

App.  Cas.  409,  188,  219 

Trinity  Church  v.  Vanderbilt,  98 

N.  Y.  170,  570 

Tripp  v.  New,  etc.,  Co.,  137  Mass. 

499,  581 

v.  N.  W.  Nat'l  Bank,  41  Minn. 

400,  181,  543,  633 

Trisconi  v.  Winship,  43  La.  Ann. 

45,  458 

Troup' v.   Horhach  (Neb.),  74  N. 

W.  Rep.  326,  341 

Trowbridge  v.  Scudder,  11  Cush. 

(Mass.)  83,  596,  605 

Trov,   etc.,  Co.  v.  White,   10   S. 

Dak.  475,  42  L.  R.  A.  549, 

500,  540,  541 
Trov,   etc.,   R.    Co.    v.    Kerr,   17 

"Barb.  (N.  Y.)  581,  528 

v.  Tibbits,  is  Barb.  297,  370 

Trustees     v.      Flint,]     13     Mete. 

(Mass.  I  539,  592,  617 

v.  Roome,  93  X.  Y.  313,  267 

v.  8haffer,  63  III.  243,  147 

Trustees,   etc.,   v.  Connolly,   157 

Mass.  272,  578 


Tshumi  v.  Hills,  6  Kan.  App.  549, 

51  Pac.  Rep.  619,  310 

Tube  Works  v.  Ballou,  146  U.  S. 

517,  589 

Tunis  v.  Hestonville,  etc.,  R.  Co., 

149  Pa.  St.  70,  507,  510,  536 

Turnbull  v.  Payson,  95  U.  S.  418, 

292,  506 
Turner  v.  Grargus,  etc.,  Co.,  65 

Ga.  649,  38  Am.  Rep.  80,  397,  398 
v.  North  Beach,  etc.,  R.  Co.,  34 

Cal.  594,  237 

Turner  Bros. v.  Alabama,  etc.,  Co., 

25  111.  App.  144,  611 

Turnpike  Co.  v.  Gerhab  (Pa.),  13 

Atl.  Rep.  90,  466 

v.  Illinois,  96  IT.  S.  63,  100 

Tussaud  v.  Tussaud,  L.  R.  44  Ch. 

Div.  678,  139 

Tuttle  v.  Michigan,  etc.,  R.  Co., 

35  Mich.  247,  31,  193 

v.  Nat'l  Bank  of  the  Republic, 

161  111.  497,  34  L.  R.  A.  750, 

246,  623,  646,  650,  651,  655 
Twin  Creek,  etc.,  Co. v.  Lancaster, 

79  Ky.  552,  362 

Twin  Lick,  etc.,  Co.  v.  Marbury, 

91  U.  S.  587,  544, 548,  549,  551,  553 
Twiss  v.  Guaranty,  etc.,  Co.,  87 

Iowa  733,  55  N.  W.  Rep.  89,      221 
v.  Guaranty,  etc.  Assn.  (Iowa), 

55  N.W.  Rep.  8,  204 

Twycross  v.  Grant,  2  C.P.  Div.  503,    44 
Tyler  v.   Tualatin    Academy,   14 

Ore.  485,  221 


u 


Underwood  v.  New  York,  etc.,  R. 

Co.,  17  How.  Pr.  (N.  Y.)  537,  329 
Union  Bank  v.  Bridgely,  1  Har. 

&  G.  (Md.)  324,  141 

v.  Jacobs,   6   Humph.   (Tenn.) 

515,  175 

v.  Laird,  2  Wheat.  (U.  S.)  390, 

467,  468,  489 
v.  United  States  Bank, 

Humph.  (Tenn.)  369,  62 

Union,  etc.,  Assn.  v.  Neill,  31 

Iowa  95,  531 

v.  Seligman,  92  Mo.  635,  1  Am. 
St.  Rep.  776,  295,  593 

Union  Central,  etc.,  Co.  v. 

Thomas,  46  Ind.  44,  277 

Union  Iron  Co.  v.  Pierce,  4  Biss. 

327,  89 

Union  Locks,  etc.,  v.Towne,  1  N. 

H.  44,  529 


TABLE    OF    CASES. 


XC1 


[References  are  to  Pages."] 


Union  Nat'l  Bank  v.  Matthews, 

98  U.  S.  621,  173,  223 

v.  State  Nat'l  Bank,  168  111.256, 

48  N.  E.  Bep.  82,  182 

Union,  etc.,  Co.  v.  American,  etc., 

Co.,  11  B.  I.  569,  13  B.  I.  673,  429 
v.  Hersee,  79  N.  Y.  454,  373,  531 
v.  Jenkins,  1  Caines  Cas.   (N. 

Y.)  86,  361 

v.  McMillen,  24  Ohio  St.  67,        276 
v.  Murphy's,  etc.,  Co.,  22  Cal. 

621,  199 

v.  Plume,   etc.,  Co.,   58   Conn. 

219  208   221 

v.  Pollard,  94  Va.  146,  36  L."b.' 

A.  271,  245 

v.  U.  S.,  99  U.  S.  700,  91 

v.  White,  106  111.  67,  147,  579 

Union,   etc.,   B.   Co.  v.   Chicago, 

etc.,  B.  Co.,  163  U.  S.  564, 

220,  543 
v.  Chicago,  etc.,  B.  Co.,  51  Fed. 

Bep.  309,  543 

Union  Pac.  B.  Co.  v.  Hall,  3  Dill. 

(C.  C.)  515,  91  U.  S.  343,  25 

v.  Mobilier,  135  Mass.  367,  554 

v.  Myers  (Pacific   B.  Bemoval 

Cases),  115  U.  S.  1,  18,  25 

v.  Philadelphia,  101  U.  S.  528,     112 

v.  Bailway  Co.,  163  U.  S.  564,      121 

v.  United  States,  99  U.  S.  402,     317 

United  States  v.  Bevans,  3  Wheat. 

336.  3  Dall.  370,  244 

v.  Freight  Assn.,  166  U.  S.  290, 

164,  290,  332 
V.  Fox,  94  U.  S.  315,  153 

v.  Joint  Traffic  Assn.,  171  U.  S. 

505,  570,  16 

v.  Knight,  156  U.  S.  1,  169 

v.  Memphis,  etc.,  B.  Co.,  6  Fed. 

Bep.  237,  241 

V.  Northwestern,  etc.,  164  U.  S. 

686,  41  L.  ed.  599,  248 

v.  Pipe  Co.,  85  Fed.  Bep.  271,      168 
v.  Stanford,  70  Fed.   Bep.  346, 

44  U.  S.  App.  68,  17  C.  C.  A. 

143,  161  U.  S.  412,  617 

v.  Southern  Pac.  B.  Co.,  49  Fed. 

Bep.  297,  59 

v.  Southern,  etc.,  B.  Co.,  45  Fed. 

Bep.  596,  30 

v.  Trans-Mo.,  etc.,  Assn.,  166 U. 
_  S.  290,  168 

United  States,  etc.,  Commonwealth 

v.  New  York,  etc.,  B.  Co.,  129 
m  Pa.  St.  463,  255 

United  States,  etc.,  Co.  v.  Atlantic, 

etc.,  B.  Co.,  34  Ohio  St.  450, 

32  Am.  Bep.  380,  547,  550,  554,  555 


United  States,  etc.,  Co.  v.  Schlegel, 

143  N. Y.  537,  43,  170 

United,  etc.,  Co.  v.  Omaha,  etc., 

Co.,  48  N.  Y.  Supp.  817,  260 

Unity,  etc.,  Co.  v.  Cram,  43  N.  H. 

636,  381 

University  of  Des  Moines  v.  Liv- 
ingston, 57  Iowa  307,  368 
University  of  Vermont  v.  Baxter, 

42  Vt.  99,  43  Vt.  645,  196 

Upper  Miss.  Tr.  Co.  v.  Whittaker, 

16  Wis.  220,  283 

Upton  v.  Burnham,  3  Biss.  431,      631 
v.  Englehart,  3  Dill.  (C.  C.)  496, 

389,  398,  399,  401 
v.  Hansborough,  3  Biss.  (C.  C.) 

417,  291,  397,  593 

v.  Tribilcock,  91  U.  S.  45, 

321,  338,  340,  342,  376,  379, 

384,  397,  398,  401,  607,  609 
Usher  v.  West  Jersey  B.  Co.,  126 

Pa.  St.  206,  4  L.  B.  A.  261,        261 
Utley  v.  Clark,  etc.,  Co.,  4  Colo. 
369,  272,  276,  280 


V 


Vail  v.  Hamilton,  85  N.  Y.  453, 

189,  191,  293 
v.  Jameson,  41  N.  J.  Eq.  648,        182 
Valley,  etc.,  B.  Co.  v.  Lake  Erie, 

etc.,  Co.,  46  Ohio  St.  44,  130,  184 
Van  Allen  v.   Assessors,  3  Wall. 

(U.S.)  573,  101,105,110 

Van  Brocklin   v.  Tennessee,  117 

U.  S.  151,  154,  25 

Vance  v.  Phoenix,  etc.,  Co.,  4  Lea 

(Tenn.)385,  566 

Van  Cleve  v.  Berkey,  143  Mo.  109, 

44  S.  W.  Bep.  743,  42  L.  B. 

A. 593,  335,  356 

Van  Cott  v.  Van  Brunt,  82  N.  Y. 

535,  345,  348,  351,  354 

Van  Demark  v.  Barons,  52  Kan. 

779,  629 

Vanderbilt  v.  Bennett,  6  Pa.  Co. 

Ct.  Bep.  193,  2  Smith's  Corp. 

Cas.  1029,  517 

Vanderbilt  v.  Bichmond,  etc.,  Co., 

2  N.  Y.  479,  51  Am.  Dec.  315,  236 
Vandermark  v.  Glenn,  85  Va.  9,  506 
Vanderpool  v.  Gorman,  140  N.  Y. 

563,  24  L.  B.  A.  548, 

245,  262,  263 
Van  Doren  v.  Olden,  19  N.  J.  Eq. 

176,  97  Am.  Dec.  650,  445 

Van  Dresser  v.  Oregon,  etc.,  Co., 

48  Fed.  Bep.  202,  283 


XC11 


TABLE    OF    CASES. 


[References  are  to  Pages.'] 


Van  Dyck  v.  McQuade,  86  N.  Y. 

38,  432 

Van  Dyke  v.  Stout,  8  N.  J.  Eq.  333,  380 
Van  Hoffman  v.  City  of  Quincy, 

4  Wall.  (U.  S.)  535,  621 

Van  Houten  v.  McKelway,  17  N. 

J.  E.  126,  18 

Van  Kirk  v.  Adler,  111  Ala.  104,    447 
Vanneman  v.  Young  (N.  J.),  20 

Atl.  Rep.  53,  598 

Van  Norman  v.  Central  Car,  etc., 

Co.,  41  Mich.  166,  430 

Van  Pelt  v.  Gardner,  54  Neb.  701, 

75  N.   W.  Rep.  874, 

609,  617,  639,  640 
Van  Sandan  v.  Moore,  1  Russ.  Ch. 

441,  20 

Vansands     v.     Middlesex,     etc., 

Bank,  26  Conn.  144,  489 

Van   Steuben  v.   Central  R.  Co., 

178  Pa.  St.  367,  121 

Varnum  v.    Andrews,  119  N.  Y. 

101,  182 

Vawter  v.  Griffin,  40  Ind.  593,         321 

Veeder  v.  Baker,  83  N.  Y.  156,        625 

v.  Mudgett,  95'N.  Y.  295,  310 

Venerable  v.  Ebenezer,  etc.,  Ch., 

25  Kan.  177,  68 

Vent    v.    Duluth,    etc.,    Co.,    64 

Minn.  307,  370 

Yerplank  v.  Mercantile,  etc.,  Co., 

1  Edw.  Ch.  (N.  Y.)  84,  190 

Vicksburg,  etc.,  R.  Co.  v.  Dennis, 

116  U.  S.  665,  111 

Vidal  v.  Girard,  2  How.  (U.  S.) 

187,  199 

Virginia  Land  Co.  v.  Haupt,  90 

Va.  533,  44  Am.  St.  Rep.  939, 

note,  398 

Visalina,   etc.,   Co.   v.   Sims,  104 

Cal.  326,  121,  226 

Vredenbergv.  Behan,  33  La.  Ann. 

627,  599 

Vreeland  v.  New  Jersey,  etc.,  Co., 

29  N.  J.  Eq.  188,  367 

w 

Wabash,  etc.,  R.  Co.  v.  Ham,  114 

U.  S.  587,  32. 

Wachsmuth  v.  Merchants'  Nat'l 

Bank,  96  Mich.  426,  235 

WachteJ  v.  Society,  84  N.  Y.  28,      303 
Wadesboro,  etc.,  Co.  v.  Burns,  1 14 

N.  C.  353,  19  S.  E.  Rep.  238, 

73,  74,  410,  667 
Wagner  v.  Rock  Island,  146  111. 

139,  21  L.  R.  A.  519,  81 

Wait  v.  Nashua,   etc.,  Assn. 

(N.  H.),  23  Atl.  Rep.  77,  577 


Wait  v.  Smith,  92  111.  385,  147 

AVakefield  v.  Fargo,  90  N.  Y.  213,  635 
Wakeman  v.  Dalley,  51  N.  Y.  27,  565 
Walburn  v.  Ingilby,  1  Myl.  &  K. 

61,  592 

Waldo  v.  Chicago,  etc.,  R.  Co.,  14 

Wis.  625,  389,  395 

Walker  v.  Detroit,  etc.,  R.  Co.,  47 

Mich.  338,  481,  494 

v.  Lewis,  49  Tex.  123,  592 

v.  Mobile,  etc.,  R.  Co.,  34  Miss. 

245,  381 

v.  Whitehead,  16  Wall.  (U.  S.) 

314,  621 

v.  Wilmington,  etc..  R.  Co.,  26 
S.  C.  80,  147 

Wall  v.  London,  etc.,  Corp.,  67  L. 

J.  R.  (Ch.  D.)  596  (1898),  30 

v.  Society,  etc.,  32  Fed.  Rep. 
273,  280 

Wallace  v.  Bank,  89  Tenn.  630,       449 
v.  Carpenter,  etc.,  Co.,  70  Minn. 
321,  73  N.  W.   Rep.    189,   68 
Am.  St.  Rep.  530, 

339,  341,  343,  353,  356,  357,  635 
v.  Lincoln  Sav.  Bank,  89  Tenn. 

630,  24  Am.  St.  Rep.  625,  561,  574 
v.  Pierce- Wallace,  etc.,  Co.,  101 

Iowa  313,  38  L.  R.  A.  122,        672 
v.  Townsend,  43  Ohio  St.  537,  3 
N.  E.  Rep.  601,  368,  382,  384 

Waller  v.  Howell,  45  N.  Y.  Sup. 

790,  20  Misc.  (N.  Y.)  236,  18 

Walsh  v.  vEtna,  etc.,  Co.,  30  Iowa 

133,  6  Am.  R.. 664,  144 

Walter  A.Wood,  etc.,  Co.  v.  Rob- 
bins,  56  Minn.  48,  57  N.  W. 
Rep.  317,       313,361,368,376,384 
Walters  v.  Whitlock,  9  Fla.  86,       264 
Walton  v.  Riley,  85  Kv.  413, 

33,  37,  598 
v.  Oliver,  49  Kan.   107,  30  Par. 
Rep.  172,  48 

Ward  v.  Farwell,  97  111.  593,  99 

v.  Forest  Grove,  20  Ore.  355,       231 
v.  Johnson,  95  111.  215,  174 

v.  Min.,  etc. ,  R.  Co.,  119  111.  287, 

10  N.  E.  Rep.  365,  71 

v.  Polk,  70  Ind.  309,  546 

v.  S.  E.  R.  Co.,  2  El.  &  El.  812,  496 
Wardell  v.  Fnion  Pac.  R.  Co.,  103 

U.  S.  651,  544 

Ward  nor,    etc.,    Co.   v.    Jack,    82 

Iowa  435,  217 

Wardrobe  v.  California,  etc.,  Co., 

7  Cal.  L19,  237 

Ware  v.  Razemore,  58  Ga.  316,       450 
v.  Hamilton  Brown,  etc.,  Co., 
92  Ala.  145,  272 


TABLE    OF    CASES. 


XC111 


[References  are  to  Pages. ] 


Ware,  etc.,  Co.  v.  Anderson,  etc., 

Co.    (Iowa),   77  N.  W.   Rep. 

1026,  273 

Warehousing  Co.   v.   Badger,   67 

N.  Y.  294  296 

WarfieldV.  Marshall,  etc.,  Co.,  72 

Iowa  666,  2  Am.  St.  Rep.  263, 

180,  182,  592 
Warner  v.  Delbridge,   etc.,   Co., 

110   Mich.   590,   34  L.  R.  A. 

701,  612 

v.  Mower,  11  Vt.  385,     502,  503,  504 
v.  Penover,  82  Fed.  Rep.  181, 

561,  563 
Warren  v.  First  Nat'l  Bank,  149 

111.  9,  265 

v.  King,  108  U.  S.  389,  317,  318,  425 
v.  Mobile,  etc..  R.  Co.,  49  Ala. 

582,  197 

Washburn  v.  Green,  133  U.  S.  30,  607 
v.  National,  etc.,  Co.,  81  Fed. 

Rep.  17,  358 

Washburn,  etc.,  Co.  v.  Bartlett,  3 

N.  Dak.  138,  276,  278 

Washington,  etc.,  R.  Co.  v.  Als- 

brook,  146  U.  S.  279,  131 

Washington,  etc.,  Co.  v.  State,  19 

Mo.  239,  663 

Washington  Sav.  Bank  v.  Bank, 

107  Mo.  133,  411 

Water,    etc.,    Co.   v.   Tenney,   24 

Colo.  344,  51  Pac.  Rep.  505,  157 
Water-Works    v.    Schottler,    110 

U.  S.  347,  81 

Watrous  &  Snouffer  v.  Blair,  32 

Iowa  58,  278 

Watson  v.  Crandall,  7  Mo.  App. 

233,  78  Mo.  583,  49 

Watts'  Appeal,  78  Pa.  St.  370, 

180,  551,  561,  562 
Waukon,  etc.,  R.   Co.  v.  Dwyer, 

49  Iowa  121,  292 

Wayne,    etc.,    Co.  v.   Haramons, 

129  Ind.  368,  27  N.  E.  Rep. 

487,  538,  544,  560 

Weatherford,     etc.,     R.     Co.     v. 

Granger,   86  Tex.  350,  24  S. 

W.  Rep.  795,  50,  51,  52,  53,  54 
Weaver  v.  Barden,  49  N.  Y.  286,  313 
Webb  v.  Baltimore,  etc.,  R.  Co., 

77  Md.  92,     321,  367,  371,  375,  376 
v.  Ridgelv,  38  Md.  364,  536 

Weber  v.  Fickey,  47  Md.  196,  659 

Webster  v.   Howe,  etc.,   Co.,  54 

Conn.  394.  171 

v.  Upton,  91  U.  S.  65, 

321,  341,  342,  492 
Wechselberg  v.    Bank,   64   Fed. 

Rep.  90,  12  C.  C.  A.  56,  599 


Weckler    v.     Hagerstown    Nat'l 

Bank,  42  Md.  581,  20  Am.  Rep. 

95,  135,  558 

Weeks  v.  Silver,  etc.,  Co.,  23  J.  & 

8.  (N.Y.)l,  149 

Weigand  v.  Alliaver,  etc.,  Co.,  44 

W.  Va.  133,.  670,  672 

Weidenfeld  v.  Sugar,  etc.,  R.  Co., 

48  Fed.  Rep.  615,  543 

Weinburg  v.  Union,  etc.,  R.  Co., 

55  N.  J.  Eq.  640,  522 

Weisiger,  etc.,  Assn.  v.  Rainbolt 

(Neb.),  67  N.  W.  Rep.  493,  398 
Welch  v.  Importers'  Bank,  122  N. 

Y.  177,  549,  598 

Welfly  v.  Shenandoah,  etc.,  Co., 

83  Va.  768,  40 

Welles  v.  Larrabee,  36  Fed.  Rep. 

866,  630,  631 

Wellington,  etc.,  R.  Co.  v.  Cahie, 

etc.,  R.  Co.,  114  N.  C.  690,  71 

Wells  v.  Cowles,  2  Conn.  567,  320 

v.  Green  Bav,  etc.,  Co.,  90  Wis. 

442,  336 

v.  N.  Pac.  R.  Co.,  23  Fed.  Rep. 

469,  32 

v.  St.  Paul,  etc.,  Co.,  63  Minn. 

370,  578 

Wells,  Fargo  &  Co.  v.  Oregon  R. 

Co.,  8  Sawy.  (C.  C.)  601,  29,  40 
Welsh  v.  Heim  Brew.  Co.,  47  Mo. 

App.  608,  135 

Wemple  v.  Railroad  Co.,  120  111. 

196,  313,  376 

Wenstrom,   etc.,   Co.  v.  Purnell, 

75  Md.  113,  392,  393 

Wesiger  v.  Richmond,  etc.,  Co., 

90  Va.  795,  389 

West  v.   Bullskin,   etc.,   Co.,   32 

Ind.  138,  36 

v.  Crawford,  80  Cal.  19,  362 

West  Branch  Broom  Co.  v.  Lum- 
ber Bank,  121  Pa.  St.  143,  6 

Am.  St.  Rep.  766,  16 

Westchester,  etc.,  Co.  v.  Cover- 
dale,  48  Kan.  446,  289 
v.   Jackson,  77  Pa.   St.   321, 

316,  429 

Westcot  v.  Minnesota,  etc.,  Co., 

23  Mich.  145,  149,  408 

Westerfield  v.   Radde,   7  Daly 

326,  147 

Western  Nat'l  Bank  V.Armstrong, 

152  U.  S.  346,  577 

Western  Nat'l  Bank  of  New  York 

V.Lawrence  (Mich.),  76  N.  W. 

Rep.  105,  610,  643 

Western  Nat'l  Bank  v.  Reckless, 

96  Fed.  Rep.  59,  624,  640,  644 


XC1V 


TABLE    OF    CASES. 


[References  are  to  Pages."] 


"Western,  etc.,  R.  Co.  v.  Franklin 

Bank,  60  Md.  36, 
Western  R.  Co.  v.  Nolan,  48  N.  Y. 

513, 
Western  Union,  etc.,  Co.  v.  Lieb, 

76  111.  172, 
Western  U.  Tel.  Co.  v.  Davenport, 

97  U.  S.  369, 
Western,  etc.,  Assn.  v.  Ready,  24 

.Minn.  350, 
"Western,  etc.,  Co.  v.  Alabama,  132 
U.  S.  472, 
v.  Attorney-General,  125  Mass. 

530, 
v.  Citizens',  etc.,  R.  Co.,  128 

Ind.  525, 
v.  Cousley,  72  111.  531, 
v.  Des  Moines  Nat'l  Bank,  103 
Iowa  455,  72  N.  W.  Rep.  657, 
191,  311,  342,  405, 
v.  Eyser,  2  Colo.  141, 
v.  Maes,  125  U.  S.530, 
v.  Smith,  75  111.  496, 
v.  Taggart,  163  U.  S.  1, 
West   Nashville,  etc.,  R.  Co.   v. 
Nashville,  etc.,  Bank,  6  Am. 
St.  Rep.  835, 
West  Nashville  Planing  Mill  v. 
Nashville  Sav.  Bank,  86  Tenn. 
252, 
Weston  v.  Ives,  97  N.  Y.  222, 
West  Point,  etc.,  R.  Co.  v.  Rose 
(Miss.,  May  23,  1898),  23  So. 
Rep.  629, 
West  River,  etc.,  Co.   v.   Dix,  6 

How.  507, 
Wetherbee  v.  Baker,  35  N.  J.  Eq. 
501,  309,  335, 

Weyer  v.  Second  Nat'l  Bank,  57 

'Ind.  198, 
Wheeler  v.  Aiken  Bank,  75  Fed. 
Rep.  781, 
v.  Everett,  etc.,  Co.,  14  Wash. 

630,  45  Pac.  Hep.  316, 
V.Millar,  90  N.  Y.353,  292,  658, 
v.   Northwestern,  etc.,  Co.,  39 

Fed.  Rep.  347, 
v.  Pullman,   etc.,  Co.,  143  111. 
197,  675, 

v.  Sleigh  Co.,  39  Fed.  Rep.  347, 

428, 

Whr-eler  &  Wilson  Mfg.  Co.  v. 
Boyce,  36  Kan.  350,  .",9  Am. 
Rep.  671,  235,236,237, 

Wheelock  v.  Kost,  77  III.  296, 

v.  Monitor,.  15  Vt.  510, 
Whit.'  v.  Bank,  22  Pick.  181, 
v.  Brown,  2  Daly  329, 


332 

448 

267 

482 

542 

109 

103 

117 
50 


504 
237 
103 
197 
103 


492 

341 
299 

54 

98 

350 

313 

563 

172 
659 

492 

677 

435 


556 

74 

10 

229 

305 


v.  State,  69  Ind.  273, 
v.    Syracuse,    etc.,    R. 


White  v.  Brownell,  2  Daly's  Rep. 
(N.  Y.)  329,  300 

v.  Green,  105  Iowa  176,  592 

v.   Greene   (Iowa),    70  N.   W. 

Rep.  182,  341 

v.  Howard,  38  Conn.  342,  265 

v.  Marquardt  (Iowa),  70  N.  W. 

Rep.  193,  74  N.  W.  Rep.  930,    191 
v.  Marquardt  &  Sons,  105  Iowa 

145,  492 

v.  Rice,  112  Mich.  403,  70  N.  W. 

Rep.  1024,  151,  199 

v.  Salisbury,  33  Mo.  150,        458,  471 

26 
Co.,    14 
Barb.  (N.  Y.)  559,  529 

v.  Taylor,  113  Mich.  543,  576 

Whitehall  v.  Jacobs,  75  Wis.  474,   352 
White  Mountain  R.  Co.  v.  East- 
ern, 34  N.  H.  124,  372 
White  River,  etc.,  Co.  v.  Vermont 

Cent.  R.  Co.,  21  Vt.  590,  96 

White  Vallev,   etc.,  Co.   v.  Val- 

lette,  21  Howard  (U.  S.)  414,     135 
Whitman   v.    National    Bank,  51 
TJ.  S.  App.  536,  83  Fed.  Rep. 
288,  28  C.  C.  A.  404,  76  Fed. 
Rep.  697,  643,  646 

Whitman,  etc.,  Co.  v.   Strand,  8 

Wash.  647,  276 

Whitney  v.  Butler,  118  U.  S.  655, 

469,  632 
v.  Robinson,  53  Wis.  309,  10  N. 

W.  Rep.  512,  73 

v.  Wyman,  101  U.  S.  392,  598 

Whitney,  etc.,  Co.  v.  Barlow,  63 

N.  Y.  62,       201,  207,  220,  221 ,  223 
Whittaker  v.  Amwell  Nat'l  Bank, 

52  N.  J.  Eq.  400,  423,  432 

Whittemore   v.  Gibbs,  24  N.  H. 

484,  321 

Whittenton    Mills    v.   Upton,    10 

Grav  (Mass.)  582,  173 

Whitwe'll  v.  Warner,  20  Vt.  425, 

593,  608, 
Whipple  v.  Parker,  29  Mich.  369,  595 
Wickersham  v.  Brittan,  93  Cal.34, 

15  L.  R.  A.  106,  535 

v.  Zinc  Co.,  18  Kan.  481,  584 

Wiggin  v.  Freewill  Baptist  Church, 

8  Mete.  (Mass.)  301,  502 

Wiggins,  etc.,  Co.  v.  East  St.  Louis, 

107  U.  S.  365,  104,  109 

Wight  v.  Railway  Co.,  16  B.  Mon. 

(Kv.)4,  375,377 

Wilbur  v.  Stoepel,  82  Mich.  344,  515 
Wilcox  v.  Bickel,  11  Neb.  154,  448 
Wilcox,etc.,Co.v.Mosher(Mich.), 

72  N.  W.  Rep.  117,  268 


TABLE    OF    CASES. 


xcv 


[References  are  to  Pages."} 


Wiles  v.  Suydam,  64  N.  Y.  173,       660 
Wilkesbarre     Bank    v.     City    of 
Wilkesbarre,  148  Pa.  St.  601, 
24  Atl.  Eep.  Ill,  309,320 

Wilkins  v.  Thorne,  60  Md.  253,       282 
Wilkinson    v.    Bauerle,  41  N.   J. 

Eq.  635,  182,  183,  543,  552,  575 

Willamet   &  Co.   v.   Kittridge,   5 

Saw.  (U.  S.)  44,  125 

Williamette   Mfg.  Co.  v.  Bank  of 

Columbia,  119  U.  S.  191,  180 

Willard  v.   Denise,  50  N.  J.  Eq. 

482,  26  Alt.  Rep.  29,  583 

Williams   v.  Creswell,  51    Mass. 

817,  25 

v.  Hanna,  40  Ind.  535,  629 

v.  Hilliard,  38  N.  J.  Eq.  373,        574 

v.  Kimball,  35  Fla.  49,  26  L.  R. 

A.  746,  253 

v.  Lowe,  4  Neb.  382,  489 

v.  McDonald,  37  N.  J.  Eq.  409, 

561,  566 
v.   Montgomery,   68    Hun    (N. 

Y.)  416,  462 

v.  Montgomery,  148  N.  Y.  519,    514 
v.  Mfg.  Co.,  3  Md.  Ch.  418,  189 

v.  Parker,  136  Mass.  204,  315 

v.  Planters'  Ins.  Co.,  57  Miss. 

759  °35 

v.  Taylor,  120  N.  Y.  244,       403,  411 
v.  Tel.  Co.,  61  How.  Pr.  216,  93 

N. Y.  162,  437 

v.  Western  Union,  etc.,  Co.,  93 
N.  Y.  162,     308,  309,  312,  313,  431 
Williamson     v.     Kokomo,     etc., 

Assn.,  89  Ind.  389,  68 

Willis   v.  Chapman,  68  Vt.   459, 

35  Atl.  Rep.  459,  20 

v.  Fry,  13  Phila.  33,  329,  332 

v.  Mabon,  48  Minn.  140,  31  Am. 
St.  Rep.  626,  622,  633 

Wilmington,    etc.,    Co.    v.     Als- 
brook,  146  U.  S.  279,  111 

v.  Evans,  166  111.  548,  46  N.  E. 
Rep.  1083,  113 

Wilson  v.  Book,  13  Wash.  676,       658 
v.  Kings,  etc.,  R.  Co.,  114  N.  Y. 
487,  27  N.  Y.  St.  Rep.  81, 

216,  216,  582 
v.  Leary,  120  N.  C.  90,  58  Am. 

St.  Rep.  778,  677 

v.  Little,  2  N.  Y.  443,  475 

v.  Martin-Wilson  F.  A.  Co.,  149 

Mass.  24,  288 

V.  Proprietors,  etc.,  9  R.  I.  590,    662 

v.  St.  Louis,   etc.,   R.  Co.,  108 

Mo.  588,  459 

Salamanca,  99  U.  S.  499,  195 


Wilson  v.  Valley,  etc.,  R.  Co.,  33 

Ga.  466,  532 

Winchester,  etc.,  Co.  v.  Wickliffe, 
100  Ky.  531,  66  Am.  St.  Rep. 
356,    "  429,  430 

Wincock  v.  Turpin,  96  111.  135, 

639,  661 
Windsor,   etc.,  Co.  v.  Tandy,  66 

Yt.  248,  29  Atl.  Rep.  248,  384,  385 
Wing  &  Evans  v.  Slater,  19  R.  I. 

597,  33  L.  R.  A.  566,  634 

Winget  v.  Association,  128  111.  67, 

21  N.  E.  Rep.  12,  69,  77 

Winston  v.  Dorsett,  etc.,  Co.,  129 
111.  64,  4  L.  R.  A.  507, 

337,  372,  379 
v.  Rock  River  P.  Co.,   129  111. 
64,  4  L.  R.  A.  507,  372 

Winter  v.  Baldwin,  89  Ala.  483,      416 
v.  Belmont,  etc.,  Co.,  53  Cal. 

428,  313 

v.   Montgomery,   etc.,    Co.,   89 

Ala.  544,  481,  485 

v.  Muscogee,  etc.,  Co.,  11  Ga. 
438,  94 

Winterfield  v.  Cream  City,  etc., 
Co.,  96  Wis.  239,  71  N.  W. 
Rep.  101,  171 

Winters  v.  Hub,  etc.,  Co.,  57  Fed. 

Rep.  287,  50 

Wisconsin,  etc.,  Co.  v.  Milwaukee 
Co.,  95  Wis.  153,36  L.  R.  A. 
55,  16,  80 

v.  Oshkosh,62Wis.  32,  101 

Wishard  v.  Hanson,  99  Iowa  307, 

61  Am.  St.  Rep.  238,  353 

Witter  v.  Miss.,  etc.,  R.  Co.,  20 

Ark.  463,  531 

Witters  v.  Sowles,  32  Fed.  Rep. 

130,  659 

Wolf  Gaines  v.  Davenport,  etc., 

Co.  93  Iowa  218,  579 

Wolffe  v.  Underwood,  96  Ala.  329, 

8  S.  W.  Rep.  774,  16 

Wolverton  v.  Taylor,  132  111.  197,  247 
Wood  v.  Bedford,  etc.,  R.  Co.,  8 
Phila.  94,  178 

v.  Church,  etc.,  Assn.,  63  Wis. 

9,  536 

v.  Coosa,  etc.,  R.  Co.,  32  Ga. 

273,  367 

v.   Corry,   etc.,   Wks.,  44  Fed. 

Rep  146,  12  L.  R.  A.  168,  221 

v.  Dummer,  3  Mason  308,  321 

v.  Hammond,  16  R.  I.  98,  154 

v.  Lary,  47  Hun  (N.  Y.)  550,         319 
v.  Manufacturing  Co.,   23   Ore. 
23,  586 


XCV1 


TABLE    OF    CASES. 


[References  are  to  Pages."] 


Wood  v.  Union,  etc.,  Assn.,  63  "Wis. 

9,  22  N.  W.  Eep.  756,  358 

v.  Wilev,  etc.,  Co.,  56  Conn.  87,  64 
Wood,  etc.,  Co.  v.  King,  45  Ga.  34,  541 
Woodbridge  v.  Pratt,  etc.,  Co.,  69 

Conn.  304,  37  Atl.  Rep.  688, 

13,  499 
Woodbury,   etc.,  Co.  v.  Louden- 

schlager,  55  N.  J.  Eq.  78,  35 

Atl.  Rep.  436,  44,  45 

v.  Mulliken    &   Gibson,  66  Vt. 

465,  575 

Woodfork  v.  Union  Bank,  3  Cold. 

(Tenn.)  488,  95 

Woolfolk  v.  January,  131  Mo.  620,  342 
Woodruff  v.  Dubuque,  etc.,  R.Co., 

30  Fed.  Rep.  91,  509,  513 
v.  Howes,  88  Cal.  184,  550 
v.  Wentworth,  133  Mass.  309,      515 

Woods'  App.,  92  Pa.  St.  379,  314 

Worcester,  etc.,  Co.  v.  Willard,  5 

31  ass.  80,  161,  385 
Work  v.  Bennett,  70  Pa.  St.  484,  494 
Wright  v.  Bundv,  11  Ind.  398,        251 

v.  Central,  etc.,  Co.,  67  Cal.  532, 

8  Pac.  Rep. '70,  521,536 

v.  Hughes,  119  Ind.  324, 12  Am. 

St.  Rep.  412, 

135,  174,  180,  201,207,  221 
v.  Lee,  2  S.  Dak.  596,  51  N.  W. 

Rep.  706,  71,  279,  501,  524,  605 
v.  Lee,  4  S.  Dak.  237,  55  N.  W. 

Rep.  931,  65,  77,  276,  278,  289 

v.  Milwaukee,  etc.,  Co.,  95  Wis. 

29,  36  L.  R.  A.  47,  60  Am.  St. 

Rep.  74,  118,  125,  668 

v.  Nostrand,  94  X.  Y.  31,  671 

v.  Pipe  Line  Co.,  101  Pa.  St.  204, 

47  Am.  Rep.  701,  221,  222 

v.  ShHI.y.  etc.,  R.  Co.,  16  B. 

Mon.  i  Ky.)  4,  394 

v.  Springfield,  etc.,  R.  Co.,  117 

Mass.  226,  19  Am.  Rep.  412,  541 
Wright's  Case,  L.  II.  12  Eq.  331,  396 
Wyeth,  etc.,  Co.  v.  James  Spencer 

Bateman,  etc.,  Co.  (Utah),  47 

Pac.  Rep.  604,  130,  134 

Wymanv.  Katon  (Iowa),  43  L.  R, 

A.  6  610,667 

Wviunn    v.   Kimberly-Clark   Co., 

93  Wis.  564,  254 


Wythe,  etc.,  Co.  v.  James,  etc., 
Co.,  15  Utah  110,  178 


Y 


Yakima  Nat.  Bank  v.  Knipe,  6 

Wash.  348,  33  Pac.  Rep.  834,      42 
Yale,  etc.,  Co.,  v. Wilcox,  64  Conn. 

101,  25  L.  R.  A.  90,  44,  45,  46 

Yarborough  v.  Bank  of  England, 

16  East  6,  235 

Yeaton  v.  Bank,  21  Grat.  (Va.) 

593,  93 

Yonkers  Gazette  Co.  v.  Taylor,  30 

App.  Div.  Rep.  (N.  Y.)  334,      365 
York,    etc.,    Co.   v.    Winans,    17 

How.  (U.  S.)  39,  121 

York   Park   Assn.  v.    Barnes,  39 
Neb.  834,  56  N.  W.  Rep.  440, 

32,  296,  367,  379 
Young  v.  Board  of  Education,  54 
Minn.  385,  40  Am.   St.  Rep. 
340,  207 

v.  Erie,  etc.,  Co.,  65  Mich.  Ill, 

341,  593 
v.   Farwell,  139  111.  326, 

611,651,  652,655 
v.  Iron  Co.,  65  Mich.  Ill,  352 

v.  Lynch,  1  W.  Bl.  27,  418 

v.  McKay,  50  Fed.  Rep.  394,        632 
v.  South  Tredegar  I.   Co.,    85 
Tenn.  189,  4  Am.  St.  Rep.  752, 

244,  313 
Youngblood  v.  Ga.,  etc.,  Co.,  83 

Ga.  797,  10  S.  E.  Rep.  124,  95 

Younglove  v.  Lime  Co.,  49  Ohio 
St.  663,  660 


z 


Zabriskie  v.  Hackensack,  etc.,  R. 

Co.,  18  N.J.  Eq.  179, 

88,  94,  95,  528,  529 
Zellerbach  v.  Allenberg,  99  Cal. 

57,  421 

Zimmerv.  State,  30  Ark.  677,    85,195 

v.  Schleehauf,  L15  Mass.  52,        634 

Zinn  v.  Mendel,  9  W.  Va.  580,       575 

Zulaeta's  ( llaim,  L.  R.  5  Ch.  App. 

Cas.  444,  188 


THE 

LAW  OF  PRIVATE  CORPORATIONS 


CHAPTER  1. 

DEFINITION    AND    CLASSIFICATION. 


1. 

Introductory. 

111. 

2. 

Definition. 

12. 

3. 

Origin  and  growth  of  corpora- 
tions. 

13. 

4. 

Organization  and  powers. 

14. 

5. 

Corporations  during  the  Middle 

15. 

Ages. 

16. 

6. 

The  great  trading  corporations. 

17. 

7. 

Early   incorporation  in  the 

18. 

United  States. 

19. 

8. 

The  juristic  person. 

9. 

0. 

The  fiction  theory. 
Illustrations. 

20. 

Kinds  of  corporations. 

Public  corporations. 

Municipal  and  public  quasi-cor- 
porations. 

Qwasi-public  corporations. 

Private  corporations. 

Corporations, aggregate  and  sole. 

Ecclesiastical  corporations. 

Incorporated  religious  societies. 

Charitable  or  eleemosynary  cor- 
porations. 

Joint  stock  companies. 


§  1.  Introductory, — Every  civilized  state  has  found  it  nec- 
essary to  confer  certain  powers  and  privileges  upon  juristic 
persons  formed  by  the  aggregation  of  natural  persons.  These 
legal  persons  are  invested  with  rights  and  privileges  apart  from 
the  rights  and  privileges  of  the  natural  persons  which  form 
their  constituent  parts,  and  are  by  the  law  endowed  with  cer- 
tain attributes  not  possessed  by  natural  persons,  such  as  con- 
tinuous existence.  These  creatures  of  the  law  are  called  cor- 
porations, and  that  branch  of  the  law  of  the  land  which  defines 
and  regulates  the  application  of  the  general  law  to  these  juris- 
tic persons  is  called  the  law  of  corporations. 

(1) 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§2 


§  2.  Definition. — A  corporation  is  defined  as  "an  artificial 
person,  created  by  law,  or  under  authority  of  law,  from  a  group 
or  succession  of  natural  persons,  and  having  a  continuous  ex- 
istence irrespective  of  that  of  its  members,  and  powers  and  lia- 
bilities different  from  those  of  its  members."1 

This  is  a  very  satisfactory  definition  of  a  modern  corporation, 
but  it  is  doubtful  whether  the  description  given  by  the  earliest 
writer  upon  the  subject  can  be  improved  upon.  A  corporation, 
says  Kyd,  is  a  "collection  of  many  individuals  united  into  one 
body  under  a  special  denomination,  having  perpetual  succes- 
sion under  an  artificial  form,  and  vested  by  the  policy  of  the  law 
with  the  capacity  of  acting  in  several  respects  as  an  individual, 
particularly  of  taking  and  granting  property,  of  contracting 
obligations  and  of  suing  and  being  sued,  of  enjoying  privileges 
and  immunities, in  common,  and  of  exercising  a  variety  of  po- 
litical rights  more  or  less  extensive  according  to  the  design  of 
its  institution,  or  the  powers  conferred  upon  it  either  at  the 
time  of  its  creation  or  any  subsequent  period  of  its  existence."2 


1  The  Century  Dictionary.  (Austin 
Abbott.)  As  to  meaning  of  "continu- 
ous existence"  and  "perpetual  succes- 
sion," see  State  v.  Hannibal,  etc.,  R. 
Co.,  138  Mo.  332,  36  L.  R.  A.  457. 

2  Kyd  I,  13.  Sec  State  v.  Standard 
Oil  Co.,  19  Ohio  St.  137,  30  X.  E.  Rep. 
279.  The  celebrated  definition  of  Chief 
Justice    Marshall   in    Dartmouth  Col- 

..  Woodward,  4  Wheat.  518,636, 
-  follows:  "A  corporation  is  an 
artificial  being,  invisible,  intangible, 
and  existing  only  in  contemplation  of 
law.  Being  the  mere  creature  oi  law, 
it  possesses  only  those  properties  which 
the  charter  of  its  creation  confers  upon 
it,  either  expressly, or  as  incidental  to 
its  very  existence.  These  are  such  as 
are  supposed  besl  calculated  to  effect 
the  objecl  for  which  it  w  as  created. 
Among  the  most  important  are  immor- 
tality,   I.  if  the  expression  may  be  al- 
lowed, indn  iduality  ;  properties  by 
u  hich  a  perpetual  succession  of  many 
persons  ai  lered  ae  the  Bame  and 


may  act  as  a  single  individual."  For 
other  definitions  see  Minor,  Inst. 1,541 ; 
Taylor,  §§  1-9 ;  Potter  I,  ch.  1 ;  Water- 
man I,  §  1 ;  Thomas  v.  Dakin,  22 
Wend.  9;  Southern  Pac.  R.  Co.  v.  Or- 
ton,  32  Fed.  Rep.  457 ;  Baltimore  R. 
Co.  v.  Fifth  Baptist  Church,  108  U.  S. 
317;  Railway  Co.  v.  Allerton,  is  Wall. 
233;  Tippling  v.  Pexall,  2  Bulst.  233; 
People  v.  Assessors,  I  Hill  (N.Y.)620. 
In  In  re  (iihhs  Estate,  157  Pa.  St.  59,  22 
L.  R.  A.  276,  the  court  said:  "A  cor- 
poration is  an  artificial  person  created 
by  law  as  the  representative  of  those 
persons,  natural  or  artificial,  who  con- 
tribute to,  or  become  holders  of  shares 
in,  the  property  intrusted  to  it  for  a 
common  purpose.  As  it  is  the  ereat- 
ure  of  positive  law,  its  rights,  powers 
and  duties  are  prescribed  by  the  law. 
Beyond  the  legitimate  purpose  which 
ii  was  created  to  serve,  and  the  lines 
of  limitation  the  law  has  drawn  around 
it,  it  is  without  power  to  act  or  capac- 
ity  to   take."      See    Andrews    I'.ros.   v. 

Xoungs town  Coke  <  !o.,86  Fed.  Rep.585. 


§  3  DEFINITION    AND    CLASSIFICATION.  3 

Whether  an  aggregation  of  individuals  is  a  corporation  is 
determined  rather  by  the  faculties  and  powers  conferred  than 
the  name  or  description  given  it.1 

§  3.  Origin  and  growth  of  corporations. — A  recent  writer 
has  said  that  the  Romans  made  the  world  over  again,  but  that 
among  their  many  achievements  none  was  more  durable  in  its 
effect  on  the  civilization  of  mankind  than  the  invention  of  cor- 
porations as  an  instrument  of  government  and  trade.2  The 
Roman  mind  was  early  familiar  with  the  idea  of  a  number  of  in- 
dividuals grouped  into  a  unit.3  But  the  conception  of  a  juristic 
person  does  not  seem  to  have  been  fully  developed  until  the 
latter  portion  of  the  time  of  the  Republic.  But  corporations 
under  various  names  were  common  from  very  early  times  and 
are  expressly  recognized  in  the  Twelve  Tables.4  Prior  to  about 
the  end  of  the  Republic  these  associations  seem  to  have  been 
recognized  not  as  persons,  but  as  aggregations  with  some  of 
the  rights  of  persons.  Gradually,  however,  the  idea  developed 
until  the  .entire  body  of  corporations  was  brought  within  the 
realm  of  private  law.  As  said  by  Sohm  :5  "  Roman  law  con- 
trived to  accomplish  a  veritable  masterpiece  of  juristic  ingenu- 
ity in  discovering  the  notion  of  a  juristic  person  ;  in  clearly 
grasping  and  distinguishing  from  its  members  the  collective 
whole  as  the  ideal  unity  of  the  members  bound  together  by  a 
corporate  constitution  ;  in  raising  the  whole  to  the  rank  of  a 
person  and  in  securing  it  a  place  in  private  law  as  an  inde- 
pendent subject  of  proprietary  capacity  standing  on  the  same 
footing  as  other  private  persons." 

The  history  of  corporations  in  Rome  shows  the  usual  fluctua- 
tions of  opinion  with  reference  to  their  value  to  society.  At  times 
they  were  encouraged,  and  members  of  the  patrician  element, 
under  the  convenient  cloak  afforded  by  their  organization,  were 
enabled  to  engage  in  trade,  from  which  its  members  were  other- 

^dgeworth  v.  Wood,  58  N.  J.  L.  4  See  generally  Mommsen's  Hist,  of 

463,  Wilgus'  Cases.     See  §31,  infra.  Rome,  Vol.  II,  68;  Vol.  IV,  267;  Vol. 

2  Baldwin,  Modern  Political  Institu-  V,  370,  373.     See  Table  viii,  1  Kent 

tions,  p.  141 ;  Bl.  Com.  1, 468 ;  1  Minor's  Com.  524,  note. 

Inst.  500;    1  Kent  Com.  525,  note;    1  5  Institutes  of  Roman  Law,  p.  106. 

Kent  Com.  268.  See  Wilgus'  Cases. 
L  3  Niebuhr,  Hist,  of  Rome,  I,  p.  340. 


4  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  4 

wise  debarred  by  law  or  public  sentiment.1  In  the  time  of  the 
Republic  the  formation  of  voluntary  corporations  seems  to  have 
been  unrestricted,  but  they  increased  so  rapidly  that  they  be- 
came uupopular,  and  by  a  law  of  64  B.C.  they  were  all  dissolved. 
But  a  few  years  later  the  charters  were  revived  and  their  scope 
much  extended.  Under  Julius  Csesar  each  charter  had  to  be 
submitted  to  him  for  approval,  and  the  objects  of  the  corpora- 
tion therein  clearly  defined.2  Although  corporations  existed 
and  seem  to  have  been  the  subject  of  private  law,  Justinian 
makes  no  reference  to  them  in  the  Institutes;  but  they  are 
mentioned  in  several  places  in  his  digest.3 

§  4.  Organization  and  powers. — These  juristic  persons  were 
created  for  the  various  purposes  of  government,  the  control  of 
colleges  and  hospitals  and  the  pursuits  of  commerce.  They 
were  created  by  a  law,  a  decree  of  the  senate  or  an  imperial 
constitution.4  They  could  be  formed  by  three  persons  but 
continued  by  one,  and  had  continuous  succession  during  the 
period  provided  by  law  for  their  existence,  without  reference 
to  the  changes  in  the  management.  Their  powers  and  priv- 
ileges varied  according  to  their  constitutions,  but  generally 
they  had  authority  to  sue  and  be  sued,  choose  officers  to  man- 
age their  business,  elect  new  members  from  time  to  time, 
and  make  by-laws  consistent  with  their  constitution  and  the 
laws  of  the  land.5  The  title  to  their  property  was  vested  in  the 
juristic  person  and  not  in  its  members,  and  the  members  were 
not  individually  liable  for  the  debts  of  the  corporation.  There 
is  a  difference  of  opinion  as  to  the  majority  required  to  trans- 
act the  business.6     The  corporation  existed  so  long  as  the  es- 

'Niebuhr,   Hist,  of   Rome,   1,447;  4  Savigny,    System    des    Heutigen 

Mommsen,  Hist,  of  Rome,  B.  Ill,  ch.  Romischen  Rechts,  §§85-102. 

12.     Cato   not  only  took  shares  in  a  5Gaius,  Elements  of   Roman   Law 

trading    corporation,    but    loaned    it  (Poste's  Trans.),  143,  144. 

rnono\  and  sent  his  agent  Quintua  to  6  See  Rattigan  :    The  Roman  Law  of 

look  after  hie  investment.     See  Plu-  Persons,  p.  200.    The  rule  seems  to 

tarch,  Life  Of  Cato  (Clough's  Tr.),  II,  have  heen  that  a  majority  of  at  least 

pp.  344,  346.  two-thirde   of   the   voting   membere 

•Momno  en,  Hi  t.  of  Borne,  Book  V,  should  be  present  and  that  a  majority 

ch.  11;   Hunter's  Roman  haw,  314.  of  such  should  agree  in  order  to  ren- 

■See  Taylor  Corp.,  ch.  1,  and  note  der  a  resolution  obligatory  upon  all. 

in  Wilgus'  Cases.  But  opinions  differ. 


§  4  DEFINITION    AND    CLASSIFICATION.  5 

sential  conditions  required  for  its  existence  continued.  But  if 
the  state  withdrew  its  sanction  the  corporation  was  at  an  end. 
Those  organized  for  purely  private  purposes  are  said  to  have 
ceased  to  exist  when  the  last  member  died,  although  Savigny 
says  that  this  did  not  occur  in  the  case  of  corporations  of  a 
permanent  character  designed  for  public  purposes.  Some 
writers  assert  that  the  corporations  could  be  dissolved  by  a  res- 
olution of  a  majority  of  the  members,  although  jurists  like  Sa- 
vigny and  Puchta  claim  that  the  consent  of  the  state  was  nec- 
essary to  the  dissolution  as  well  as  the  creation  of  a  corpora- 
tion.1 When  a  public  corporation  which  was  specially  en- 
dowed by  the  state  was  dissolved,  its  property  reverted  to  the 
state.  And  the  same  result  followed  in  the  case  of  other  cor- 
porations, when  there  was  no  heir  who  could  take  the  prop- 
erty.2 

A  corporation  could  not  be  guilty  of  a  crime,  as  it  could  not 
entertain  the  necessary  intent.  Justinian  says  that  "There  is 
no  theft  without  the  intention  to  commit  theft,"  and  it  was 
held  that  "  penal  enactments  are  applicable  only  to  beings  ca- 
pable of  feeling,  thinking,  and  exercising  the  power  of  voli- 
tion."3 In  addition  to  the  ordinary  corporation  aggregate,  the 
Roman  law  recognized  a  special  kind  of  corporate  body,  which 
resembled  the  corporation  sole  of  the  English  law.  It  included 
(1)  The  State;  (2)  the  Prince,  in  so  far  as  he  was  the  repre- 
sentative of  sovereign  power;  (3)  every  public  officer  consid- 
ered with  reference  to  the  rights  and  duties  attaching  to  the 
office;  (4)  the  Fisc,  or  public  treasury;  and  (5)  the  hereditas 
jacens,  the  inheritance  of  a  deceased  person  so  long  as  it  is  not 
taken  up  by  any  one  as  heir.  These  were  all  regarded  as 
juristic  persons,  possessed  of  rights  as  such.4 

1  Eattigan,  p.  202.  sence  of  the  facts  of  family  life  and  of 

2  Mackeldey,  Mod.  Civ.  Law,  I,  148.  the  peculiar  incidents  of  humanity  (as 

3  Gouldsmit's  Pandects,  §  34,  note.  birth,  death,  and  marriage)  destroyed 

4  Mackenzie,  Roman  Law,  p.  163.  the  analogy  between  artificial  and  nat- 
The  general  rights  of  corporations  ural  persons.     With  this  exception, 

in  respect  of  ownership,  possession,  the  difference  between  the  rights  and 

obligations  and  actions  were,  in  Jus-  duties  of  corporations  and  those  of 

tinian's  time,  the  same  as  those  of  natural  persons  were  the  following : 

natural  persons  except  where  the  ab-  (1)     In  respect  of  usufruct,  or  the 


6  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  5 

§  5.  Corporations  during  the  Middle  Ages. — After  the  fall  of 
Rome  the  commercial  corporations  disappeared,  and  only  those 
survived  which  were  connected  with  the  church.  Certain  organ- 
izations in  the  form  of  guilds  of  workmen,  which  had  been 
known  from  very  early  times,  now  gained  great  strength.  In 
1582,  Henry  III  of  France  authorized  the  organization  of  work- 
men in  the  several  cities,  and  in  the  eighteenth  century  the 
entire  trade  of  the  city  of  Paris  was  in  the  hands  of  six  great, 
and  forty-four  lesser,  corporations.  These  incorporations  pos- 
sessed special  privileges  and  were  sometimes  outside  of  the  ju- 
risdiction of  the  ordinary  courts.  Their  powers  increased  un- 
til they  constituted  in  each  city  an  imperium  in  imperio.1  They 
controlled  all  the  offices,  and  obtained  the  sanction  of  the  gov- 
ernment to  whatever  they  thought  for  their  own  benefit.  The 
guild  hall  was  the  city  hall.  But  as  the  spirit  of  popular  lib- 
erty increased,  these  exclusive,  restrictive  organizations  gradu- 
ally  lost  their  power,  until  they  were  practically  all  destroyed 
by  the  French  Revolution  and  the  reform  legislation  which 
followed  that  period. 

§  6.  The  great  trading  corporations. — The  tendency  during 
this  period  was  to  concentrate  political  power  in  the  cities,  and 
the  feudal  kings  sought  to  neutralize  it  by  chartering  great 
business  corporations  for  adventure  and  foreign  trade.  The 
Hanseatic  Leagues  of  the  Middle  Ages  were  in  a  certain  sense 

rights  of  using  and  taking  the  fruits  of  daily  granted  to  them  the  right  to 
w -h:it  w  :is  owned  by  another,  the  dura-  succeed  on  an  intestacy  and  in  prior- 
tion  of  Buch  :i  right  was  limited  to  one  ity  to  the  public  treasury,  to  the  prop- 
hundred  years.  erty  of  their  deceased  members. 

(2)     in  the  case  of  a  township  (civ-  (5)    The  rights  of  corporations  to 

making  a  contract  of  loan,  in  enter  on   an   inheritance   as  heir,  to 

which  an  equal  quantity  of  things  of  take  a  legacy,  and  to  benefit  from  a 

the  same  kind  and  value  is  to  lie  re-  trust  under  a  will   (fldeicommisaum'), 

turned  to  tin-   lender  (jmutuwri),  the  were  all  generally  recognized  in  Jus- 

township  is  only  bound  so  far  us  the  tinian's  time,  bul  it  was  only  by  grad- 

-  really  to  its  advantage.  ual  legislative  efforts  in  imperial  times 

\    corporation   could    not    be  that  this  had  been  fully  brought  about. 

sued  for  fraud,  bul   its  individual  di-  Amos  Prin.  of  Civil  Law,  p.  L20. 

rectors  could,  and  its  corporate  nets  1  Bee,    generally,   Gross,   The  Gild 

might   be   el   aside  on  the  ground  of  Merchant,  London,  1890;  Merlin,  R6p- 

undue  pr<   sure  exercised  by  it.  ertoire  de  Jur.,  VI,  l  H>,  et  seq. ;  Mot 

(4)     Certain  corporations  bad  Bpe-  ley,  The  Dutch  Republic,  I,  36. 


§  6  DEFINITION    AND    CLASSIFICATION.  7 

commercial  partnerships,  which  sought  political  strength  in 
order  to  force  commercial  privileges.  These  trading  corpora- 
tions gradually  obtained  control  of  all  the  territory  which  was 
then  being  exploited.  They  were  of  two  classes,  one  in 
which  membership  was  obtained  by  the  payment  of  a  fee,  and 
each  member  traded  for  himself  at  his  own  risk  and  upon  his 
own  capital.  The  other  kind  had  a  common  stock,  and  the 
trading  was  by  the  corporation,  under  the  management  and 
for  the  benefit  of  all  the  stockholders.1  In  1216  or  1248  the  first 
of  these  trading  companies  was  authorized  in  Burgundy  by  the 
Duke  of  Brabant,  under  the  name  of  the  Brotherhood  of  St. 
Thomas  a  Becket  of  Canterbury.  A  century  later  it  was  trans- 
ferred to  England  and  its  privileges  confirmed  by  Edward  III 
and  later  by  Henry  VII,  who  changed  its  name  to  the  Merchant 
Adventurers  of  London.  These  great  monopolies, without  whose 
permission  no  one  could  trade,  increased  until,  by  the  close  of 
the  reign  of  Elizabeth,  they  had  gathered  five-sixths  of  the  for- 
eign trade  of  England  into  the  port  of  London  and  into  the 
hands  of  two  hundred  shareholders.2  But  the  world  gradually 
grew  larger  and  many  companies  were  organized  for  its  exploita- 
tion. The  East  Indian  Company  was  chartered  under  Elizabeth, 
and  the  Hudson  Bay  Company  in  1670.  The  Russian  Company, 
the  Eastland  Company  and  the  Levant  Company  were  organized 
about  the  same  time.  English  colonies  in  America  were  planted 
by  corporations  operating  under  similar  charters.  The  pro- 
moters of  the  Plymouth  Colony  were  known  as  the  Merchant  Ad- 
venturers, and  had  a  capital  stock  of  seven  thousand  pounds.3 
The  Dutch  East  India  Company  began  the  first  settlement  on 
Manhattan  Island,  and  a  similar  Swedish  corporation  estab- 
lished a  settlement  in  Delaware.  The  Richelieu  chartered  the 
Company  of  New  France  and  gave  it  title  to  almost  the 
whole  of  Canada.4  Many  similar  corporations  were  organized 
about  this  time,  and  their  exclusive  privileges  made  them  the 

1  Smith, Wealth  of  Nations,  iii,  B.  V.,     148;  Hume's  Hist,  of  Eng.,  Vol.  II, 
ch.  1,  p.  108.    See  article  on  Chartered     p.  284. 

Companies,  in  3  Enc.  of  the  Law  of        3  Palfrey,  Hist,  of  New  Eng.,  I,  153, 
England,  p.  148.  216,  221. 

2  Gross,  The  Gild  Merchant,  I,  p.        4  Baldwin,  Mod.  Polit.  Inst.,  p.  168. 


s 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§7 


subject  of  hatred  among  the  people.1  Many  proved  disastrous 
failures,  but  a  few,  like  the  Hudson  Bay  Company,  prospered 
exceedingly  and  retained  their  charters  until  comparatively 
recent  times.2 

§  7.  Early  incorporation  in  the  United  States. — Corpora- 
tions were  sometimes  created  during  the  colonial  period.  In 
some  cases  the  charters  were  granted  by  the  governor  as  the 
representative  of  the  crown  and  occasionally  by  the  crown  it- 
self.3 Several  of  the  older  colleges  were  incorporated  by  the 
colonial  legislatures.  In  1637  Massachusetts  chartered  the 
artillery  company  which  is  still  in  existence.  In  1732  Con- 
necticut chartered  a  company  for  trading  purposes,  with  power 
to  "encourage  the  fishery,  etc.,"  which,  by  virtue  of  the  "etc." 
grant,  immediately  established  a  bank.  This,  however,  was 
treated  as  an  usurpation,  and  the  corporation  lost  its  charter.4 
About  the  same  time  numerous  corporations  were  organized  in 

1  Daniel  Defoe,  in  his  Essay  on  Proj-  ued  in  business  until  1867,  when  its 
ects,  says:   "  Here  begins  the  forming    exclusive  rights  were  purchased   by 
of  public  joint-stocks  which,  together    the  government.     Winsor,   Crit.  and 
with    the    East   India,    African,   and    Nar.  Hist,  of  Am.,  VIII,  p.  60. 
Hudson   Bay   Companies,   before  es- 
tablished, begot  a  new  trade,  which 
we  call  by  a  new  name,  stockjobbing, 
which  was  at  first  only  the  simple  oc- 
casional transferring  of  interest  and 
shares  from  one  to  another  as  persons 
alienated  their  estates;  but  by  the  in- 
dustry of  the  exchange  brokers,  who 
got  the  business  into  their  own  hands, 
it  became  a  trade,  and  one,  perhaps, 
managed  with  the  greatest  intrigue, 


The  company  attempted  at  one  time 
to  do  a  life  insurance  business.  See 
Child  v.  Hudson  Bay  Co.,  2  Peere 
Williams  207  (1723). 

3  Denton  v.  Jackson,  2  John.  Ch. 
320;  Wilson's  Works,  Vol.  II,  p.  561; 
3  Bland's  Ch.416,  note,  Wilgus'  Cases. 

4  Colonial  Records  of  Conn.,  VII,  p. 
390.  This  suggests  the  way  ill  which 
the  Manhattan  Bank  secured  its  char- 
ter.   There  being  no  chance  of  ob- 

ariiiice  and  trick  that  ever  anything    taining  a  charter  for  banking  purposes, 


that  appeared  with  a  face  of  honesty 
could  he  handled  with.  Tims  stock- 
jobbing  *  *  *  and  projecting  *  *  * 
indeed  are  now  almost  grown  scan- 
dalous." 

For  the  history  of  the  South  Sea 
Company  Bee  Mahon's  Hist,  of  Eng- 
land, I,  ch.  xi;  Blanqui's  Hist.  Polit. 
I  Icon.,  ch.  x.wi.  For  speculative  and 
gambling  insurance  companies,  Smith, 

Wealth  of   Nations,  iii,   122. 

1  The  Hudson  Baj  <  tompany  contin- 


Aaron  Burr  secured  a  charter  for  a 
company  to  supply   the  city  of    New 

York  with  water,  with  authority  to 
use  its  surplus  capital  "in  any  way  not 
inconsistent  with  the  laws  and  consti- 
tution of  the  United  States  ill  the 
state,  if  New  York  "  This  was  in  L799 
and  the  hank  is  still  doing  business 
under  the  charter,  l'arlon's  lafe  of 
Burr,  238.  The  Century  Magazine. 
.May,    L899. 


§  8  DEFINITION    AND    CLASSIFICATION.  9 

the  colonies  for  the  purpose  of  issuing  paper  money,  but  in 
1720  an  act  of  Parliament  prohibited  such  incorporation.1  In 
1748  the  Ohio  Company  obtained  a  charter  directly  from  par- 
liament. No  charters  were  granted  in  Maryland  prior  to  the 
Revolution.2  The  constitutional  convention  refused  to  grant 
the  power  to  create  corporations  to  the  federal  congress,  but 
immediately  after  it  went  into  effect  they  were  created  under 
the  implied  power.  During  this  early  period  the  practice  of 
incorporation  was  looked  upon  with  disfavor3  and  charters  were 
very  difficult  to  obtain  and  were  therefore  very  valuable.  But 
a  change  of  opinion  has  gradually  taken  place  until  the  present 
policy  is  free  incorporation.4 

§  8.  The  juristic  person.5 — The  idea  of  separate  personality 
is  at  the  base  of  the  concept  corporation.  A  juristic  person 
can  not  exist  without  the  capacity  for  rights  and  liabilities  dis- 
tinct from  those  of  its  members.  The  rights  of  a  corporation 
are  not  the  joint  rights  of  the  sum  of  its  individual  members, 
but  the  sole  rights  of  the  collective  whole  of  its  members.  This 
collective  whole  or  invisible  entity  which  is  called  into  exist- 
ence and  lives  by  means  of  the  corporate  constitution,  and 
which  operates  not  through  the  medium  of  other  persons,  but 
immediately,  is  a  new  subject  of  rights  and  duties.  It  is  a 
community  viewed  as  the  subject  of  rights.  The  sharp  line  of 
demarkation   between  the   collective  j^erson  and  the  separate 

1  See  Sumner's  History  of  American  humanity,  and  according  to  the  rules 

Currency,  28.  of  morality,  yet,  conjunctively,  they 

2McKim   v.  Odom,  3  Bland's   Ch.  are    hard-hearted,     determined     vil- 

418.    See  a  History  of  the  Law  of  Pri-  lains."     Swift's  Works,  Nichols'  ed., 

vate  Corporation  before  1800,  by  Prof.  XII,  452;    quoted  in   Baldwin  Mod. 

Williston,  2  Harv.  Law  Rev.  105,  149.  Pol.  Inst.   193.     See  also   2  Hume's 

3  In   1733   Lord   Bathurst  wrote  to  Hist,    of    England,    ch.    26,    p.    256; 

Swift:     "All  corporations  of  men  are  Smith's  Wealth  of  Nations,  iii,  B.  V., 

perpetually  doing  injustice  to  individ-  ch.  1,  p.  145. 

uals.  I  will  attend  it,  but  am  as  much  4  For  the  development  of  the  prac- 
prejudiced  against  them  as  possible,  tice  of  free  incorporation,  see  "Free- 
though  I  know  nothing  of  the  man  dom  of  Incorporation,"  Baldwin,  Mod. 
nor  the  matter  in  question.  I  have  Pol.  Inst.;  2  Kent  Com.,  p.  268  and 
often  reflected   (from  what  cause  it  note. 

arises  I   know  not)  that  though  the  5  See  note,  Wilgus'  Cases,  Corpora- 
majority  of  a  society  are  honest  men,  tion  as  a  person. 
and  would  act  separately  with  some 


10  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  8 

members  expressed  the  fundamental  idea  underlying  the  Roman 
law  of  corporations.  German  mediaeval  law  never  got  beyond 
the  idea  that  the  rights  of  a  corporation  were  the  joint  rights 
of  its  members.  But  the  English  common  law  fully  recognized 
the  separate  personality  of  the  corporate  entity.1  It  inher- 
ited this  principle  from  the  Roman  law,  and  adorned  it  with 
such  metaphysical  conceptions  as  "invisibility,"  "intangi- 
bility," "immortality,"  and  "soullessness."  Coke,  who  was 
almost  the  embodiment  of  the  common  law,  says  that  "A 
body  politic  is  a  body  to  take  in  succession  formed  (as  to  that 
capacity)  by  policy,  and  therefore  it  is  called  by  Littleton  a 
body  politic  ;  and  it  is  called  a  corporation  or  a  body  incorpo- 
rate because  it  is  made  into  a  body,  and  of  a  capacity  to  take 
and  grant."  The  distinction  between  the  rights  of  a  corpora- 
tion and  the  rights  of  its  members  is  well  illustrated  by  the 
rule  of  the  Roman  law  that  a  slave  could  not  be  tortured  for 
the  purpose  of  extorting  information  to  be  used  against  his 
master.  But  the  slave  of  a  corporation  could  by  torture  be 
compelled  to  give  information  against  the  members  of  the  cor- 
poration. He  was  the  property  of  the  juristic  person,  the 
corpus,  and  not  of  its  members.  So,  by  the  common  law,  the 
title  to  the  corporate  property  is  in  the  juristic  person,  and  can 
be  conveyed  only  in  the  corporate  name,  although  one  person 
may  be  the  holder  of  all  the  capital  stock.2  An  action  of  re- 
plevin or  for  the  conversion3  of  the  property  of  the  corporation 

1  For  the  history  of  "fictitious  per-  ods  by  which  their  property  can  be  sold 

Bone  "  in  the  common  law,  see  Pollock  and  transferred."     England  v.  Dear- 

;ind  Maitland,  History  of  English  Law,  born,  141  Mass.  590;  Smith  v.  Hard,  12 

I,  pp.469,  etseq.;   Wilgus'  Cases,  note,  Mete.  (Mass.)  371 ;  Moore,  etc.,  Co.  v. 

Corporation  as  :i  person.  Towers,  etc.,  Co.,  87  Ala.  206,  13  Am. 

»  In  Bough  v.Breitung  (Mich.),  75  N.  St.    R.  23,  6  So.  Rep.  41;    Parker  v. 

\Y.  Rep.  i  17,  ii  was  said:    "Stockhold-  Bethel,  etc.,  Co.,  96  Tenn.  252,  31  L.R. 

era  do  not  own  the  corporate  property  L.  706;  Button  v.  Hoffman,  61  Wis.  20, 

andean  aol  mortgage,  sell  or  convey  it.  20N.W.  llep.607,50  Am. Rep. 131 ;  Bar- 

Thetitleie  in  the  artificial  beingcalled  rick  v.  Gifford,  47  Ohio  St.  180,21  Am. 

the  corporation,  nol  in  the  stockhold-  St.  R. 798;  Wheelock  v.  Moulton,15  Vt. 

3uch  property  is  not  under  the  con-  'r)|!l;  Humphrey  v.  McKissock,]  10  U.  S. 

trol  of  its  stockholders,  whether  they  304;  Baldwin  v.  Canfield,  26  Minn.  13. 

eparately  or  collectively.  The  laws  BTomlinson  v.  Bricklayers'  Union, 

under  which  these  corporations  are  or-  87  [nd.  307. 
ganized  provide  the  agencies  and  meth- 


§  8  DEFINITION    AND    CLASSIFICATION.  11 

can  not  be  brought  by  a  stockholder,  nor  can  the  stockholders 
bind  the  corporation  by  their  contract.1  The  declarations  or 
admissions  of  stockholders  as  such  are  not  admissible  in  evi- 
dence against  the  corporation;2  nor  are  the  stockholders  par- 
ties to  an  action  against  the  corporation,3  although  for  certain 
purposes  a  judgment  against  a  corporation  is  conclusive  against 
its  stockholders.4  As  a  corporation  is  a  distinct  personality  in 
the  eye  of  the  law,  it  may  sue  or  be  sued  by,5  or  convey  or  re- 
ceive a  conveyance  from,  a  stockholder.6 

The  citizenship  of  a  corporation  may  be  different  from  that 
of  its  stockholders.  Thus,  a  vessel  which  belonged  to  a  British 
corporation  was  held  entitled  to  British  registry,  although  cer- 
tain of  the  stockholders  were  foreigners.7  In  a  suit  against  a 
corporation  the  stockholders  can  not  set  off  their  individual 
claims  against  the  claim  of  the  plaintiff,  although  the  plaintiff 
is  insolvent.  In  a  case  where  this  was  attempted,8  Mr.  Jus- 
tice Mitchell  said:  "  In  dealing  with  the  right  of  creditors, 
and  the  obligations  existing  between  a  corporation  and  its 
shareholders,  by  reason  of  their  contract  of  membership,  un- 
doubtedly the  courts  often  find  it  necessary  to  consider  the 
real  parties  in  interest  as  the  individual  shareholders;  but  it 
may  be  laid  down  as  a  rule,  that  except  in  such  cases  it  has 
been  found  absolutely  essential  for  the  administration  of  jus- 
tice to  treat  a  corporation  as  a  collective  entity,  without  refer- 
ence to  its   individual  shareholders." 

1  Davis   v.  Creamery  Co.,  48  Neb.  porators  the  knowledge  of  the  cor- 

471,  67  N.  W.  Rep.  436;  Moore  H.  H.  poration  it  must  be  the  knowledge  of 

Co.  v.  T.  H.  Co.,  87  Ala.  206, 6  So.  Rep.  all  the  corporators." 

41,  13  Am.  St.  23 ;  Sellers  v.  Greer,  172  4  See  Hale  v.  Hardon,  95  Fed.  Rep. 

111.  549,  40  L.  R.  A.  589,  Wilgus'  Cases.  747  (C.  C.  A.,  May  31,  1899)  and  cases 

2Polleys  v.  Ins.  Co.,  14  Me.  141.  cited;    Mutual,  etc.,  Co.    v.  Phoenix, 

"Merchants'  Bank  v.  Cook,  4  Pick,  etc.,  Co.,  108  Mich.  170,  62  Am.  St. 

405.   In  Mercantile  Nat.  Bank  v.  Par-  R.  693,  Wilgus'  Cases. 

sons,  54  Minn.  56,  it  was  contended  5  Rogers  v.  Society,  19  Vt.  187. 

that  notice  to  certain  stockholders  was  6  Foster  v.  Comrs.,  etc.,  1Q.  B.  516; 

notice  to  the  corporation.     The  court  Pope  v.  Brandon,  2  Stew.  (Ala.)  401. 

said:     "Generally,  and  for  most  pur-  7  Queen  v.  Arnaud,  16  L.  J.  N.  S.  C. 

poses,  a  corporation  is  a  legal  entity,  L.  50. 

distinct  from  the  body  of  its  stock-  8  Gallagher  v.  Germania,  etc.,  Co., 

holders  and,  in  any  event,  to  render  53  Minn.  214. 

the  knowledge  of  the  individual  cor- 


12  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  9 

§9.  The  ftetioii  theory.1 — Some  modern  decisions  show  a 
disposition  to  disregard  the  principle  that  a  corporation  is  a 
person  separate  and  distinct  from  the  individuals  who  com- 
pose its  membership.  Thus,  where  the  corporation  sought  to 
escape  responsibility  for  certain  contracts  by  having  them 
made  with  the  individual  stockholders  instead  of  in  the  cor- 
porate name,  the  court  said  that  it  would  look  beneath  the 
surface  and  recognize  the  fact  that  these  individuals  were  in 
fact  the  corporation.  But  this  merely  goes  to  the  question 
whether  the  state  will  permit  that  to  be  done  indirectly  which 
can  not  be  done  directly.  So  the  departure  from  the  original 
idea  of  no  personal  liability  on  the  part  of  a  stockholder 
which  has  been  effected  by  legislation  is  not  inconsistent  with 
the  principle  that  the  corporation  is  a  juristic  person.  This 
liability  is  from  the  individual  member  to  the  creditor,  and 
the  corporation  is  only  indirectly,  if  at  all,  affected  by  it. 

The  statement  is  generally  made  by  American  and  English 
jurists  and  courts  that  the  corporation  is  an  artificial  person,  or 
a  fictitious  entity.2  This  theory  has  been  strongly  assailed  in 
recent  times  by  German  jurists,  who  insist  that  the  distinct- 
iveness of  the  corporate  personality  is  as  real  as  the  individu- 
ality of  a  physical  person.3  Instead  of  being  a  mere  figure  of 
speech,  the  legal  person  created  by  the  law  is  a  reality.  The 
fiction  theory  undoubtedly  prevails  in  this  country,  and  is  the 
prolific  cause  of  much  unsatisfactory  reasoning.  It  has  been 
much  criticised  within  recent  years,  but  upon  grounds  which 
are  inconsistent  with  the  acceptance  of  the  organic  theory.  If 
the  corporation  is  a  mere  fiction,  a  figment  of  the  imagination, 
it  is  easy  to  "look  beneath  it"  or  disregard  it  when  it  is  in  the 
way;  but  a  fact  can  not  be  so  easily  disposed  of.  Few  decisions, 
however,  are  the  results  of  careful  reasoning  upon  a  clearly 
accepted  and  recognized  theory.  Modern  courts  are,  to  a 
great  extent,  concerned  with  the  rights  and  liabilities  of  mcm- 

i  See  Wilgus'  Cases,  note,    The  cor-  Juristische   Person,  by  Prof.  Gierke. 

poration  as  a  collection  of  individuals.  See  for  a  full  and  satisfactory  discus- 

i  Holland's  Jurisprudence,  8th  ed.,  sion  Freund'sThe  Real  Natureol  Cor- 

■;  Markby's  Elem.  of  Law,  §§  161,  porations,  Univ.  of  Chicago  Studies  in 

L38;  Definitions  quoted,  §2,  supra.  Political  Science,  1897. 

■  Holzendnrff 's  Rechtslexikon,  Art. 


§  10  DEFINITION    AND    CLASSIFICATION.  13 

bers  of  corporations  having  capital  stock ;  and  when  it  is  nec- 
essary to  determine  individual  rights  or  to  preserve  state  con- 
trol over  a  corporation,  they  will  not  permit  a  theory  to  pre- 
vent a  decision  which  justice  and  public  policy  require. 

§  10.  Illustrations. — As  stated  in  the  preceding  section,  it 
is  held  in  certain  recent  cases  that  when  an  attempt  is  made 
to  use  the  theory  of  corporate  personality  for  ends  subversive 
of  its  reason,  the  courts  will  treat  the  corporation  as  a  mere 
collection  of  individuals.  Hence,  under  some  circumstances, 
the  acts  of  all  the  stockholders  may  be  treated  as  the  acts  of 
the  corporation  and  result  in  bringing  upon  it  the  penalty  of 
dissolution.  In  quo  warranto  proceedings  brought  against  a 
corporation  by  the  state  to  deprive  it  of  its  franchise  on  the 
ground  that  it  had  abused  its  privileges  by  becoming  a  party 
to  an  illegal  trust  agreement,  the  corporation  denied  that  it 
entered  into  the  contract,  but  it  appeared  that  the  contract  was 
signed  by  all  the  shareholders.  It  was  contended  that  the 
agreements  were  the  agreements  of  the  individual  shareholders 
in  their  individual  capacities,  and  with  reference  to  their  indi- 
vidual properties,  and  hence  not  corporate  agreements.  But 
the  court  held  that  the  acts  of  the  stockholders  under  the  cir- 
cumstances, were  the  acts  of  the  corporation  and  said: x 

"The  idea  that  a  corporation  may  be  a  separate  entity,  in 
the  sense  that  it  can  act  independently  of  the  natural  persons 
composing  it,  or  abstain  from  acting,  where  it  is  their  will 
that  it  shall,  has  no  foundation  in  reason  or  authority,  is  con- 
trary to  the  fact,  and  to  base  an  argument  upon  it,  where  the 
question  is  as  to  whether  a  certain  act  was  the  act  of  the  cor- 
poration or  of  its  stockholders,  can  not  be  decisive  of  the  ques- 
tion, and  is  therefore  illogical  ;  for  it  may  as  likely  lead  to  a 
false  as  to  a  true  result.  So  long  as  a  proper  use  is  made  of 
the  fiction  that  a  corporation  is  an  entity  apart  from  its  share- 
holders, it  is  harmless,  and,  because  convenient,  should  not 

'State  v.  Standard,  etc.,  Co.,  49  Ohio  834;  Woodbridge  v.  Pratt  &  Whitney 
St.  137;  see  People  v.  North  River,  Co.,  69  Conn.  304;  Andrews  Bros.  v. 
etc.,  Co.,  121  N.  Y.  582,  24  N.  E.  Rep.     Youngstown Coke  Co.,86  Fed.  Rep.585. 


14  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   11 

be  called  in  question  ;  but  where  it  is   urged  to  an  end  sub- 
versive of  its  policy,  or  such  is  the  issue,  the  fiction  must  be 
ignored,  and  the  question  determined  whether  the  act  in  ques- 
tion, though  done  by  shareholders — that  is  to  say,  by  the  per- 
sons united   in  one  body — was  done   simply    as  individuals, 
and  with  respect  to  their  individual  interests  as  shareholders, 
or  was  done  ostensibly  as  such,  but,  as  a  matter  of  fact,  to 
control  the  corporation,  and  affect  the  transaction  of  its  busi- 
ness, in  the  same  manner  as  if  the  act  had  been  clothed  with 
all  the   formalities  of  a  corporate   act.     *     *     *     Applying, 
then,  the  principle  that  a  corporation  is  simply  an  association 
of  natural  persons,  united  in  one  body  under  a  special  denom- 
ination, and  vested  by  the  policy  of  the  law  with  the  capacity 
of  acting  in  several  respects  as  an  individual,  and  disregard.- 
ing  the  mere  fiction  of  a  separate  legal  entity,  since  to  regard 
it  in  an  inquiry  like  the  one  before  us  would  be  subversive  of 
the  purpose  for  which  it  was  invented,  is  there,  upon  an  analy- 
sis of  the  agreement,  room  for  doubt   that  the  act  of  all  the 
stockholders,  officers,  and  directors  of  the  company  in  signing 
it  should  be  imputed  to  them  as  an  act  done  in  their  capacity 
as  a  corporation?     *     *     *     Where  all,  or  a  majority,  of  the 
stockholders    comprising    a    corporation   do  an   act  which    is 
designed  to  affect  the  property  and  business  of  the  company, 
and  which,  through  the  control  their  numbers  give  them  over 
the  selection  and  conduct  of  the  corporate  agencies,  does  affect 
the  property  and   business  of  the  company,  in  the  same  man- 
ner as  if  it  had  been  a  formal  resolution  of  its  board  of  direct- 
ors, and  the  act'  so  done  is  ultra  vires  of  the  corporation  and 
against    public   policy,  and  was  done  by  them   in  their  indi- 
vidual capacity  for   the  purpose  of  concealing  their  real  pur- 
pose and  object,  the  act  should   be   regarded  as  the  act  of  the 
corporation  ;   and  to  prevent  the  abuse  of  corporate  power,  may 
lie  challenged  as  such  by  the  state  in  a  proceeding  in  quo   war- 
ranto. " 

§11.     Kinds  of  corporations.1 — Corporations  are  classified 

according  to  their  form,  nature  and  the  purpose  of  their  crea- 
'Scr  Wilgus'  Cases  Corps. 


§  12  DEFINITION    AND    CLASSIFICATION.  15 

tion.     The  principal  kinds  are  designated  as  public,  private, 
aggregate,  sole,  ecclesiastical,  lay,  civil  and  charitable.1 

§  12.  Public  corporations. — To  this  class  belong  such  cor- 
porations as  are  created  for  purposes  of  government  and  the 
management  of  public  affairs.  They  are  involuntary,  and 
there  is  no  contractual  relation  existing  between  the  members 
or  between  the  corporation  and  the  state.  They  are  simply 
political  agencies  created  by  the  state  for  governmental  pur- 
poses, but  they  are  sometimes  granted  corporate  or  private 
powers  to  be  exercised  for  the  benefit  of  the  persons  who  con- 
stitute their  members.2 

§  13.  Municipal  and  public  quasi-corporations. — Excluding 
from  consideration  the  class  of  corporations  sometimes  called 
quasi-public  corporations,  that  is,  corporations  which  partake 
both  of  the  nature  of  public  and  private,  we  divide  public  cor- 
porations proper  into  municipal  corporations  and  public  quasi- 
corporations.  The  former  are  complete  corporations,  with  all 
the  powers,  duties  and  liabilities  incident  to  the  status,  such  as 
cities,  towns  and  villages.  The  latter  possess  but  a  portion 
of  the  powers,  duties  and  liabilities  of  corporations  and  include 
counties,  townships,  town  supervisors,  road  districts  and 
school  districts.3 

§  14.  Quasi-public  corporations. — The  term  quasi-public 
corporation  is  often  used  to  designate  a  corporation  properly 
classed  as  private,  but  which  is  engaged  in  a  business  of  such 
a  nature  that  the  public  has  an  interest  therein,  as  grain  ele- 
vators, railway,  telegraph,  telephone,  gas  and  water  com- 
panies. The  private  property  which  is  devoted  to  such  pur- 
poses becomes  "  affected  with  a  public  interest  and  ceases  to 
be  juris  privati  only,"  and  may  be  controlled  by  the  public  for 

JIn  an  article  on  the  classification  of  Corp.,  I,  §  19 ;  Elliott  Pub.  Corp.,  §  2 ; 

corporations,  in  IV  Yale  Law  Journal  McKim  v.  (Morn,  3  Bland's  Ch.  407, 

97,  Judge  Oliver  P.  Shiras  suggests  a  Wilgus'  Cases. 

division  into  political,  public  and  pri-  3Talbott  Co.  v.  Queen  Anne  Co.,  50 

vate.  Md.  245  ;  Hamilton  County  v.  Mighels, 

2  For  authorities,  see  Dillon  Munic.  7  Ohio  St.  110,  Wilgus'  Cases. 


16  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  15 

the  public  good  to  the  extent  of  the  interest  thus  created.1  But 
it  is  a  misnomer  to  call  such  corporations  quasi-public  corpo- 
rations; a  railway  may  be  a  guas^-public  highway,  but  the 
corporation  is  private.2 

A  boom  company  is  said  to  be  a  giwm-public  corporation  in- 
tended to  supply  facilities  to  the  general  public  for  the  driving 
of  logs.3 

§  15.  Private  corporation. — A  private  corporation  is  an  in- 
corporated association  formed  by  the  voluntary  agreement  of 
its  members,  having  for  its  object  the  advancement  of  the 
private  interests  of  the  members.  It  is  sometimes  difficult  to 
determine  whether  a  corporation  is  public  or  private,  but  the 
simple  and  sufficient  test  is  found  in  the  purpose  of  its  crea- 
tion. If  it  is  an  agency  for  the  administration  of  govern- 
ment it  is  public,  but  if  its  primary  purpose  is  the  private 
emolument  of  its  members  it  is  private,  although  the  state 
may  hold  a  part  or  even  all  of  its  shares  of  stock.4  The  true 
criterion  is  whether  the  objects,  uses  and  purposes  for  which 
the  corporation  was  organized  are  solely  for  the  public  benefit 
and  convenience,  or  for  private  emolument,  and  whether  the 
public  can  participate  in  them  by  right  or  only  by  permission. 
The  mere  fact  that  a  corporation  is  subject  to  visitation  and 
inspection  by  a  public  official  does  not  make  it  a  public  corpo- 
ration.5 

§  16.  Corporations,  aggregate  and  sole. —  A  corporation 
which  is  composed  of  several  persons  is  called   a  corporation 

'Mann  v.   Illinois,  94  U.   S.    113;  duct  a  race-track  and  offer  purses  is  a 

Railroad  Commission  Cases,  116  U.  S.  private  corporation,  and  may  refuse  to 

307;  Hockett  v.  State,  105  Ind.  250;  allow  certain  persons  to  enter  horses. 

Spring  Valley  Water-works  v.  Schot-  Corrigan  v.  Coney  Island  Jockey  Club 

tier,  110  IT.  B.  347;  Miners'  Ditch  Co.  (N.  Y.),  2  Misc.  Rep.  512. 

v.  Zellerbach,  37  Cal.  543,  99  Am.  Dec.  8  West  Branch  Boom  Co.  v.  Lumber, 

I'.oi).  etc.,  Co.,  121  Pa.  St.  143,  (>  Am.  St.  R. 

1  l'ierce  v.  Commonwealth,  104  Pa.  766. 

St.  l-".i);  Wolfle  v. Underwood, 96  Ala.  'Regents  v.  Williams,  9  Gill  &  J. 

329,  8  S.   Rep.  771.     But  see  Slate  v.  (Md.)  232;  Bank  of  U.S.  v.  Planter's 

Oarr,  in   End.  335;  United  States  v.  Bank,  9  Wheat.  904,  Wilgus'  Cases. 

Joinl  Traffic  Assn.,  171  Q.  8.505,  570;  5  Wisconsin,  etc.,  Co.  v.  Milwaukee 

Smythv.AmeB,  169U.S.466;  United  Co.,  95  Wis.  153,  36  L.R.  A.  55;  Bank 

States  v.  Freight  Assn.,  166  D.  8.  290,  v.  Gibbs,  3  McCord  (S.  C.)  377,  Wil- 

332.     A  corporation  organized  to  con-  gus'  Cases. 


§  16  DEFINITION    AND    CLASSIFICATION.  17 

aggregate,1  while  one  which  consists  of  one  person,  to  whom 
and  his  successors  belongs  the  legal  perpetuity  which  is 
denied  to  natural  persons,  is  a  corporation  sole.  To  the 
former  class  belong  banking,  manufacturing  and  railway  cor- 
porations, and  incorporated  mutual  benefit  and  fraternal  socie- 
ties. To  the  latter  the  dignitaries  of  the  Church  of  England, 
and  all  public  officers  who  are  invested  with  the  attributes  of  a 
corporation  by  reason  of  their  official  position.  The  governor 
of  a  state,2  and  an  officer  to  whom  bonds  are  required  to 
be  made  by  statute,  resemble  corporations  sole.3  But  sole 
corporations  as  they  existed  at  common  law  are  practi- 
cally unknown  in  the  United  States.  In  the  older  states, 
where  the  religious  establishment  of  the  English  church  was 
introduced,  the  minister  of  the  parish  was  seized  of  the 
freehold  as  in  England.  "We  are  not  aware,"  said  Chief 
Justice  Shaw,4  "that  there  is  any  instance  of  a  sole  corpora- 
tion in  this  commonwealth,  except  that  of  a  person  who 
may  be  seized  of  parsonage  lands,  to  hold  to  him  and  his 
successors  in  the  same  office,  in  right  of  his  parish."  "As 
for  sole  corporations,"  says  Dr.  Hammond,5  "they  have  dis- 
appeared almost  entirely  from  our  law,  not  so  much  by  any 
change  in  the  law  itself,  as  by  the  obsolescence  of  the  eccle- 
siastical dignitaries,  who  furnished  most  of  Blackstone's  in- 
stances. Single  persons  holding  some  office  or  trust  can  take 
property  or  obligations  upon  themselves,  and  their  respective 
successors,  by  properly  worded  instruments.  Many  public 
officers,  treasurers,  sheriffs,  etc.,  are  specially  authorized  by 
statutes  to  do  the  same.  The  law  applicable  to  these  cases  is 
almost  precisely  that  which  a  century  ago  would  have  been 
deemed  peculiar  to  sole  corporations,  and  yet  the  word  is  hardly 
ever  applied  to  them." 

1  Fietsam  v.  Hay,  122  111.293,  3  Am.  4  Overseers  v.  Sears,  22  Pick. (Mass.) 
St.  R.  492,  Wilgus'  Cases.  125,  Wilgus'  Cases. 

2  Governor    v.    Allen,    8    Humph.  5  Hammond's  Blackstone,  I,  844.  See 
(Tenn.)  176,  Wilgus'  Cases.  also  Kyd  Corp.,  p.  20. 

3  Polk    v.     Plummer,     2     Humph. 
(Tenn.l  500,  37  Am.  Dec.  566. 

2— Private  Cor. 


18  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  17 

§  17.  Ecclesiastical  corporations. — Corporations  organizes 
for  the  advancement  of  religion  are  common  in  England1  and 
may  exist  in  a  few  of  the  older  states  of  the  Union.  But  in 
the  strict  technical  sense  ecclesiastical  corporations  are  at 
present  unknown  in  this  country.2 

§  18.  Incorporated  religious  societies, — While  the  ecclesi- 
astical corporations  of  the  English  law  are  unknown  in  this 
country,  the  incorporation  of  societies  organized  for  the  advance- 
ment of  religion,  and  the  more  convenient  transaction  of  bus- 
iness "relative  to  the  temporalities  thereof"  is  very  common.8 
Such  bodies  are  classed  with  those  organized  for  literary,  edu- 
cational and  charitable  purposes  and  are  provided  for  under 
the  laws  of  most,  if  not  all,  the  states.  The  property  of  the 
church  is  held  by  the  corporation  in  trust  and  can  not  be  di- 
verted to  other  purposes.4  Such  organizations  are  favored  by 
the  law,  and  are  frequently  exempted  from  general  taxation.5 
Civil  courts  will  not  control  the  internal  management  of  incor- 
porated religious  societies,  unless  a  civil  or  property  right  is 
invaded.6  Thus  a  court  will  not  interfere  where  the  rights  of 
a  faction  of  the  church  to  control  its  property  depend  mainly 
upon  controverted  matters  of  religious  doctrine.7  But  where 
the  doctrines  of  the  church  are  thoroughly  settled,  those  who 
adhere  to  such  doctrines  are  entitled  to  control  the  property, 
although  they  constitute  a  minority  of  the  membership.8 

§  19.  Charitable  or  eleemosynary  corporations. — Charitable 
corporations  are  formed  for  the  administration  of  charitable 

M  Bl.  Com.  470;  2  Kyd  Corp.  22-25.    tion  does  nol  exempt  a  religious  cor- 
8  Robertson  v.  Bullions,  1]  N.Y.243,    poration  from  liability  for  special  as- 
sessments.    Sec    Elliotl     I'nl>.   Corp., 

3  The  clmri-li   society  may  exist   (lis-     §  119. 

tinct  from  the  corporation.     Lilly  v.       6Waller  v.  Howell,  45   N.    Y.  Sup. 

Tobbein,  103  Mo.  '177,  23  Am.  St.  R.    790,  20  Misc.  (N.  V.)  236. 

887;   Hardin  v.  Trustees,  51  Mich.  137,       7Moseman    \.  Heitshousen,  50  Neb. 

■17  Am.   R.  555,    WilgUS'  Cases.  420,   69    N.  W.957.      See  note,   I s    Am. 

4  Brnndage  v.  Deardorf,55  Fed.  839;    St.  R.  302. 

Dubs  v.   Egli,   167    III.  514,  47    N.  E.  'Smith v.  Pedigo,    145    End.  361,  32 

Rep.  766;  VanHouten  v.  McKelway,  L.    R.    A.  838;    Hear  v.    Heasley,  98 

17  N.  .1.  !•:.  126.  Mich.  279,  24  L.  R.  A.  (J15. 
6  An  exemption  from  general  taxa- 


§  20  DEFINITION    AND    CLASSIFICATION.  19 

trusts  and  not  for  the  profit  of  the  members.  They  are  in  fact 
but  the  formal  expression  of  an  equitable  trust.  Such  a  cor- 
poration is  a  trustee  selected  by  the  donor  of  a  charity  for  the 
purpose  of  managing  the  fund  given  for  charitable  uses. 
"Corporations  of  the  eleemosynary  sort,"  says  Blackstone, 
"are  such  as  are  constituted  for  the  distribution  of  the  free 
alms  or  bounty  of  the  founder,  to  such  persons  as  he  has  di- 
rected, of  which  kind  are  all  hospitals  for  the  maintenance  of 
the  poor,  sick  and  impotent,  and  all  colleges."1  Since  the  de- 
cision in  the  Dartmouth  college  case,  it  is  the  settled  law  of 
this  country  that  the  property  of  such  a  college  is  private  prop- 
erty. Hence,  the  property  of  a  private  eleemosynary  corpora- 
tion, although  charged  with  the  maintenance  of  a  college  "or 
other  public  charity,"  is  private  property  and  not  subject  to 
the  control  of  the  legislature  of  the  state.2  In  Illinois,  under 
a  statute  it  was  held  that  the  board  of  education  was  a  private 
eleemosynary  corporation  and  not  a  public  corporation.3  An  in- 
surance patrol  company,  organized  to  save  and  protect  property 
from  fire,  which  makes  no  distinction  between  insured  and  un- 
insured property,  which  has  no  stock  and  pays  no  dividends, 
but  is  supported  by  the  voluntary  contributions  of  insurance 
companies,  is  a  public  charitable  corporation.4 

§  20.  Joint  stock  companies.5 — A  joint  stock  company  has 
some  of  the  characteristics  of  a  partnership  and  a  corporation. 
It  is  in  fact  a  partnership  with  the  outward  form  of  a  corpo- 
ration, and  endowed  by  statute  with  some  of  the  powers  and 
privileges  of  a  corporation.  Except  when  expressly  restricted 
by  statute,  the  members  of  such  an  association  are  liable  as 
partners.6  The  interests  of  the  members  are  represented  by 
shares.     It  is  in  fact  "a  partnership  made  up  of  many  persons 

blackstone    (Hammond's   ed.),  I,  4Fire  Ins.  Patrol  v.  Boyd,  120  Pa. 

471;  Kyd  Corp.  25,  29;    Kent's  Com.  St.  624,  6  Am.  St.  R.  745. 

(Barnes' ed.),  II,  274;  American  Asy-  5  For  distinction   between  corpora- 

lum  v.  Phoenix  Bank,  4  Conn.  172,  10  tions   and    partnerships,    joint    stock 

Am.  Dec.  112.     See  also   Dartmouth  companies,     unincorporated     compa- 

College  v.  Woodward,  4  Wheat.  518,  nies,  cost  book  mining  companies,  see 

Wilgus'  Cases.  Wilgus'  Cases  Corps. 

-State  v.  Neff  (Ohio),  28  L.  R.  A.  6 Hedges  App.,  63  Pa.  St.  273;   Peo- 

409.  pie  v.  Coleman,  133  N.  Y.  279,  31  N. 

3  Board  of  Education  v.Greenbaume,  E.  Rep.  96;  Frost  v.  Walker,  60  Me. 

30  111.  610;    Board  of  Education  v.  468;  Batty  v.  Adams  Co.,  16  Neb.  44. 
Bakewell,  122  111.  339. 


20  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  20 

acting  under  articles  of  association  for  the  purpose  of  carry- 
ing on  a  particular  business,  and  having  a  capital  stock  di- 
vided into  shares  transferable  at  the  pleasure  of  the  holder."1 
The  shares  are  transferable  without  the  consent  of  the  other 
members.2  Such  bodies  are  created  by  contract  and  do  not 
require  authority  from  the  state,  although  in  many  states 
there  are  statutory  provisions  for  their  organization.3  The 
creation  of  a  corporation  "merges  in  the  artificial  body  and 
drowns  in  it  the  individual  rights  and  liabilities  of  the  mem- 
bers, while  the  organization  of  a  joint  stock  company  leaves 
the  individual  rights  and  liabilities  unimpaired  and  in  full 
force."4  A  joint  stock  company  is  generally  sued  as  a  part- 
nership; and  in  the  absence  of  statutory  exemptions,  each 
member  is  liable  for  all  the  debts  of  the  company  after  the 
joint  property  is  exhausted.5 

1  Att'y-Gen.  v.  Mercantile,  etc.,  Ins.  Cases  (Stock  Exchange) ;  Skillman  v. 

Co.,  121  Mass.  524;  Edwards  v.  War-  Lockman,  23  Cal.  198,  Wilgus'  Cases 

ren  L.  W.  Co.,  168  Mass.  564,  38  L.  R.  (Cost  Book  Mining  Company). 

A.    791,    Wilgus'     Cases.     For    short  2  Burnes  v.  Pennell,  2  H.  of  L.  Cas. 

sketch  of  history  of  joint  stock  com-  520;  Willis  v.  Chapman,  68  Vt.  459, 

panies   see  Van  Sandan  v.  Moore,  1  35  Atl.  Rep.  459. 

Russ.  Ch.  441.     See  also  Gleason  v.  3 People  v.  Coleman,  133  N.  Y.  279. 

McKay,  134  Mass.  419,  Wilgus'  Cases;  4  People  v.  Coleman,  133  N.  Y.  279. 

Lewis  v.  Tilton,  64  Iowa  220,  52  Am.  5Taft  v.  Ward,  106  Mass.  518;  Frost 

R.  436,  Wilgus'  Cases  (Unincorporated  v.  Walker,  60  Me.  468;  Butterrield  v. 

Association);    Belton  v.  Hatch,   109  Beardsley,  28  Mich.  412. 
N.  Y.  593,  4  Am.  St.  R.  495,  Wilgus' 


CHAPTER  2. 

THE   CREATION,  ORGANIZATION,  AND    CITIZENSHIP  OP 
CORPORATIONS. 


/.    The  Creation  and  Organization.  § 

§  21.   In  general. 

22.  By  what  authority. 

23.  Essentials  of  legal  incorporation. 

24.  Agreement  between  incorpora- 

tors. 

25.  Acceptance  of  the  grant. 

26.  Delegation  of  power  to  charter     ? 

corporations. 

27.  Delegation  of  ministerial  duties. 

28.  Power  of  congress  to  create  cor- 

porations. 

29.  Ratification    of   claim  of  corpo- 

rate franchise. 

30.  Corporations  by  prescription. 

31.  Creation  by  implication. 

32.  Methods  of  legislative  action. 

33.  Constitutional  limitations. 

34.  By  consolidation. 

//.    Organization  wider  General  Incor- 
poration Laws. 
\  36.   In  general. 

36.  General  requirements. 

37.  Purposes  for  which  corporations 

may  be  organized. 

38.  Substantial      compliance     with 

statutory  requirements. 

39.  Illustrations. 

40.  Conditions  precedent  to  organi- 

zation of  corporation  de  jure.       § 

41.  Articles  of  incorporation — Con- 

tents. 

42.  Filing  and  publication  of   arti- 

cles. 

43.  Subscriptions  for  capital  stock  as 

a  condition  precedent. 

44.  Date  of  incorporation. 

45.  Who  may  be  incorporators. 

(21) 


46.  Number  of  incorporators. 

47.  The  corporate  name. 

48.  Protection  of  corporate  name. 

49.  Proof  of  incorporation— In  direct 

proceedings. 

50.  In  collateral  proceedings. 

III.  Promoters  of  Corporations. 

51.  Who  are  promoters. 

52.  Fiduciary  position  of  promoters. 

53.  Secret  profits. 

54.  Owners  of  property  as  promoters. 

55.  Personal  liability  of  promoters 

on  contracts. 

56.  Liability  to  subscribers  whose 

subscriptions  are  obtained  by 
fraud. 

57.  Fraudulent  prospectus. 

58.  Liability  of  corporation  on  con- 

tracts made  by  promoters. 

59.  Adoption  of  contract  by  corpora- 

tion. 

60.  Acceptance  of  benefits  under  the 

contract. 

61.  Limited  to  obligations  of  the  ac- 

cepted contract. 

62.  The  expenses  and    services  of 

promoters. 

IV.  Corporations  as  Persons  and 

Citizens. 

63.  The  citizenship  of  a  corporation. 

64.  Incorporation  in  several  states. 

65.  Citizenship     within    the    four- 

teenth amendment. 

66.  A  corporation   as   an   "inhabi- 

tant "  of  a  state. 

67.  Place    of    doing    business — Li- 

cense— Effect  on   citizenship. 

68.  A  corporation  as  a  person. 


22  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  21 

/.      The  Creation  and  Organization. 

§  21.  In  general. — Individuals  can  not  as  a  matter  of  right 
assume  the  powers  and  privileges  of  a  corporation.  These 
artificial  bodies  are  created,  not  by  the  will  of  natural  persons, 
but  by  the  exercise  of  the  sovereign  power  of  the  state,  which 
thus  confers  upon  certain  designated  persons  the  franchise  of 
doing  what  they  have  no  right  to  do  without  such  special 
authority.  This  privilege  of  conferring  special  powers  and 
rights  upon  favored  individuals  was  formerly  considered  the 
''fairest  flower  of  the  prerogative." 

§  22.  By  what  authority. — The  consent  of  the  sovereign  is 
therefore  necessary  to  a  legal  incorporation.  In  England  it 
was  the  privilege  of  the  king  to  create  corporations;  but  they 
are  now  usually  organized  under  the  authority  of  acts  of  par- 
liament. In  the  United  States  and  the  several  states  of  the 
Union  the  legislative  department  only  can  create  or  authorize 
the  creation  of  corporations;  but  this  power  is  sometimes,  un- 
der proper  constitutional  authority,  delegated  to  the  courts. 

§  23.  Essentials  of  legal  incorporation. — In  order  that  there 
may  be  a  legal  incorporation,  there  must  be  a  legislative  grant 
of  authority,  an  agreement  between  the  incorporators,  and  an 
acceptance  of  the  grant.  The  necessity  for  legislative  author- 
ity has  been  already  referred  to. 

§  24.  Agreement  between  incorporators. — It  is  necessary 
that  there  should  be  a  contractual  relation  between  the  parties 
forming  the  corporation.1  This  agreement  may  be  entered  into 
in  various  ways,  and  may  be  implied  from  the  acts  of  the  par- 
i].  -.  No  particular  form  is  necessary,  unless  prescribed  by 
charter  or  statute.  The  acceptance  of  the  charter  or  a  subscrip- 
tion for  shares  is  ordinarily  sufficient  evidence  of  an  agreement 
to  form  a  corporation  according  to  the  terms  of  the  charter.2 

»Green  v.  Knife  Falls  Boom  Co.,  35  and     Mr.    Morawetz's    views.      .Mr. 

Mi.,.,.  I:-".,  Wilgus'  Cases.  Beach, Private  Corporations,  § 23,  and 

1  Morawetz  Priv.  Corp.,  I,  §§  24,  25;  the  inference  Erom  Story's  opinion  in 

Laurnan  v.  Lebanon  Valley  R.  Co.,  30  the    Dartmouth  College  Case,  would 

;•      Mr.  Clark,  Private  Cor-  lead  to  the  conclusion  thai  there  is  a 

tjons,  §§27  and  86,  taking  issue  contract  between  the  members  and  the 

,,,,  tin   point,  aaj  -  the  contracl  is  only  corporation,  and  among  the  members 

,,•11  the  subscriber  and  the  cor-  themselves, 
poral  ion,  and  criticises  M  r.  Taylor's 


§  25  CREATION,   ORGANIZATION    AND    CITIZENSHIP.  23 

§  25.  Acceptance  of  the  grant. — The  charter  of  a  corpora- 
tion is  merely  an  enabling  act  which  must  be  accepted  by  the 
grantees  before  any  rights  can  be  claimed  under  it.  If  not 
accepted  within  a  reasonable  time,  its  legal  effect  expires.1 
Like  all  offers,  it  may  be  withdrawn  at  anytime  before  accept- 
ance.2 The  acceptance  can  be  by  those  only  to  whom  the  offer 
was  made,3  and  must  be  as  a  whole,  and  unconditional,  unless  it 
appears  that  it  was  the  legislative  intent  that  it  may  be  accepted 
in  part  and  rejected  in  part.4  The  acceptance  must  be  by  the  cor- 
porators in  their  constituent  capacity,  and  the  act  of  acceptance 
must  be  done  within  the  borders  of  the  state.5  No  particular 
formalities  are  necessary  in  order  to  constitute  an  acceptance  of 
a  charter,  and  if  no  conditions  are  attached  to  a  grant,  user 
sufficient  to  show  an  intention  to  accept  is  "sufficient.6  The 
question  of  acceptance  is  one  of  fact  for  the  jury.7 

§  26.  Delegation  of  power  to  charter  corporations. — Par- 
liament being  free  from  any  constitutional  limitations,  and 
absolute  in  its  legislative  authority,  may  license  another  to 
grant  corporate  franchises.  But  in  the  United  States,  where 
the  legislature  itself  exercises  delegated  power,  the  principle 
delegata  potestas  non  potest  delegare  applies.  Hence,  a  general 
power  to  confer  corporate  franchises  can  not  be  delegated  by 
the  legislature  of  the  state  to  any  other  body.8 

§  27.  Delegation  of  ministerial  duties. — The  principle  of 
the  preceding  section  does  not  prevent  the  delegation  of  minis- 
terial duties.     Thus  the  legislature  may  properly  provide  that 

1  State  v.  Dawson,  16  Ind.  40;  State  R.  Co.  v.  Smith,  47  Me.  34.  Accept- 
v.  Bull,  16  Conn.  179;  Smith  v.  Silver,  ance  by  a  majority  of  members,  see 
etc.,  Co.,  64  Md.  85,  54  Am.  Rep.  760;  St.  Paul  Div.  v.  Brown,  11  Minn.  356, 
Qninlin  v.  Houston,  etc.,  R.  Co.,  89  Gil.  254;  Jackson  v.  Walsh,  75  Md. 
Tex.  356.  304,  23  Atl.  Rep.  778. 

2  Lincoln    Bank    v.   Richardson,   1  7  Hammond  v.  Straus,  53  Md.  1. 
Greenl.  79,  10  Am.  Dec.  34.  8  Cooley  Const.  Lim.  141 ;  Thorne  v. 

3  Rex  v.  Amery,  1  T.  R.  575.  Cramer,  15  Barb.  (N.  Y.)  112.      See 
4 Rex  v.  Westwood,  2  Dow.  &  Clark    Thomas  v.  Dakin,  22  Wend.  (N.  Y.) 

21;  Lvons  v.  Orange,  etc.,  R.  Co.,  32  110,  Wilgus'  Cases.     But  see  6  Am.  & 

Md.  18.  Eng.  Enc.  of  Law,  2d  ed.,  p.  1021,  con- 

5  Miller  v.  Ewer,  27  Me.  509.  cerning  delegation  of  legislative  func- 

6  State  v.  Sibley,  25  Minn.  387;  tions.  Also  delegation  to  territorial 
Miss.  &  R.  R.  B.Co.  v.  Prince,  34  legislatures.  Riddick  v.  Amelin,  1 
Minn.  79;  Louisville  Tr.  Co.  v.  L.,  Mo.  5,  Wilgus' Cases,  and  delegation 
etc.,  R.  Co.,  75  Fed.  Rep.  433;  Bank  to  Regents  of  University  of  New  York, 
v.  Lyman,  20  Vt.  666;    Bangor,  etc., 


24  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  28 

some  designated  officer  shall  issue  a  certificate  to  the  effect  that 
the  incorporators  have  complied  with  certain  statutory  require- 
ments before  the  incorporation  shall  take  effect.1  With  refer- 
ence to  such  a  statute  the  court  said:2  "The  act  rests  upon  the 
legislative  will,  and  in  no  way  depends  for  its  vitality  upon  the 
action  of  the  commissioners.  *  *  *  The  commissioners  perform 
no  legislative  act;  they  enact  no  laws;  they  simply  perform  ad- 
ministrative acts  in  carrying  the  law  into  effect  and  applying 
it." 

Hence,  in  the  absence  of  an  authorizing  provision  in  the 
constitution,  the  legislature  can  not  delegate  to  a  court  the 
power  to  create  corporations.  But  a  distinction  is  made  be- 
tween creating  and  organizing,  and  even  in  the  absence  of  such 
a  provision  the  legislature  may  provide  that  the  courts  shall 
supervise  the  organizing  of  incorporations  under  the  provis- 
ions of  a  general  incorporation  act.  In  such  cases  the  court 
determines  whether  the  incorporators  have  complied  with  the 
law,  and  when  they  have  done  so,  issues  its  certificate  or  char- 
ter to  that  effect.3 

§  28.  Power  of  congress  to  create  corporations, — The  con- 
gress of  the  United  States  may  create  a  corporation  when  such 
a  body  is  an  appropriate  means  for  carrying  into  execution  any 
of  the  express  or  implied  powers  of  the  national  government. 
But  it  is  as  a  means  and  not  as  an  end  that  congress  may  cre- 
ate corporations.4  Thus  the  national  legislature  has  in  the  ex- 
ercise of  this  power  created  national  banking    corporations-,6 

1  Franklin  Bridge  Co.  v.  "Wood,  ll  olutions  in  the  constitutional  conven- 
Ga.  80;  People  v.  Nelson,  46  N.  Y.  tion,  enumerating  the  power  to  create 
■177.  corporations    among    the     powers    of 

2  In  re  N«'\v  York,  etc.,  R.  Co.,  70  congress.  They  were  referred  to  a 
N.  Y.  327.  committee  and  never  reappeared.  Mad- 

"Franklin   Bridge  <'o.  v.  Wood,  14    ison's  Journal  of  Debates  (Scott's  ed.), 

80.  |>.  549.     See  also  p.  726,  where  the  ob- 

•McCulloch  v.  Maryland,   I  Wheat,  jeetions  to  such  a  grant  are  stated  by 

316;  story  Const. Sec.  1266 ;  Hare,  Am,  King. 

Const.Law,  5§  98,  105,  111,249,  L310.       "McCulloch  v.  Maryland,  I  Wheat. 

Sec- an  article  on  "National  Corpora-  816;  Osborne  v.  CTnited  states  Bank, 

tions"  in   21  Cent.   L.J.   128.      Both  9  Wheat.  738;  Jattliardv.  Greenman, 

Madison  and  Pinekney  introduced  res-  L10U.  S.  421,  'il">.     For  the  act  creat- 


§28 


CKEATION,  ORGANIZATION    AND    CITIZENSHIP. 


25 


savings  banks;  institutions  of  learning;  religious,  benevolent 
and  educational  societies;  manufacturing,  agricultural,  me- 
chanical, insurance,  transportation,  railroad,  market,  and  cem- 
etery corporations;  and  boards  of  trade  within  the  District  of 
Columbia,1  and  railway  corporations  operating  lines  extending 
into  two  or  more  states.2  Congress  has  also  created  corpora- 
tions for  building  a  Nicaragua  Canal,3  and  also  passed  a  gen- 
eral law  providing  for  the  formation  of  national  trades-union 
organizations,  with  branches  in  the  states.4 


ing  the  present  national  banking  sys- 
tem, see  12  U.  S.  Statutes  at  Large,  665. 

1  Compiled  Statutes  of  Dist.  of  Col- 
umbia, ch.  15;  Hadley  v.  Freedman's 
Saving,  etc.,  Co.,  2Tenn.  Ch.  122; 
Williams  v.  Creswell,  51  Mass.  817; 
Daily  v.  National,  etc.,  Co.,  64  Ind.  1. 

2  California  v.  Central  Pac.  R.  Co., 
127  U.  S.  1,  39;  Union  Pac.  R.  Co.  v. 
Hall,  3  Dill.  (C.  C.)  515,  s.  c.  91  U.  S. 
343.  In  Luxton  v.  North  River  Bridge 
Co.,  153  U.  S.  525,  the  supreme  court 
of  the  United  States  said :  "The  con- 
gress of  the  United  States,  being  em- 
powered by  the  constitution  to  regu- 
late commerce  among  the  several 
states,  and  to  pass  all  laws  necessary 
or  proper  for  carrying  into  execution 
any  of  the  powers  specifically  confer- 
red, may  make  use  of  any  appropriate 
means  for  this  end.  As  said  by  Chief 
Justice  Marshal],  'The  power  of  creat- 
ing a  corporation,  though  appertain- 
ing to  sovereignty,  is  not,  like  the 
power  of  making  war,  or  levying  taxes, 
or  of  regulating  commerce,  a  great 
substantive  and  independent  power, 
which  can  not  be  implied  as  incidental 
to  other  powers,  or  used  as  a  means 
of  executing  them.  It  is  never  the 
end  for  which  other  powers  are  exer- 
cised but  a  means  by  which  other  ob- 
jects are  accomplished.'  Congress, 
therefore,  may  create  corporations  as 
appropriate  means  of  executing  the 
powers  of  government,  as,  for  instance, 
a  bank  for  the  purpose  of  carrying  on. 
the  fiscal  operations  of  the  United 
States,  or  a  railroad  corporation  for 
the  purpose  of  promoting  commerce 
among  the  states.  McCulloch  v.  Mary- 
land, 4  Wheat.  316,  411,  422;  Osborn 
v.  Bank  of  United  States,  9  Wheat. 


738,  861,  873;  Union  Pac.  R.  Co.  v. 
Myers  ('Pacific  R.  Removal  Cases'), 
115  U.  S.  1,  18;  California  v.  Pac.  R. 
Co.,  127  U.  S.  1,  39.  Congress  has 
likewise  the  power,  exercised  early 
in  this  century  by  successive  acts  in 
the  case  of  the  Cumberland  or  National 
Road  from  the  Potomac  across  the  Al- 
leghenies  to  the  Ohio,  to  authorize  the 
construction  of  a  public  highway  con- 
necting several  states.  See  Indiana  v. 
United  States,  148  U.  S.  148.  And 
whenever  it  becomes  necessary  for  the 
accomplishment  of  any  object  within 
the  authority  of  congress,  to  exercise 
the  right  of  eminent  domain  and  take 
private  lands,  making  just  compensa- 
tion to  the  owners,  congress  may  do 
this  with  or  without  a  concurrent  act 
of  the  state  in  which  the  lands  lie. 
Van  Brocklin  v.  Tennessee,  117  U.  S. 
151,  154,  and  cases  cited;  Cherokee 
Nation  v.  Kansas  R.  Co.,  135  U.  S. 
641,  656.  From  these  premises  the 
conclusion  appears  to  be  inevitable 
that,  although  congress  may,  if  it  see 
fit,  and  as  it  has  often  done,  recognize 
and  approve  bridges  erected  by  au- 
thority of  two  states  across  navigable 
waters  between  them,  it  may,  at  its 
discretion,  use  its  sovereign  powers, 
directly  or  through  a  corporation  cre- 
ated for  that  object,  to  construct 
bridges  for  the  accommodation  of  in- 
terstate commerce  by  land,  as  it  un- 
doubtedly may  to  improve  the  naviga- 
tion of  rivers  for  the  convenience  of 
interstate  commerce  bv  water.  1  Hare, 
Const.  Law,  248,  249.'"' 

3  25  U.  S.  Stats.  673. 

4  49  Cong.,  1st  Sess.,  ch.  567  (1886); 
1  Supp.  R.  S.  498. 


26  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  29 

§  29.     Ratification  of   claim  of   corporate  franchise. — Any 

act  of  the  legislature  which  indicates  an  intention  to  recognize 
the  existence  of  a  corporation  will  amount  to  a  ratification  of. 
a  claim  of  corporate  existence.  The  legislature  may  ratify 
when  it  may  create  or  authorize.  Thus  a  statute  annexing 
other  territory  "to  the  town  of  A,"  by  implication  makes  it 
a  town,  if  it  was  not  one  before,1  but  "  no  greater  effect  can  be 
attributed  to  a  statute  than  appears  to  have  been  intended  by 
the  legislature  enacting  it."2  Such  a  ratification  not  only 
legalizes  the  existence  of  a  corporation,  but  cures  the  illegality 
of  corporate  acts  done  before  the  act  of  ratification  was  passed.3 

§  30.  Corporations  by  prescription. — A  corporation  is  said 
to  exist  by  prescription  if  its  commencement  can  not  be  shown, 
and  the  grant  of  a  charter  is  presumed  from  long  continued 
use  of  the  corporate  franchise.  This  is  the  doctrine  in  the 
United  States  as  regards  public  corporations,4  and  the  same 
principles  have  been  held  to  apply  to  private  corporations,5 
although  the  rule  is  that  where  there  are  general  incorpora- 
tion laws  enacted  under  constitutions  prohibiting  the  creation 
of  any  corporation,  except  municipal  by  a  special  act,  there 
can  be  no  private  corporations  by  prescription  (which  is  a 
tacit  sovereign  recognition),  nor  even  by  express  legislative 
recognition.  In  other  words,  where  the  claim  of  corporate 
existence  and  right  to  exercise  a  corporate  franchise  is  called 
in  question  by  the  proper  proceedings,  nothing  less  than  proof 
of  substantial  compliance  with  statutory  provisions  will  sup- 
port the  claim.6 

§  .'51 .    Creation  by  implication, — No  particular  form  of  words 

is  essenl  i.*il  <<>  authorize  the  creation  of  a  corporation,  and  the  leg- 

islative  intenl  may  be  inferred  from  general  and  inexact  terms.7 

1  Bow  v.   Allentown,  ::i  N.  II.  351.  4  Jameson    v.    People,    Hi    111.    257; 

power  of  ratification  in  general,  People  v.  RIaynard,  L5  Mich.  463. 

Katze ii herder    v.    Aberdeen,    1  li  1  5  Rose    1 1  ill,  etc.  j  Co.  V.  People,    115 

i     -    172.  111.  183;    Green   v.  Dennis,  6  Conn. 

1  Thornton  v.  Marginal,  etc.,  Co.,  123  298;  Robiev.  Sedgwick,  35  Barb.319; 

32.  While  v.  State,  69  [nd.  iiT.*>. 

1  Basshor  v.   Dree  el,  B4    Md.  ■•^'■'<;  'People  v.  Cheeseman,  7  Colo.  S76; 

Grand  Trunk   !.'.  Co.  v.  Cook,  29  III.  People  v.  Stanford,  77  Cal.  360. 

287;  8t.  Louis  R.  Co.  v.  N.  W.  R.  Co.,  76'Leary   v.    Hoard   of  Com'rs,  79 

2   Mo.  App.  69;    state,  v.  Steele,  ;;z  Mich.  281,  19  Am.  St.  Rep.  169. 

Minn 


§  32  CREATION,   ORGANIZATION    AND    CITIZENSHIP.  27 

"Any  expression  showing  an  intent  on  the  part  of  the  legisla- 
ture to  confer  the  right  to  exercise  corporate  power  is  sufficient, 
and  this  intention  may  be  deduced  from  the  wiiole  of  the  leg- 
islative act."1  The  question  whether  an  aggregation  of  indi- 
viduals is  a  corporation  is  to  be  determined  rather  by  faculties 
and  powers  conferred  upon  it  than  by  the  name  or  description 
given  to  it.2  Thus,  when  powers  are  granted  which  can  not  be 
exercised  or  enjoyed  without  corporate  existence,  the  further 
right  to  be  a  corporation  will  be  implied,  although  the  statute 
granting  the  powers  expressly  declares  that  the  grantee  of  the 
power  or  franchise  shall  not  be  deemed  a  corporation.3  So,  if 
powers  and  privileges  are  conferred  upon  the  inhabitants  of  a 
certain  district,  or  territorial  area,  and  if  they  can  not  be  en- 
joyed or  exercised,  and  the  purposes  intended  can  not  be 
attained  without  acting  in  a  corporate  capacity,  an  incorpora- 
tion to  this  extent  is  created  by  implication,  and  the  intent  of 
the  legislature  can  be  shown  constructively  as  wrell  as  ex- 
pressly. 

§  32.  Methods  of  legislative  action. — Until  within  recent 
years  all  corporations  were  created  by  special  legislation,  but 
such  legislation  is  now  generally  forbidden  by  constitutional 
provisions.4     By   a   federal   statute   territorial   legislatures  are 

'McAttley  v.   R.   Co.,   83   111.   348;  cases  when  a  general  law  can  be  made 

Mead  v.  Ry.  Co.,  45  Conn.  199;  Andes  applicable,  no  special    law  shall    be 

v.  Ely,  158  U.  S.  312;  Dean  v.  Davis,  enacted;  and  whether  a  general  law 

51  Cal.  406.  could  have  been  made  applicable  in 

2Edgeworth  v.  Wood,  58  N.  J.  S.  463.  any  case  is  hereby  declared  a  judicial 

'Liverpool,  etc.,  Ins.  Co.  v.  Mass.,  question,  and  as  such  shall  be  judi- 
10  Wall.  566,  s.  c.  100  Mass.  531 ;  cially  determined  without  regard  to 
Thomas  v.  Dakin,  22  Wend.  108;  any  legislative  assertion  on  that  sub- 
Dunn  v.  University  of  Oregon,  9  Ore.  ject.  The  legislature  shall  pass  no  lo- 
co?, Wilgus'  Cases.  cal  or  special  law  regulating  the  af- 

4Stimson    Am.  Stat.  Law   I,  §  441 ;  fairs  of  or  incorporating,  erecting  or 

Binney's  Restrictions  on  Special  Leg-  changing  the  lines  of  any  county,  city, 

islation;     Elliott    Pub.  Corp.,   ch.  4.  village,  township,  ward  or  school  dis- 

Thus  the  Const,  of  Minn.,  art.  10,  §  2,  trict,     *     *     *    granting  to  any  cor- 

provided  that  "  no  corporations  shall  poration,  association  or  individual  any 

be  formed  under  special  acts  except  special  or  exclusive  privilege,    *    *    * 

for  municipal  purposes."     In  1892  an  or  franchise  whatever.     *     *     *     The 

amendment    to  the   consitution    was  legislature  may  repeal    any  existing 

adopted  which  provides  that  "  in  all  special  or  local    law,   but  shall    not 


28  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  33 

prohibited  from  granting  private  charters.1  The  language  of 
these  provisions  varies  and  many  of  them  apply  to  certain 
kinds  or  classes  of  corporations  only,  but  the  tendency  of  mod- 
ern legislation  is  toward  restricting  the  field  of  special  legis- 
lation. 

§  33.  Constitutional  limitations. — It  is  extremely  difficult 
to  determine  just  what  power  the  legislature  can  exercise  over 
corporations  by  special  act  without  violating  a  constitutional 
provision  forbidding  the  creation  of  corporations  by  special 
acts.2  It  certainly  is  not  deprived  of  the  power  to  regulate  by 
the  prohibition  of  the  power  to  create,3  as  it  is  one  thing  to 
create  or  bring  into  being  a  corporation,  and  quite  another  to 
deal  with  it  as  an  existing  entity.4  The  provision  of  the  con- 
stitution of  Minnesota  which  forbade  the  formation  of  corpora- 
tions by  special  act  was  held  not  to  prevent  the  legislature 
from  extending  the  duration  of  a  corporate  franchise  previ- 
ously granted  to  a  railroad  company  for  a  limited  time;5  nor 
from  authorizing  the  change  of  a  corporation  originally  organ- 
ized as  a  mutual  insurance  company  into  a  stock  company.6 
In  other  states,  however,  it  is  held  that  when  the  legislature 
"can  not  pass  any  special  act  for  the  incorporation  of  cities 
and  towns,  it  is  prohibited  from  passing  any  act  having  for 
its  object  the  amendment  of  such  act,"7  and  the  present  con- 
stitution of  Minnesota  provides  that  while  the  legislature  may 
repeal  existing  special  or  local  laws,  it  shall  not  amend,  ex- 
tend or  modify  any  of  the  same.8     "A  prohibition  from  creat- 

amend,  extend  or  modify  any  of  the  6Cotton  v.  Miss.,  etc.,  Co.,  22  Minn. 

same."      Laws  of   L893,   p.   3.     This  372. 

amendmenl    is  construed    in    Board,  GSt.  Paul,  eu-.,  Ins.  Co.  v.  Allis,  24 

etc.,  v.  Cooley  (Minn.), 68 N.  W.  Rep.  Minn.  75. 

150  "Townof  McGregor  v.   Baylies,  19 

T.  s.  Rev.  Stat.,  §  L889.    Bee  Carver  Eowa43;  Ex  parte  Pritz,9  towa30;San 

Mercantili  Co.  v.  Hulme,7  Mont.566.  Francisco  v.  Spring Valley,48Cal.  193. 

liottPub.Corp.,ch.4,  andau-  "Amend,   of    L892.      In    Minnesota, 

tborities  cited.  prior  to  the  constitutional  amendmenl 

•Attorney-General  v.  North  Ameri-  of   issi,    the    existing   constitutional 

can  I     .Co.,  82  N.  V.  L72,  L83.  provision  had  been   practically  nulli- 

mtheni  Pac.  R.  Co.  v.   Orton,  32  fled   by  judicial  construction.     Many 

Fed,  Rep.  167,  Wilgu     *  of  the  great  railroad  corporations  of 


§34 


CREATION,   ORGANIZATION    AND    CITIZENSHIP. 


29 


ing  corporations  by  special  act,"  says  Morawetz,1  ''undoubt- 
edly does  not,  in  terms,  prohibit  the  legislature  from  passing 
a  special  law  altering  the  charter  of  an  existing  corporation. 
But  it  is  plain  that  a  constitutional  provision  can  not  be 
avoided  and  practically  annulled  by  a  subterfuge.  A  special 
law  altering  the  charter  of  an  existing  corporation  and  prac- 
tically changing  it  must,  therefore,  be  deemed  in  violation  of 
a  constitutional  prohibition  against  the  creation  of  corpora- 
tions by  special  act." 

§  34.    By  consolidation. — The  legislature  may  provide  for 
the  creation  of  a  corporation  by  the  consolidation  of  existing 


the  state  were  organized  prior  to  the 
adoption  of  the  constitution  under  ter- 
ritorial charters.  See  Edgerton's  Rail- 
road Laws.  In  1861  the  present  St. 
Paul  &  Duluth  Railway  was  organized 
under  one  of  these  territorial  charters 
by  striking  out  the  directors  named  in 
the  act  and  inserting  others,  by  chang- 
ing the  route  of  the  road  therein 
named  and  various  other  important 
amendments.  The  question  of  the  va- 
lidity of  this  legislation  was  submitted 
to  the  attorney-general,  who  rendered 
an  opinion  adverse  to  its  validity.  Opin- 
ions of  attorney-general  (2d  ed.),  190. 
The  question  then  came  before  the 
supreme  court,  which  decided  it  in  the 
same  way,  but  the  membership  of  the 
court  having  changed,  upon  reargu- 
ment,  the  act  was  upheld,  largely  upon 
the  ground  that  a  practical  construction 
had  been  placed  upon  the  act,  which 
had  been  acquiesced  in  by  the  legis- 
lature and  the  people,  and  that  private 
and  public  interests  of  great  magni- 
tude, which  had  grown  up  on  the 
faith  of  that  construction,  would  be 
impaired  by  an  adverse  decision. 
Ames  v.  Lake  Superior,  etc.,  R.  Co., 
21  Minn.  241;  Cotton  v.  Miss.,  etc., 
Co.,  22  Minn.  372;  Cent.  R.  Co.  v. 
Clark,  23  Minn.  422;  St.  Paul,  etc., Ins. 
Co.  v.  Allis,  24  Minn.  75.  These  were 
all    cases    of    amendments    of    terri- 


torial charters,  and  the  question 
whether  a  corporation  could  be  organ- 
ized under  the  general  laws  of  the 
state  and  then  receive  by  special  grant 
distinct  corporate  franchises, remained 
open  until  1886,  when  it  came  before 
the  court  in  the  case  of  Green  v.  Knife 
River  Falls  Boom  Corp., 35  Minn.  155, 
A  corporation  had  been  organized  un- 
der the  general  laws  to  build  and 
maintain  booms  in  the  St.  Louis  river, 
after  which  a  special  act  was  passed, 
which  conferred  upon  it  the  right  to 
exercise  the  power  of  eminent  domain 
by  condemning  lands  which  were 
flowed  by  its  dams,  or  taken  for  its 
use,  to  take  tolls,  and  to  obstruct  navi- 
gable parts  of  the  river.  The  court  fol- 
lowed Ames  v.  Lake  Superior,  etc.,  R. 
Co.,  21  Minn.  241,  and  said :  "This  con- 
stitutional provision  was  open  to  con- 
struction, and  during  a  long  course  of 
legislation  the  practical  construction 
placed  upon  it  by  the  legislature  and 
people  has  been  a  liberal  one  with  re- 
spect to  amendments,  and  the  court 
would  be  very  slow  to  change  it  at  this 
late  day." 

^riv.  Corp.  I,  §  10.  An  act  changing 
the  name  of  a  corporation  is  not  the 
grant  of  a  private  charter  or  a  special 
privilege.  Wells,  Fargo  &  Co.  v.  Ore- 
gon R.  Co.,  8  Sawy.  (C.  C.)  601. 


30 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§34 


corporations.1  The  word  consolidation  is  used  somewhat 
loosely,  but  commonly  describes  the  union  of  the  stock,  prop- 
erty or  franchises  of  two  or  more  corporations  by  which  their 
affairs  are  permanently,  or  for  a  long  period  of  time,  placed 
under  one  management.  The  English  decisions  use  the  word 
amalgamation  to  express  the  idea  of  the  fusion  of  two  or  more 
corporations  into  a  new  one,  as  well  as  the  merger  of  one  cor- 
poration into  another.  The  American  decisions  use  the  word 
consolidation  to  express  what  the  English  call  a  true  amalga- 
mation.2 Legislative  consent  is  necessary  to  a  legal  consolida- 
tion ;3  and  an  attempt  to  consolidate  without  authority  is  a 
ground  for  forfeiting  the  corporate  charter.  Every  consolida- 
tion does  not  result  in  the  creation  of  a  new  corporation,4  al- 
though the  general  rule  is  that  consolidation  works  a  dissolu- 
tion of  the  previously  existing  corporations,  and  the  creation 
of  a  new  corporation  with  property,  liabilities  and  stockholders 
derived  from  those  which  pass  out  of  existence.8 

1  Adams  v.  Yazoo,  etc.,  R.  Co.,  24  So.  by  the  nature  of  the  union  and  the 
Rep.  (Miss.),  317.  "The  fact  that  it  is  legislative  intent.  See  Farnum  v. 
formed  out  of  old,  defunct  corporations  Blackstone,  etc.,  Corps.,  1  Sum.  C. 
does  not  make  it  any  the  less  a  corpo-  C.  46;  United  States  v.  Southern,  etc, 
ration  created  by  the  legislature.  It  R.  Co.,  45  Fed.  Rep.  596;  John  llan- 
is  not  the  material  out  of  which  it  is  cock,  M.  L.  I.  Co.  V.Worcester,  etc.,  R. 
formed,  but  the  plastic  hand  which  Co.,  149  Mass.  214;  Day  v.  Worcester, 
formed  it,  that  we  are  to  look  to  for  its  etc.,  R.  Co.,  1 
Character  and  status  under  the  ('(insti- 
tution." Shields  v.  State,  26  Ohio  St. 
86.     As  to  consolidation   of    parallel 

and  i peting  railway   corporations, 

see  Pearsall  v.  Great  Northern  R.  Co., 
161  I'.  S.  646. 

•Dougan's  case,  28  L.  Times  N.  S. 

60.     As  to  meaning  of  amalgamation, 

Empire,  etc.,  Co.   v.  Ex  parte  Bag- 

.•  .  I..  I;.    I   Eq.  341;  Wall  v.  Lon 


Consol.  of  Corp.,  p.  184,  et  seq.  The 
mere  purchase  of  one  corporation  by 
another  does  not  consolidate  the  cor- 
porations. Gulf,  etc.,  R.  Co.  v.  New- 
ell, 7:;  Tex.  334,  15  Am.  St.  R.  788. 

BPullman,  etc.,  Co.  V.  Mo.,  etc.,  K. 
Co.,  115  U.  S.  587;  Gray  v.  National 
Steamship  Co.,  115  U.  S.  L16;  McMa- 
|,m,i  v.  Morrison,  111  Ind.  172,  7<>  Am. 
Dec.  IIS;  People  v.  New  York,  etc., 
don,' etc.,  Corp"  67  L.J.  R.  (Oh!  D.)    R.  Co.,  15  N.  Y.  Bupp.  635;  People  v. 


596    L898). 

authorizing  consolidation  are 

ol  incoi  point  ion.    ( ►hio,  etc.,  R. 

Co.   v.    People,    123    III.   467.     As  to 

er  of  the  legislature  to  authorize 

consolidation,  see  Botts  v.  Simpkins- 

rille,etc.,Co.,88  Kj  .54,2  L.  R.  L694 


Cook,  110  N.  Y.  443,  111  N.  Y.  688; 
Fitzgerald  v.  Mo.,  etc.,  R.  Co.,  15  Fed. 
Rep.  812.  Sec  Ewing  v.  Composite, 
etc.,  Co.,  169  Mass.  72.  The  m\\  cor- 
poration may  be  foreign  although  the 
old  one  was  domestic.  Ohio,  etc.,  R. 
C,,.  v.  People.   L23  HI.   167.     Iii   Kan- 


Mi  ie  a  question   to  be  determined    sas,  etc.,  R.  Co.  v.  Smith,  40  Kan.  192, 


§  35  CREATION,   ORGANIZATION    AND    CITIZENSHIP.  31 

The  procedure  for  consolidation  is  prescribed  by  the  statute, 
and,  as  in  all  proceedings  to  create  a  corporation,  the  provis- 
ions which  the  statute  makes  conditions  precedent  must  be 
substantially  complied  with  before  a  de  jure  corporation  is 
created.1  The  consolidation  sometimes  takes  the  form  of  a 
lease2  or  the  purchase  by  one  corporation  of  the  shares  of  an- 
other.3 But  whatever  its  form,  it  must  be  under  legislative 
authority  of  such  a  character  as  to  authorize  the  creation  of  a 
new  corporation.4 

II.    Organization   Under  General  Incorporation  Laws. 

§  35.  In  general. — The  franchise  of  being  a  corporation  was 
originally  granted  by  the  legislature  as  a  favor  to  the  incorpo- 
rators, but  the  policy  of  the  state  now  is  to  encourage  incorpo- 
ration. In  almost  all  the  states  there  are  general  incorporation 
laws  under  which  parties  may  freely  become  incorporated  by 
complying  with  the  requirements  of  the  statute.5 

§  36.  General  requirements.6 — These  general  statutes  vary 
in  detail,  but  usually  provide  that  the  persons  purporting  to 
form  the  corporation,  not  less  than  a  designated  number,  shall 
sign  and  acknowledge  an  instrument  called  the  articles  of  in- 
corporation, which  shall  state  the  name  of  the  corporation,  the 
general  nature  of  the  business  and  the  principal  place  of  trans- 
acting the  same,  the  time  of  commencement  and  the  period  of 
continuance  of  the  corporation,  the  amount  of  capital  stock  and 

it  was  held  an  appeal  was  abated  by  *  Clearwater  v.  Meridith,  1  Wall. 
consolidation.  Hirschl  Consol.  of  (U.  S.)  25;  Shrewsbury,  etc.,  R.  Co. 
Corps.,  p.  197,  et  seq.  v.  stour  Valley  R.  Co.,  2  DeGex,  M.  & 
Commonwealth  v.  Atl.,  etc.,  R.  g.  8G6.  The  new  corporation  exists 
Co.,  53  Pa.  St.  9;  Tuttle  v.  Mich.,  etc.,  as  of  the  date  of  the  consolidation. 
R.  Co.,  35  Mich.  247 ;  Leavenworth  Co.  Shields  v.  State,  26  Ohio  St.  86. 
v.  Chicago,  etc.,  R.  Co.,  25  Fed.  Rep.  5  For  the  history  of  the  practice  of 
219.  An  attempted  consolidation  may  incorporation,  see  chapter  on  "Free- 
result  in  a  de  facto  corporation  only.  dom  of  Incorporation,"  in  Baldwin's 
Marshall  Foundry  Co.  v.  Killian,  99  Modern  Political  Institutions. 
N.  C.  501,  6  Am.  St.  R.  539.  6  See  wilgus'  Cases,  Schemes  of  In- 
state v.  Atchison,  etc.,  R.  Co.,  24  corporation  under  Special  Acts,  and 
Neb.  143.  Schemes  of  Organization  under  Gen- 

3  Central  R.  Co.  v.  Georgia,  92  U.  S.  eral  Laws. 
665;  Hill  v.  Nisbet,  100  Ind.  341. 


32  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  37 

how  to  be  paid  in,  the  highest  amount  of  indebtedness  or  lia- 
bility to  which  the  corporation  shall  be  subject,  the  names  and 
places  of  residences  of  the  incorporators,  the  number  and 
amount  of  the  shares  of  the  capital  stock,  the  names  of  the 
first  board  of  directors,  and  in  what  officers  or  persons  the 
management  of  the  affairs  of  the  corporation  shall  be  vested. 
When  such  articles  are  published  for  a  certain  period,  filed  ^n 
the  office  of  the  secretary  of  state  and  in  certain  offices  of  rec- 
ord, a  certificate  of  incorporation  is  issued  by  the  secretary  of 
state  reciting  that  the  provisions  of  the  statute  have  been  com- 
plied with  and  that  the  parties  are  properly  incorporated.  In 
many  states  different  statutes  are  enacted  for  the  organization 
and  regulation  of  different  kinds  of  incorporations,  such  as 
railway,  insurance,  banking  and  manufacturing  companies, 
and  corporations  with  or  without  the  power  of  eminent  domain. 

§  37.     Purposes  for  which  corporations  may  be  organized. — 

The  purposes  for  which  corporations  may  be  organized  under 
the  general  incorporation  laws  of  the  states  cover  almost  the 
whole  range  of  business  and  social  action  from  "works  of  pub- 
lic utility"1  to  "other  lawful  business."2  The  language  used 
in  these  statutes  is  very  general,  and  is  given  liberal  construc- 
tion. Thus  the  maintenance  of  a  wharf  boat  and  steam  ele- 
vator is  a  "work  of  public  utility."3  A  corporation  organized 
for  educational  purposes  which  charges  tuition  fees  is  not  "a 
corporation  for  pecuniary  profit."4  An  express  company  is 
engaged  in  "an  industrial  pursuit."5  A  corporation  for  "the 
purchasing  and  holding  of  real  estate,  subdividing  the  same 
into  village  lots  and  town  sites  "  may  be  organized  under  a 
statute  which,  after  enumerating  certain  kinds  of  business, 
adds  "for  other  lawful  business."6  But  when  the  general  words 
follow  other  more  specific  words,  it  has  been  held  that  corpora- 

'Glenn  v.  Breard,  36  La.  An.  875.  •Glenn  v.  Breard,  .'55  La.  An.  875. 

•Brown  v.  Corbin,  40  Minn.  508.     A  *Santa  Clara    Female  Academy  v. 

corporation  may  be  authorized  to  act  Sullivan,  I L6  [11. 375, 66  Am.  Rep.  776. 

ae  .in  assignee  for  creditors.     Roane,  'Wells  v.  N.  P. R.  Co.,  23  Fed.  Eep. 

Co.  v.  Wis.  Tr.  Co.,  71  N.  W.  469. 

Rep.  818  (  Wis.)-  6Brown  v.  Corbin,  40  Minn.  508. 


§  38  CREATION,  ORGANIZATION    AND    CITIZENSHIP.  33 

tions  can  be  organized  only  for  purposes  kindred  to  those  spe- 
cifically enumerated.1  Perhaps,  however,  the  better  rule  does 
not  so  limit  such  words.2  When  a  statute  authorizes  the  crea- 
tion of  corporations  for  certain  purposes,  a  corporation  organ- 
ized for  such  purpose  is  legal,  although  it  purports  to  have 
been  organized  under  another  statute.3 

But  where  the  purpose  for  which  the  corporation  is  stated 
to  be  organized  will  necessarily  result  in  creating  a  monopoly 
the  provision  is  void.4 

The  purposes  for  which  a  corporation  is  organized  must  be 
determined  by  the  statements  in  its  articles  of  incorporation.5 

§  38.  Substantial  compliance  with  statutory  requirements. 
— "A  substantial  compliance  with  all  the  terms  of  a  general 
incorporation  law  is  prerequisite  to  the  right  of  forming  a  cor- 
poration under  it."6  Thus,  when  the  articles  of  incorporation 
are  required  to  be  signed  by  a  designated  number  of  persons, 
that  number  must  sign.7  But  only  substantial  compliance  is 
necessary,  and  non-compliance  with  provisions  merely  direc- 
tory in  their  nature,  such  as  a  requirement  that  a  verified  cer- 
tificate containing  certain  matters  shall  be  filed  by  the  di- 
rectors, does  not  affect  the  legality  of  a  corporation.8  There 
may  be  irregularities  which  would  afford  a  basis  for  proceed- 
ings by  the  state  to  oust  the  corporation  of  its  franchises  which 
would  not  affect  the  legality  of  its  existence  with  respect  to 
persons  with  whom  it  deals.9  Even  the  state  may  be  barred 
from  such  proceedings  by  lapse  of  time.10 

1  State  v.  International  Inv.  Co.,  88  Ind.  404 ;  Thornton  v.  Balcom,  85  Iowa 

Wis.  512.  198;   Sweney  v.  Talcott,  85  Iowa  103. 

2Statev.Cookins,  123  Mo.  56;  Brown        7  State   v.    Critehett,   37   Minn.  13; 

v.  Corbin,  40  Minn.  508;  York,  etc.,  Carey  v.  Morrill,  61  Vt.  598;   Heinig 

Assn.  v.  Barnes,  39  Neb.  440.  v.   Adams   &  Westlake,  etc.,  Co.,  81 

3State  v.Minn., etc., Co.,40Minn.213.  Ky.300;  Cleggv.  Hamilton,  etc.,  Co., 

4  People  v.  Chicago,  etc.,  130111.268,  61  Iowa  121;    State  v.  Central,  etc., 
17  Am.  St.  R.  319.  Assn.,  29  Ohio  St.  399;  People  v.  Mon- 

5  Detroit  Driving  Club  v.  Fitzgerald,  tecito,  etc.,  Co.,  97  Cal.  276. 

109  Mich.  670,  67  N.  W.  Rep.  899.  8  Shakopee,  etc.,  Works  v.  Cole,  37 

6  People  v.  Montecito,  etc.,  Co.,  97  Minn.  91;  People  v.  Cheeseman,  7 
Cal.  276;  Stowe  v.  Flagg,  72  111.  397;  Colo.  376;  Walton  v.  Riley,  85  Ky. 
Bigelowv.  Gregory,  73  111.  197;  Abbott  413;  State  v.  Foulkes,  94  Ind.  493; 
v.  Omaha  S.  Co.,  4  Neb.  416;  State  v.  State  v.  Beck,  81  Ind.  500;  Ex  parte 
Wood,  84  Mo.  378;  Rogers  v.  Danby  Spring  Valley,  etc.,  Works,  17  Cal.  132. 
TJniversalist  Society ,19  Vt.  187 ;  People  9  Humphrey  v.  Mooney,  5  Colo.  282 
v.  Stockton,  etc.,  R.  Co.,  45  Cal.  306;  "State  v.  Gordon,  87  Ind.  171. 
Eakright  v.  Logansport,  etc.,  R.  Co. ,13 

3 — Private  Corp. 


34 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


39 


§  39.  Illustrations. — The  proper  authentication  and  record- 
ing of  the  articles  of  association  are  necessary  before  there  can 
be  a  legal  incorporation  ;J  but  a  provision  requiring  a  copy  of 
the  articles  to  be  filed  with  a  specified  officer,  such  as  register 
of  deeds,  is  not  necessary,2  although  the  contrary  is  held  in 
some  cases.8  The  omission  to  state  the  residence  of  the  incor- 
porators,4 signing  the  initials  instead  of  the  full  Christian 
name,5  the  statement  that  "  said  corporate  stock  shall  consist 
of  five  hundred  shares  at  one  hundred  dollars  per  share  "  when 
the  statute  requires  that  the  certificate  of  incorporation 
"shall  state  the  amount  of  the  capital  stock,"6  a  statement 
that  the  corporation  shall  exist  "  at  least  forty  years,"  when 
the  statute  required  that  the  certificate  state  "  the  term  of 
existence  not  to  exceed  forty  years  "  are  not  such  defects  as 
will  prevent  legal  incorporation.7  The  omission  of  the  words 
"  in  good  faith  "  from  a  certificate  which  is  required  to  state 
"  in  substance  that  said  amount  of  stock  has  been  subscribed, 
and  that  ten  per  cent,  in  cash  thereon  has  been  actually  and 
in  good  faith  paid  in,"  when  it  appears  elsewhere  in  the  body 
of  the  certificate  that  the  ten  per  cent,  has  been  actually  in  good 
faith  paid  in,  is  immaterial.8 

§  40.    Conditions  precedent  to  organization  of  corporation 

de  jure.9 — Those  provisions  of  the  general  statutes,  which  are 
intended  to  be  conditions  precedent  to  incorporation,  must  be 


iStowe  v.  Flagg,  72  111.  397;  People 
v.  Montecito,  etc.,  Co.,  97  Cal.  270. 

2l!mt  v.  Salisbury,  55  Mo.  310;  Mo- 
kelumne  Hill,  etc.,  Co.  v.  Woodbury, 
i  i  ( !al.    12">;  Compare,  [ndianapolis, 
etc., Co. v.  Herkimer, 46  In«l.  1 12;  Peo- 
ple v.  Chambers,  12  Cal.  201 ;  Ham- 
mond v.  Strauss,  53  Md.  l.  A  failure  to 
comply  with  a  provision  requiring  the 
u  q1  of  a  tee  to  the  state  before  in- 
corporation does  nol  prevenl  Legal  in- 
corporation.    I  [ughesdale  Mfg.  *  !o.  v. 
Vanner,  12  B.I.  491.     Contra,  Mary- 
land, etc.,  Works  v.  Wesl   End  Imp. 
i..  l:.  A.  810. 
ildsv.  Hurd,32W.Va.99;  Doyle 
[izner,  42  Mich.  332;    < larnett  v. 
.ii.  35  \  >  is.  ill;  [ndianapolis, 


etc.,  Co.  v.  Herkimer, 46 Ind.  142;  First 
Nat.  Bank  v.  Davies,  43  Iowa  424;  Ab- 
bott v.  Omaha,  etc.,  Co.,  4  Neb.  416; 
Capps  &  Hastings  Prosp.  Co.,  40  Neb. 
•170,  58  N.  W.  Rep.  956;  Martin  v. 
Deetz,  102  Cal.  55,  36  Pac.  Rep.  369 

•State  v.  Poulkes,  94  Ind.  493;  Rog- 
ers  v.  Danby  Univ.  Soc,  19  Vt.  L87. 

BState  v.  Beck,  81  End.  r>00. 

6Hughes  n.  Antietam  Mfg.  ('<>.,  34 
Md.  316. 

"Hughea  v.  Antietam  Mfg.  Co.,  34 
Md.  316. 

K  People  v.  Stockton,  etc.,  R.  Co., 
46  Cal.  308. 

9  See,  generally,  Wilgus'  <  !ases,  Con- 
ditions Precedent  to  Corporate  Exist- 
ence dejure,  de  facto,  and  bj  estoppi  I. 


§  41  CREATION,   ORGANIZATION    AND    CITIZENSHIP.  35 

strictly  complied  with  before  a  de  jure  corporation  is  created. 
There  is,  however,  a  distinction,  which  must  be  observed,  be- 
tween conditions  precedent  to  a  legal  incorporation  and  condi- 
tions precedent  to  the  right  to  commence  business.  Until  the 
former  are  substantially  complied  with  there  is  no  legal  cor- 
poration. A  failure  to  comply  with  the  latter  does  not,  how- 
ever, affect  the  existence  of  the  corporation.1  Hence  "the 
legal  existence  of  a  corporation  is  not  terminated  by  the  fact 
that  it  has  violated  its  charter,  as  by  carrying  on  business  be- 
fore conditions  precedent  imposed  by  the  charter  had  been 
complied  with." 

No  general  rule  can  be  stated  other  than  that  if  it  appears 
from  the  language  of  the  statute  that  it  was  the  intention  of 
the  legislature  that  the  requirement  should  be  complied  with 
before  the  incorporation  is  completed,  it  is  necessary  that 
there  should  be  substantial  compliance.2 

§  41.  Articles  of  incorporation  —  Contents, —  General  in- 
corporation laws  always  provide  for  the  execution  by  the  in- 
corporators of  a  certificate  or  articles  of  incorporation  which 
must  contain  certain  designated  matters.  Such  articles  have 
the  effect  of  a  charter,3  hence  there  can  be  no  incorporation 
when  there  are  no  articles,4  and  this  is  equally  true  where  the 
articles  are  fatally  defective  by  reason  of  not  conforming  to  the 
essential  requirements  of  the  statute.5  They  may  be  defective 
by  reason  of  omitting  to  state  the  number  of  directors,6  the 
place  of  residence  of  the  corporators,7  the  principal  place  of 

'Holmes  v.  Gilliland,  41  Barb.  (N.  'Abbott  v.  Omaha,  etc.,  Co.,  4  Neb. 

Y.)  568;    Herrodv.   Hamer,  32  Wis.  416. 

164 ;  Charles  River  Bridge  v.  Warren  SN.  Y.  Cable  Co.  v.  Mayor,  104  N.  Y. 

Bridge,  7  Pick.  (Mass.)  344.  1 ;  McCallion  v.  Hibernia,  etc.,  Co.,  70 

2Childs  v.  Hurd,  32  W.A^a.  67 ;  Stowe  Cal.  163. 

v.  Flagg,  72  111.  397;  People  v.  Mon-  6Eeed  v.  Richmond,  etc.,  R.  Co.,  50 

tecito,  etc.,  Co.,  97  Cal.  276.  Ind.  342. 

3North  Point,  etc.,  Co.  v.  Utah,  etc.,  7See  Busenback  v.  Attica,  etc.,  Co., 

Co.  (Utah), 52  Pac.  Rep.  168,  40  L.  R.  43  Ind.  265.     A  statement  in  the  ar- 

A.  851.  tides  that  the  "office"  of  the  corpora- 

An   attempted  amendment  of  arti-  tion  shall  be  in  a  certain  city,  does  not 

cles  by  de  facto  trustees  is  ineffectual,  sufficiently  state  the  place  in  which 

State  v.   Oftedal  (Minn.),  75   N.  W.  the  business  shall  be  carried  on.  Ken- 
Rep.  692. 


36 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§41 


business  of  the  corporation,1  or  the  amount  of  capital  stock.2 
The  object  of  the  corporation  must  be  stated  in  substantial  com- 
pliance with  the  statute,3  as  the  articles  can  not  be  aided, 
varied,  or  contradicted  by  parol  evidence.1 

If  the  time  of  existence  is  stated  at  a  term  in  excess  of  that 
fixed  by  law,  the  corporation  will  continue  for  the  statutory 
period.5  A  provision  authorizing  the  board  of  directors  to  in- 
crease the  capital  stock  without  the  consent  of  a  majority  of 
the  stockholders,  as  required  by  statute,  does  not  render  the 
articles  void.6  The  articles  should  contain  only  those  provis- 
ions which  are  required  by  the  statute,  but  the  insertion  of  ad- 
ditional matter  will  not  affect  their  validity,  as  it  will  be 
rejected   as  surplusage.7     A  provision  that  the   articles  shall 


nett  v.  Woodworth  Mason  Co.  (N.  H.), 
39  AtL  Rep.  585. 

'Harris  v.  McGregor,  29  Cal.  124; 
People  v.  Beach,  19  Hun  (N.Y.)  259; 
Clegg  v.  Hamilton,  etc.,  Co.,  61  la. 
121. 

2State  v.  Shelbyville,  etc.,  Co.,  41 
Ind.  151 ;  Thornton  v.  Balcom,  85  Iowa 
198. 

3Peopie  v.  Cheeseman,  7  Colo.  376. 
For  a  stricter  rule,  see  West  v.  Bull- 
skin,  etc.,  Co.;  32  Ind.  138. 

•Atty.-Gen.v.  Lorman,59Mich.l57; 

People  v.  Beach,  P.)  Hun  (N.  Y.)  259; 

People  v.  Selfridge,  52  Cal.  331. 

5  People  v.  Cheeseman,  7  Colo.  376. 

*  Eastern,   etc.,  Co.  v.  Vaughan,  14 

N.  V.  546. 

'Oregon  R.  Co.  v.  Oregonian  R. 
Co.,  130  D.  S.  1  ;  Albright  v.  La  Fa- 
yette, etc.,  Co.,  102  Pa.  St.  411;  Bigc- 
low  v.  <  rregory,  ":;  111.  197. 

In  New  York  and  New  Jersey,  and 
under  the  National  Banking  A.ct,  spe- 
cial provisions  may  lie  inserted  in  the 
articles. 

It  must  he  remembered  thai  :i  de 
facto  corporation  may  result,  although 
the  provisions  of  the  statute  are  not 
complied  with,     in  Johnson  v.  Schu- 

lm    'Minn.,  1897),  7:;   N.  W.  Rep.  I  17, 


the  court  said :     "The  plaintiff  claims 
that  because  the  articles  of  association 
were   not  signed  by  several  persons, 
and  were  not  recorded,  there  could  be 
no  corporation  de  facto,  and  rely  in 
support  of  the  claim  upon  the  case  of 
Johnson  v.  Corser,  34  Minn.  355,  25 
N.  W.    Rep.  799.     The  claim  ignores 
the  fundamental  principles  applicable 
to  corporations  de  facto ;  for  if  there 
had  been  a  compliance  with  the  stat- 
ute in  the  respects  complained  of,  a 
corporation  de  jure  would  have  been 
created.     Johnson  v.  Corser  is  not  in 
point.    That  was  a  case  where  parties 
desiring  to  make  a  certain  street  im- 
provement associated  themselves   to- 
gether for  that   purpose,   and  signed 
articles  of  incorporation;    but  no  at- 
tempt was  made  to  give  any  publicity 
to   them,    by   filing  or  recording  or 
Otherwise,    until    after  the   work    had 
been  performed    for  which    the  action 
was  brought   against  (lie   associate*  as 
partners.    The  plaintiffs  also  rely  up- 
on   the   case  of  Bergeron   v.  Hobbs, 
tl(J     Wis.    (Ill,    65    Am.   St.    It.    85,    7V 
N.     W.     Rep.     105(1.       The     case     is 
directly    in    point,    but    its   value    as 
an    authority    is    seriously    impaired 


§  42  CREATION,  ORGANIZATION    AND    CITIZENSHIP.  37 

state  the  purposes  for  which  the  corporation  is  formed  and  that 
it  shall  be  unlawful  for  it  to  divert  its  funds  to  any  other  pur- 
poses is  for  the  protection  of  the  public,  and  does  not  under 
all  circumstances  affect  the  contracts  of  the  corporation.1 

§  42.  Filing  and  publication  of  articles. — The  language  of 
the  statute  must  be  carefully  examined  to  determine  whether 
the  requirement  of  filing  and  recording  of  the  articles  is  man- 
datory or  directory.  Ordinarily  the  filing  of  the  articles  with 
some  state  official,  and  their  publication  in  some  form,  is  a 
condition  precedent  to  legal  incorporation.2  It  has  been  held 
that  the  recording  with  the  county  recorder  is  a  condition  pre- 
cedent.3 The  date  of  filing  is  not  a  part  of  the  articles,  and 
the  fact  of  delivery  and  date  of  filing  may  be  shown  by  parol 
evidence.4  The  incorporation  is  not  invalidated  by  an  errone- 
ous recording  in  an  improper  book.5  The  surreptitious  and 
fraudulent  recording  of  articles  of  incorporation  contrary  to 
an  agreement  among  the  incorporators  has  no  legal  effect.6 

§  43.  Subscriptions  for  capital  stock  as  a  condition  preced- 
ent.— Unless  made  so  by  the  governing  statute,  the  subscrip- 
tion of  the  whole  amount  of  the  capital  stock  is  not  a  condition 
precedent  to  the  legal  existence  of  a  corporation.7  The  matter 
is,  however,  largely  governed  by  statute.  It  has  been  held 
that  merely  making  and  filing  articles  of  incorporation  do 
not  create  a  corporation  where  the  stock  has  not  been  sub- 
by  an  able  and  exhaustive  dissenting  5Walton  v.  Riley,  85  Ky.  413. 
opinion.  Besides,  it  seems  to  be  op-  6Ricker  v.  Larkin,  27  111.  App. 
posed  to  the  weight  of  authority."  625. 

1  Butterworth  v.  Kritzer  Mills  Co.  7Johnson  v.  Kessler,  76  Iowa  411  ; 
(Mich.,,  72  N.  W.  Rep.  990.  Schenectady,  etc.,  R.  Co.  v.  Thatcher, 

2Indianapolis,  etc.,  Co.  v.  Herkimer,  11  N.  Y.  102.  The  rule  of  the  coin- 
46  Ind.  142;  Clegg  v.  Hamilton,  etc.,  mon  law  required  that  the  capital 
Co.,  61  Iowa  121;  Childs  v.  Hurd,  32  stock  should  all  be  subscribed  before 
W.Va.  66;  Gent  v.  Mfg.  Ins.  Co.,  107  the  organization  was  completed. 
111.  652,  Wilgus'  Cases.  Schloss    v.   Montgomery    T.    Co.,   87 

3Cresswell  v.  Oberly,  17  Bradw.  Ala.  411,  13  Am.  St.  R.  51.  See  §354 
(HI.)  281.  infra. 

4 Johnson  v.  Crawfordsville,  etc.,  R. 
Co.,  11  Ind.  280. 


88  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  44 

scribed  or  paid  in  or  the  directors  chosen.1  "  Since  a  substantial 
compliance  with  the  conditions  of  the  statute  is  all  that  the  law 
requires,  except  in  the  case  of  conditions  precedent,  it  is  gen- 
erally held  that  where  the  governing  statute  requires  a  certain 
percentage  of  the  stock  to  be  paid  in,  it  will  be  sufficient  that 
the  aggregate  sum  produced  by  such  a  percentage  is  paid  in, 
and  it  will  be  immaterial  by  whom  it  is  paid."2 

§  44.  Date  of  incorporatioii. — A  corporation  exists  from 
the  time  when  the  instrument  of  incorporation  prescribed  by 
statute  is  executed,  acknowledged  and  recorded  or  filed  for 
record,  as  required  by  the  statute,  and  all  conditions  precedent 
performed.  When  the  articles  are  required  to  be  approved  by 
some  official,  the  incorporation  dates  from  the  time  of  such 
approval.3 

§  45.  Who  may  be  incorporators. — A  corporation  is  com- 
monly composed  of  natural  persons,  but  its  shares  may  be 
held  by  a  state,  a  public  or  private  corporation,  a  partnership, 
or  by  persons  in  a  political  capacity.4  Any  person  capable  of 
contracting  may  become  an  original  shareholder  of  a  private 
corporation,5  and  as  the  interest  is  assignable,  it  may  be  trans- 
ferred to  or  held  by  women  and  children  or  by  persons  non 
compos  mentis.  But  the  right  of  membership  in  a  particular 
corporation  may  be  limited  to  a  certain  class,  as  the  members 
of  a  certain  profession  or  trade.  Corporations  are  not  "per- 
sons" within  the  meaning  of  general  incorporation  laws.6     The 

1  State  v.  Fidelity,  etc.,  Co.,  49  Ohio  L.  R.  A.  Gil,  it  was  said  that  "articles 

St.  440,  nil..  I;   A.  nil.  of  incorporation  do  not  make  a  corpo- 

'Thompson    Corp.,    §  '-'17.      Notes  ration;  they  are  simply  authority  to 

given  in  fraud  of  a  statute  which  re-  do  so." 

quires  the  stock  in  In-  paid  forin  cash  4  LOOo.  '2!>  b.    See  §34<i,  infra. 

can  not  !>•■  defended  against  on  tin'  5The  word  "person"  is  construed 

ground  thai  the  corporation    had  no  to  mean  a  person  of  full  age.     [n  re 

authority  to  accept  them.   McLaren  v.  Globe,  etc.,  Association,  63  linn  (N. 

Pennington,  l  Paige  (N.  Y.i  102.  Y.)263.    Contra  in  England.    Be  Naa- 

lommonwealth,  62  Pa.  Bau,  etc.,  Co.,  2  Ch.  I  >.  610. 

St.  126.    In  Sparksv.  Woodstock, etc.,  8See  §  68,  infra.      But  in  England 

14,  il  was  held  thai  the  "person"  includes  "company"  in  the 

failure  of  a  judge  to  make  the  ses-  Companies  Act  of  L862.    So  one  lim- 

certincate  did  aol    prevent  Hie  ited  company  may  take  shares  in  an- 

corpo ration   from  coming   into  exist-  other,     in  re    Barneds  Banking  Co., 

ence,   when    the   proper    antecedent  L.  R.  3Ch.l05;  Royal  Bank  of  India, 

Bteps  had   been  taken.     In   State  v.  I-.  I.'.  I  Ch.  262. 
Fidelity,  etc.,  Co  .  19  Ohio  St.  WO,  L6 


§  4G  CREATION,   ORGANIZATION    AND    CITIZENSHIP.  39 

right  of  organizing  a  corporation  is  conferred  upon  individu- 
als and  not  corporations.  Unless  the  statute  provides  that 
the  incorporators  shall  be  residents  of  the  state,  no  such  con- 
ditions will  be  annexed,  and  the  citizens  of  one  state  may 
organize  a  corporation  under  the  laws  of  another  state  if  they 
consider  it  to  their  advantage  to  do  so.1 

§  46.  Number  of  incorporators. — The  statutes  generally 
prescribe  the  minimum  number  of  persons  who  may  become 
incorporators,  and  this  varies  according  to  the  nature  and  ob- 
ject of  the  corporation.  When  not  expressly  determined  it 
seems  that  the  law  contemplates  more  than  one  incorporator. 
Thus  under  an  act  providing  that  "any  number  of  persons 
may  associate  themselves  together  and  become  incorporated," 
one  person  can  not  form  a  corporation  and  thus  conduct  his 
business  without  personal  liability.2 

§  47.  The  corporate  name. — '  'When  a  corporation  is  erected 
a  name  must  be  given  to  it,  and  by  that  name  alone  it  must 
sue  and  be  sued,  and  do  all  legal  acts,  though  a  very  minute 
variation  therein  is  not  material.  Such  name  is  the  very  be- 
ing of  its  constitution,  and  though  it  is  the  will  of  the  king 
that  erects  the  corporation  yet  the  name  is  the  knot  of  its  com- 
bination, without  which  it  could  not  perform  its  corporate 
functions.  The  name  of  incorporation,  says  Sir  Edward  Coke, 
is  a  proper  name  or  name  of  baptism,  and  therefore  when  a 
private  founder  gives  his  college  or  hospital  a  name,  he  does 
it  only  as  a  godfather,  and  by  that  same  name  the  king  bap- 
tizes the  incorporation."3 

The  king  or  parliament  in  granting  a  patent  usually  desig- 
nates or  indicates  by  recitals   the  name  by  which  the  corpora- 

1TJnder  a  law  which  authorizes  "any  ter  v.  Amsterdam  Imp.  Co.,  140  N.  Y. 

number    of    persons    not     less     than  57G,  35  N.  E.  Rep.  964. 

seven"  to  organize  a  corporation,  citi-  2Louisville,  etc.,  Co.  v.  Eisenman,  !>4 

zens  or  residents  of  another  state  may  Ky.  83,  19  L.  R.  A.  684,  Wilgus'  Cases, 

organize  under  the  law.     Cent.  R.  Co.  3B1.  Com.,  I,  575.     Bacon  also  calls 

v.  Pa.  R.  Co.,  31  N.  J.  Eq.  475;  Hum-  the  name  the  "knot  of  their  eombi- 

phreys  v.  Mooney,  5  Colo.  282;  Dema-  nation."     Abr.  II  (Am.  ed.),  440. 
rest  v.  Flack,  128  N.  Y.  205;  Lancas- 


40 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§48 


tion  shall  be  known.1  But  if  a  name  is  not  given  by  the 
charter  one  may  be  assumed  or  acquired  by  usage  and  a  con- 
tract made  with  a  corporation  under  an  assumed  name  may 
be  enforced  by  either  party.2 

When  a  corporation  has  received  a  name  it  can  only  change 
the  name  in  the  manner  prescribed  by  law.3  A  change  of 
name  does  not  affect  the  liabilities,  duties,  or  property  rights 
of  a  corporation.4 

§  48.  Protection  of  corporate  name.  It  has  been  held  that  the 
name  of  a  corporation  is  a  franchise,  and  that  when  the  state 
has  granted  the  franchise  the  corporation  can  not  be  restrained 
from  using  it,  because  it  nearly  resembles  the  name  of  an  ex- 
isting corporation,  or  will  be  liable  to  cause  confusion.5  The 
court  in  such  a  case  accepts  the  certificate  of  the  secretary  of 
state  as  conclusive  evidence  of  the  right  of  the  corporation 
to  the  name  certified.6  But  the  rule  most  consistent  with 
principle  is  that  a  corporation  will  be  protected  in  the  use  of 
its  name  upon  the  same  equitable  principles  which  protect 
persons  in  the  use  of  trade  names  and  trade-marks.7     Judge 

style  of  the  corporation  and  mode  of 
electing  members  were  changed,  the 
identity  of  the  body  itself  was  not  af- 
fected." Doe  v.  Norton,  11  M.  iv  W. 
913.  All  new  suits  on  old  obligations 
must  be  brought  in  the  new  name. 
Cotton  v.  Miss.,  etc,  Co.,  22  Minn. 
372.  A  suit  is  not  abated  by  change 
of  name  of  corporation.  Thomas  v. 
Frederick  School,  7  <  lil.  &  .1.  ;;<'>'.». 

6Boston,  etc.,  Co.  v.  Boston,  etc., 
Co.,  L49  Mass.  436.  Bui  see  Arming- 
ton  v.  Palmer  (  R.  I.).  43  L.  U.  A.  95. 

cUico  v.  National  Bank,  126  Mass. 
300.  The  certificate  of  the  auditor  as 
to  the  righl  of  a  corporation  to  a  cer- 
tain name  is  not  binding  upon  an- 
other body  claiming  the  name.  ( rrand 
Lodge  v.  Graham,  96  Iowa  592,  31  L. 
I:.  A.  133. 

7Holmes  v.  ETolmes,  etc.,  Co.,  87 
Conn.  278,  9  Am.  Rep.  324  ;  Celluloid, 
etc.,  Co.  v.  Cellonite,  <•(<-.,  Co.,  32 
Fed.  Rep.  94 ;  Neb.,  h<\,  Co.  v.  Nine 


JBacon,  Abr.  II,  441;  "Names  of 
Corporations,"  article  in  23  Cent.  L. 
J.  531. 

2Clement  v.  City  of  Lathrop,  18  Fed. 
Rep.  885. 

8Morris  v.  St.  Paul,  etc.,  R.  Co.,  19 
Minn.  528,  Gil.  459;  Goodyear  Rub- 
ber Co.  v.  Goodyear,  etc.,  Co.,  21 
Fed.  Rep.  276;  Sykes  v.  People,  132 
III.  32,  23  N.  E.  Rep.  391.  An  attempt 
to  change  a  name  by  other  means  does 
not  avoid  a  charter.  O'Donnell  v. 
Johns,  76  Tex.  363;  Smith  v.  Plank 
Rd.  Co.,  30  Ala.  650;  Wells,  Fargo  & 
0  i:  N.Co.,8Sawy.600,608. 
Bui  in  Cincinnati,  etc.,  Co.  v.  Bate,  96 
Kv.  356,  19  \m.  st.  R.  300,  Wilgus' 
<  'ases,  it  w  a  -  held  thai  an  unauthorized 
change  of  name  by  the  members  made 
them  liable  thereafter  as  pari  tiers. 

4  WYiiiy  v.  Bhenandoah,  etc.,  Co., 83 
Va.  768;  Hazlel  v.  Butler  I  niv.,  .si 
[nd.230;  Bucksport,  etc.,  Co.  v.  Buck, 
68   Me.  81.     "Though  the  nam.-  and 


§  48  CREATION,  ORGANIZATION    AND    CITIZENSHIP.  41 

Thompson  says  :  '  "The  better  view  is  that  the  right  of  an  ex- 
isting corporation  to  the  use  of  its  corporate  name,,  which  is  in 
the  nature  of  a  trade  name,  can  not  be  infringed  by  a  subse- 
quent act  of  incorporation  by  the  legislature,  either  by  the 
direct  grant  of  a  charter  to  a  corporation  to  be  organized 
under  a  similar  name,  or  through  a  ministerial  officer  of  the 
state  in  granting  a  certificate  of  incorporation  to  a  body  of 
adventurers  having  a  similar  name." 

Where  the  statute  provides  that  the  secretary  of  state  shall 
not  issue  a  certificate  of  incorporation  under  a  name  similar  to 
that  already  assumed  by  another  corporation,  the  secretary  has 
a  discretion  which  will  not  be  controlled  by  mandamus.2  As  a 
general  rule  the  name  selected  by  a  new  corporation  must  not 
be  identical  with  or  too  closely  resemble  that  of  an  existing 
corporation.3  The  right  to  a  name  attaches  upon  the  issuance 
of  the  license  to  incorporate,  and  before  the  incorporation  is 
completed.4  The  absence  of  fraudulent  intent  is  no  defense  in 
a  suit  for  wrongfully  assuming  and  using  the  name  of  another.5 
An  injunction  against  the  wrongful  assumption  and  use  of  a 
corporate  name  may  be  granted  in  a  suit  by  the  owner  of  the 
name  without  the  intervention  of  the  state.6 

27  Neb.  507,  43  N.  W.  Rep.  348.     For-  111.    423.    The    right    to   a  corporate 

eign  and  domestic  corporations  with  name  as  a  trade-mark  is  not  a  fran- 

samename,  Hazleton,  etc., Co. v.  Hazle-  chise.     Hazleton,  etc.,  Co.  v.  Hazle- 

ton,  etc.,  Co.,  142  111.  494.28N.E.  Rep.  ton,  etc.,  Co.,   142  111.  494,  28  X.  E. 

245.  Rep.  248. 

'Thompson   Corps.,   Vol.   I,    §   296.  5Armington    v.  Palmer  (R.  I.),  43 
2State  v.  McGrath,  92  Mo.  355.  L.  R.  A.  95.     As  to  rights  of  corpora- 
international,   etc.,    Co.   v.   Inter-  tions  in  respect  to  names,  see,  gen- 
national,  etc.,  Co.,  153  Mass.  271,  10  L.  erally,  American  Order  v.  Merrill,  151 
R.  A.  758.   In  re  U.  S.  Merc.  Rep.  Co.,  Mass.  558,  8  L.  R.  A.  320;  Int.,  etc., 
115  N.  Y.  176.    A  corporation  known  Co.  v.  Int.,  etc.,  Co.,  153  Mass.  271,  10 
as  the  "Hygeia  Water  Ice  Co."  is  not  L.  R.  A.   758;  Chas.   Higgins   Co.  v. 
entitled    to    have    the     "New    York  Higgins,  etc.,  Co.,  144  N.  Y.  462,  27 
Hygeia     Ice      Company,     Limited,"  L.   R.   A.  42;    Grand  Lodge,  etc.,  v. 
restrained  from  using  the  word  "  Hy-  Graham,  96  la.  592,  31  L.  R.  A.  133; 
geia,"  it  not  appearing  that  any  one  Supreme   Lodge,    etc.,  v.    Improved, 
has   been    deceived.     Hygeia    Water  etc.,  113  Mich.  133,  38  L.  R.  A.  658. 
Ice  Co.,  140  N.  Y.  94.  6Armington  v.  Palmer  (R.  I.),  43  L. 
Illinois,  etc.,    Co.  v.  Pearson,  140  R.  A.  95,  Wilgus'  Cases. 


42  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  49 

§  49.     Proof  of  incorporation — In  direct  proceedings. — The 

evidence  required  to  prove  incorporation  will  depend  upon  the 
proceedings  in  which  the  issue  is  raised.  In  proceedings  by 
the  state  for  the  purpose  of  testing  corporate  existence,  the  evi- 
dence must  be  sufficient  to  show  substantial  compliance  with 
the  terms  of  the  law  under  which  the  corporation  claims  ex- 
istence.1 If  the  corporation  is  organized  under  a  public  act  of 
the  legislature,  the  court  will  take  judicial  notice  of  the  law; 
but  if  the  corporation  was  organized  under  a  foreign  law  the 
statute  must  be  pleaded  and  proved  like  any  other  fact.2  Ac- 
ceptance of  the  charter  may  be  shown  by  any  competent  evi- 
dence that  tends  to  show  user.3 

§  50.  In  collateral  proceedings. — When  the  issue  of  corpo- 
rate existence  is  raised  collaterally,  it  is  sufficient  to  prove  the 
existence  of  a  de  facto  corporation.  It  must  be  shown  that 
there  is  a  valid  law  under  which  the  company  could  have  be- 
come a  de  jure  corporation,  a  good  faith  attempt  to  incorporate 
under  the  law,  and  a  user  of  the  franchise.4  The  existence  of 
a  de  facto  corporation   may  be  shown   by  parol  evidence,5  or  a 

'See  §  40,  supra.  kima  Nat.  Bank  v.  Knipe,  6  "Wash.  348, 
2Jones  Evidence,  I,  §§  112,  120.  33Pac.  Rep.834.  When  raised  in  plead- 
3Bank  of  Manchester  v.  Allen,  11  ing,  proof  of  user  good  "prima  facie," 
Vt.  302.     If  the  fact  of  acceptance  is  Rose  Hill  &  E.  R.  Co.  v.  People,  115 
recorded  on  the  books  of  the  corpora-  111.  133,3  N.  E.  Rep. 725    In  Johnson  v. 
tion,the  hooks  are  the  bestevidence.  Schulin  (Minn.),  73  N.W.  Rep.  147,  it 
Hudson  v.  Carman,  41  Me.  84.  was  held  that  for  the  purposeof  show- 
4state  v.  Murphy,  17  R.  LOOS,  24  Atl.  ing  a  corporation  defactoora]  testimony 
Rep.  473;  Porter  v.  State,  141  End.  488,  not  purporting  to  give  the  contents  of 
-io  \.  E.  Rep.  L601 ;  <  'wen  v.  Shepherd,  corporate  records  or  documents,  tend- 
59  Fed.  Rep.  746,  8  C. C.  A.  244.   Cald-  ing  to  show  that  after  an  attempl  to 
well,  J., says:  "The  rule  that  the  regu-  organize  a  corporation  bythe  execu- 
of  the  organization  of  a  corpora-  tion  of  articles  of  incorporation,  the 
tion  can  not  be  inquired  into  collater-  supposed  corporation  held  meetings, 
ally  has  do  application  where  Individ-  adopted  by-laws,  elected  officers,  and 
uala  Bued  for  services  deny  personal  did   business  as  a  corporation,  is  ad- 
liability,  and  set  up  the  existence  of  a  missible  without  producing  the  corpo- 
corporation,    to    which    the    services  rate   records  or  showing  their    loss. 
were  rendered."    See  §  72,  infra.  "On   principle,"   said    Chief    Justice 

;|,m,-    v.    State,    18    Ohio   St.   366,      Start,  "it  WOUld   seem    that    where,  as 
.. .,.    Dec.    I'M.     Inn. ;   State  V.  Ha-     in  this  case,  the  defendants:  are  seek- 

bib,  is  R.  t.  658,30  Atl.  hep.  162;  Ya-    ing  to  avoid  their  Liability  as  alleged 


§  50  CREATION,   ORGANIZATION    AND    CITIZENSHIP.  43 

prima  facie  case  may  be  made  by  the  introduction  of  the  books 
and  records  of  the  corporation.1  It  has  been  said  that  general 
reputation  is  sufficient  to  make  a  prima  facie  case.2  Many 
states  provide  statutory  methods  for  proving  incorporation. 
In  Michigan  the  statute  provides  that  "In  any  suit  wherein  it 
shall  become  necessary  or  material  to  prove  the  incorporation 
of  any  corporation,  evidence  that  such  a  corporation  was  doing 
business  under  a  certain  name  shall  be  prima  facie  evidence  of 
its  due  incorporation,  or  existence  pursuant  to  law,  and  of  its 
name."8  When  the  statute  provides  that  a  certified  copy  of  the 
articles  of  incorporation  or  of  the  certificate  of  incorporation 
shall  be  prima  facie  evidence  of  incorporation,4  it  does  not  ex- 
clude other  competent  evidence.5 

For  the  purposes  of  the  case  it  is  generally  sufficient  to 
prove  the  facts  sufficient  to  create  an  estoppel  against  the  party 
raising  the  question.6  It  often  becomes  necessary  to  prove  the 
existence  of  a  corporation  in  criminal  proceedings.  As  the 
question  then  arises  collaterally,  it  is  only  necessary  to  show 
facts  sufficient  to  establish  a  de  facto  corporation. 

"  On  the  trial  parol  proof  was  offered,  admitted  and  given  to 
the  effect  that  an  association  of  persons  existed  claiming  to  be 
a  corporation  under  the  name  of  the  Michigan  Southern  and 
Northern  Indiana  Railroad  Co.,  suing  and  being  sued,  having 
a  common  seal,  and  operating  a  railroad  as  such,  and  exercis- 
ing the  franchise  of  a  corporation.  *  *  *  \ye  are  0f  ^e 
opinion,  however,  that  the  proof  was  both  competent  and  suffi- 
cient."7 

partners  by  showing  that  they  were  a  4See  Marshall  v.   Bank,  108  N.  C. 

de  facto  corporation   with   whom  the  639,  13  S.  E.  Rep.  182. 

plaintiffs  dealt,  the  best  evidence  to  5Edelhoff  v.  State,  5  Wy.  19,  36  Pac. 

prove  the  fact  would  be  the  sworn  tes-  Rep.  627. 

timony    of    competent    witnesses    to  6U.  S.  Vinegar  Co.  v.   Schlegel,  143 

what,  in  fact,  was  done."     Thompson  N.  Y.  537,  38  N.  E.  Rep.  729.     A  con- 

Corp.,  §  7735.  tract  made  with  the  corporation  in  the 

'Glenn  v.  Orr,  96  N.  C.  413,  2  S.  E.  corporate   name   is   prima    facie   evi- 

Rep.  538 ;  Peake  v.  R.  Co.,  18  111.  88.  dence  of  corporate  existence  as  against 

EFleener  v.  State,  58  Ark.  98,  23  S.  the   parties    to   the  contract.     Conti- 

W.  Rep.  1.  nental  Ins.  Co.  v.  Richardson,  72  N. 

"Canal  St.  Gravel  Road  v.  Paas,  95  W.  Rep.  458  (Minn.). 

Mich.  372.  Embezzlement,  Calkins  v.  State,  18 


44  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  51 

Where  it  is  once  shown  that  there  is  a  charter,  the  exercise 
of  corporate  acts  for  many  years  will  raise  a  presumption  of 
incorporation.1 

III.     Promoters  of  Corporations. 

§  51.  Who  are  promoters. — The  term  promoter  is  so  well 
understood  that  a  judge  in  charging  a  jury  is  not  bound  to  de- 
fine it.2  "It  is  not  a  word  of  art;  it  must  be  understood  by 
lawyers  as  it  would  by  laymen."3  A  person  who  engages  with 
an  owner  of  land  in  the  organization  of  a  corporation  which 
is  intended  to  purchase  the  land,  and  who  frames  the  prospec- 
tus, aids  in  procuring  subscribers  for  stock,  and  becomes  one 
of  the  first  stockholders,  is  a  promoter  of  the  corporation.* 
But  the  mere  fact  that  at  the  time  when  property  was  pur- 
chased the  purchaser  contemplated  that  a  corporation  would 
be  organized' for  the  purpose  of  acquiring  the  land  does  not 
make  the  purchaser  a  promoter  of  the  corporation.5 

§  52.  Fiduciary  position  of  promoters. — The  promoters  can 
not  be  the  agents  of  a  principal  not  in  existence,  and  can  not 
bind  the  future  corporation  by  their  contract,  but  by  various 
processes  of  reasoning,  more  or  less  unsatisfactory,  they  are 
held  to  occupy  a  fiduciary  relation  to  the  corporation  which  is 
to  be  created.     From  this  relation  it  follows  that  they  can  not 

Ohio  St.  370;  State  v.  Habib,  L8  R.  I.  schlager,  55  N.  J.  Eq.  78,  35  Atl.  Rep. 

558,30Atl.  Rep. 462.   Burglary,Statev.  436. 

Thompson,  23   Kan.  338,  33  Am.  Rep.  In  Yale,  etc.,   Co.  v.   Wilcox,   64 

L66.     Larceny,    People  v.   Barric,  49  Conn.   101,  25  L.  R.  A.  90,  the  court 

i   il.  342;  People  v.  Frank,  28  Cal.  607.  said:    "A  promoter  has  been  denned 

i See  noteto  In  re  Gibbs,  L57  Pa.  St.  to  be  a  person  who  organizes  a  cor- 
22  L.  R.  A.  276.  Long  acquies-  poration.  It  is  said  to  be  not  a  legal 
cence  raises  a  presumption  of  legal  in-  but  a  business  term,  'usefully  sum- 
corporation.  Rose  Hill  &  E.  R.  Co.  tning  up,  in  a  single  word,  a  Dumber 
v.  People,  115  111.  L33,  3  N.  E.  Rep.  of  business  operations  familiar  to  the 
725.    See  §  30,  supra.  commercial  world,  by  which  a  com- 

zKmma,  etc.,  Co.  v.  Lewis,   I  C.  P.  pany  is  generally  brought  int..  exist- 

Div.  396,  1 1  Ch.  Div.  918.  ence.'  " 

■Bramwell,  J.,  Twycross  v.  Grant,  2  'Lady  well,  etc.,  Co.  v.  Brookes,  35 

c.  p,  I.,.  Ch. Div. 400, 17 Am. and Eng. C. C. 22. 

•Woodbury,   etc.,    Co.    v.    Louden- 


§  53  CREATION,  ORGANIZATION    AND    CITIZENSHIP.  45 

derive  any  personal  advantage  to  the  detriment  of  the  corpo- 
ration or  its  members,  without  a  full  and  fair  disclosure  of 
their  transactions  to  those  who  are  entitled  to  act  for  the  cor- 
poration. Hence,  a  promoter,  when  acting  for  the  corpora- 
tion, can  not  purchase  property  and  sell  it  to  the  corporation 
at  an  advance,  nor  can  he  secretly  receive  a  bonus  from  the 
vendor  for  negotiating  the  sale  of  his  property  to  the  corpo- 
ration.1 

§  53.  Secret  profits. — Any  secret  profits  made  by  the  pro- 
moters of  a  corporation  while  acting  for  the  corporation  must 
be  accounted  for  and  may  be  recovered  in  equity  by  the  cor- 
poration or  its  representatives.2  In  some  cases  it  is  held  that 
a  shareholder  may  maintain  an  action  to  recover  his  share  of 
the  profits,3  or  may  sue  in  damages  for  the  fraud.4  Thus, 
where  the  promoter  deceives  the  members  of  a  corporation,  as 
to  the  actual  price  paid  for  the  property,  or  by  collusion  with 
the  vendors  is  allowed  a  commission  for  making  the  sale,  he 
is  liable  to  the  corporation  for  the  profits  accruing  to  him  from 
the  transaction.5  A  corporation  may  by  means  of  a  suit  in 
equity,  by  or  for  its  benefit,  or  by  other  appropriate  means, 
rescind  a  sale  of  property  to  it  and  recover  the  consideration 
paid  therefor,  where  the  promoters  were  the  real  vendors  and 
realized  a  profit  on  the  property,  concealing  from  the  corpora- 
chandler  v.  Bacon,  30  Fed.  Rep.  the  corporation  has  been  in  existence 
538;  Pittsburg  Min.  Co.  v.  Spooner,  74    and  engaged    in    business    for  more 

Wis.  307,  42  N.  W.  Rep.  259;  Wood-    than  a  year,  be  held  to  a  promoter's 

bury,  etc.,  Co.  v.  Loudenschlager,  55  fiduciary  duty  to  the  corporation.  Rus- 
N.  J.  Eq.  78,  35  Atl.  Rep.  436;  Pla-    sell  v.  Rock  River,  etc.,  Co.,  184  Pa. 

quemines,etc.,Co.v.  Buck,  52  N.J.  Eq.     St.  102,  39  Atl.  Rep.  21.     Article  in  16 

219,  27  Atl.  Rep.  1094;  Emery  v.  Par-    Am.  Law  Rev.  671. 

rott,  107  Mass.  95;   Yale,  etc.,  Co.  v.        2Chandler  v.  Bacon,  30  Fed.  538; 

Wilcox,  64  Conn.  101,  25  L.  R.  A.  90;     Cook  v.  Southern,  etc.,  Co.  (Miss.),  21 

Simons  v.  Min.  Co.,  61  Pa.  St.  202 ;  Get-    So.  Rep.  795,  Re  Olympia,  67  L.  J.  Ch. 

ty  v.  Devlin,  54  N.  Y.  403 ;  Burbank  v.     N.  S.  433. 

Dennis,  101  Cal.  90;  Central  Land  Co.        3Emery  v.  Parrott,  107  Mass.  95. 

v.  Obenchain,  92  Va.  130, 22  S.  E.  Rep.        '-Getty  v.  Devlin,  54  N.  Y.  403. 

876;  Emma,  etc.,  Co.  v.  Grant,  11  Ch.        5Emma,  etc.,  Co.  v.  Grant,  11  Ch. 

Div.918;  Erlangerv.  Phosphate  Co., L.     Div.  918;  Simons  v.  Vulcan  Oil  Co.,  61 

R.,  3  App.  Cas.  1218.     One  who  was    Pa.  St.  202. 

originally  a  promoter  can  not,  after 


46  THE  LAW  OF  PRIVATE  CORPORATIONS.  §  54 

tion  and  those  associated  with  them  in  organizing  it  that  they 
were  personally  interested  in  the  sale.1  One  who  organizes  a 
corporation  to  purchase  a  patent  while  he  already  has  a  secret 
agreement  with  the  owner  by  which  he  is  to  receive  a  part  of  the 
proceeds  of  the  sale,  and  who  obtains  subscriptions  to  the  stock 
of  the  company  by  stating  that  he  is  putting  his  money  into  the 
enterprise  on  the  same  basis  as  the  others,  must  account  to 
the  other  stockholders  for  the  profits  received  under  the  secret 
agreement.  The  illegality  of  the  contract  because  against 
public  policy  will  not  defeat  the  right  of  the  corporation  to  re- 
cover the  secret  profits. z 

§  54.  Owners  of  property  as  promoters. — The  rule  stated 
in  the  preceding  section  does  not  apply  when  the  owner  of 
property  becomes  the  promoter  of  a  corporation  which  it  is  in- 
tended shall  become  the  purchaser  of  the  property.  In  this  case 
in  acquiring  the  property  the  promoter  acted  for  himself,  and 
did  not  assume  to  act  for  the  corporation.  In  the  absence  of 
false  representations,  and  when  the  subscribers  have  an  oppor- 
tunity to  ascertain  the  condition  of  the  land,  it  is  immaterial 
what  the  property  may  have  originally  cost  the  vendor.3  The 
rule  is  well  stated  by  Mr.  Justice  Sharswood  :4  "There  are 
two  principles  applicable  to  all  partnerships  or  associations  for 
a  common  purpose  of  trade  or  business,  which  appear  to  be 
well  settled  on  reason  and  authority.  The  first  is  that  any 
man  or  number  of  men  who  are  the  owners  of  any  kind  of 
property,  real  or  personal,  may  form  a  partnership  or  associa- 
tion with  others,  and  sell  that  property  to  the  association  at 
any  price  which  may  be  agreed  upon  between  them,  no  matter 
what  it  may  have  originally  cost,  provided  there  be  no  fraudu- 
lent misrepresentations  made  by  the  vendors  to  their  associates. 
They  are  not  bound  to  disclose  the  profits  which  they  may 
realize  from  the  transaction.     They  were  in  no  sense  agents  or 

'Hebgen  v.  Koeffler  (Wis.) ,  72  X.  A.   837;    Plaquemines,    etc.,    Co.    v. 

\V.  Rep.  745.  Buck,  52  N.  J.  Eq.  219,  '-'7  Ail.  Rep. 

'Yale,   etc.,    Works  v.    Wilcox,  <;»  1094;  Franey  v.  Warner,  96  Wis.  222. 
Conn.  101,26  I..  I:.   L  90.  'Densmore,  etc.,  Co.  v.   Densmore, 

•Milwaukee,  etc.,  Co.  v.  Dexter,  :»'.»  c,i  Pa.  St.  18. 
Wis.  L'l  t,  7  1  X.  W.   Rep.  976,  40  I..  R. 


§  54  CREATION,  ORGANIZATION    AND    CITIZENSHIP.  47 

trustees  in  the  original  purchase,  and  it  follows  that  there  is  no 
confidential  relation  between  the  parties,  which  affects  them 
with  any  trust.  It  is  like  any  other  case  of  vendor  and  vendee. 
They  deal  at  arm's  length.  Their  partners  are  in  no  better 
position  than  strangers.  They  must  exercise  their  own  judg- 
ment as  to  the  value  of  what  they  buy.    *   *   * 

"The  second  principle  is  that  where  persons  form  such  an  as- 
sociation, or  begin  or  start  the  project  of  one,  from  that  time 
they  do  stand  in  a  confidential  relation  to  each  other,  and  to 
all  others  who  may  subsequently  become  members  or  subscrib- 
ers, and  it  is  not  competent  for  any  of  them  to  purchase  prop- 
erty for  the  purposes  of  such  a  company  and  then  sell  it  at  an 
advance  without  a  full  disclosure  of  the  facts.  They  must  ac- 
count to  the  company  for  the  profits,  because  it  legitimately  is 
theirs." 

In  another  case,1  where  there  were  actual  misrepresentations, 
it  was  said:  "If,  in  order  to  get  up  a  company,  they  repre- 
sented themselves  as  having  acted  for  the  association  to  be 
formed,  and  proposed  to  sell  at  the  same  prices  they  paid,  and 
their  purchases  were  taken  on  these  representations,  and  stock- 
holders invested  in  reliance  upon  them,  it  would  be  a  fraud  on 
the  company  and  all  those  interested,  to  allow  them  to  retain  the 
large  profits  paid  them  by  the  company  in  ignorance  of  the  true 
sums  actually  advanced." 

In  this  case  the  defendants  were  subscribers  with  others  to 
the  stock  of  a  projected  company,  and  after  the  plan  had  been 
formed,  secured  to  themselves  an  option  upon  the  property, 
which  they  afterwards  sold  to  the  company  at  a  greatly  ad- 
vanced price. 

A  promoter  is  not  required  to  account  for  profits  arising  from 
a  sale  of  land  to  a  corporation  at  an  advance  of  the  price  paid 
for  it  by  him  where  a  notice  was  attached  to  all  the  subscrip- 
tion papers  to  the  effect  that  he  had  an  option  and  would  sell 
the  land  to  the  corporation  for  a  specified  amount  and  no  rep- 
resentations were  made  as  to  the  amount  he  had  paid  for  it.2 

:Sirnona  v.  Vulcan  Oil  Co.,  61  Pa.  St.        2Richardson  v.  Graham  (W.  Va.), 
202,  217.  30  S.  E.  Rep.  92. 


48  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  OO 

§  55.  Personal  liability  of  promoters  on  contracts. — When 
promoters  assume  to  contract  in  the  name  of  a  corporation  not 
in  being  they,  upon  well  understood  principles  of  law,  be- 
come liable  individually  upon  such  contracts.  This  is  true  in 
all  cases  unless  the  creditor  expressly  waives  his  rights  against 
the  promoters  and  agrees  to  look  to  the  future  corporation  foi 
the  payment  of  his  debt.1  The  intention  of  the  creditor  in 
such  a  case  is  always  a  question  of  fact,  and  is  properly  sub- 
mitted to  a  jury.2  An  express  agreement  with  the  promoters 
that  the  creditor  will  look  to  them  alone  for  payment  inures 
to  the  benefit  of  the  corporation  when  organized,  and  it  is 
therefore  not  liable  upon  the  contract,  although  its  charter 
contains  an  express  provision  that  it  shall  be  liable  for  such 
debts  when  incurred  in  connection  with  its  organization.3 

§  56.  Liability  to  subscribers  whose  subscriptions  are  ob- 
tained by  fraud. — The  promoters  of  a  corporation  are  liable  in 
damages  to  subscribers  for  stock  whose  subscriptions  are  ob- 
tained by  fraud.4  Under  the  English  statute  every  contract  re- 
lating to  the  formation  of  a  corporation  or  to  its  capital,  property 
or  business,  when  formed  ;  or  to  the  position  pecuniary  or 
otherwise  in  regard  to  the  company  or  its  promoters  or  ven- 
dors ;  or  of  the  directors  or  other  officers  of  the  company, 
which  may  affect  the  judgment  of  a  person  invited  to  take 
shares,  must  be  disclosed,  if  one  of  the  parties  to  the  contract  is, 
at  the  date  of  the  contract,  or  subsequently  becomes,  a  director, 
promoter  or  trustee  of  the  company.5  Hence,  where  the  owner 
of  property  agreed  to  sell  it  to  a  company  for  a  stipulated 
amount,  but  by  a  scries  of  contracts  it  was  arranged  that  only 

xOarmody  v.  Powers,  60  Midi.  26,  '-'<i  826.    Bee  articles  in  L6  Am.  Law  Rev. 

N.  W.  Rep.  801.    See  Morion  v.  Hani-  281  and  671. 

ilton  College  'Ky.i,  36  l>.  R.  A.  275;  "Biggins  v.  Bopkins,  3  Exch.  (W. 

Shields  \.  Clifton   Hill,  etc.,  <'<>.,  '-'i  B.  >^  G.)  163. 

Trim.  123,  26  L.  R.  A.  509;  Walton  v.  'Savin  v.  Boylake  R.  Co.,  L.  i:.,  I 

Oliver,  49  Kan.  107,  30  Pac.  Rep.  172;  Exch.  9. 

Bersey  v.  Tully,  8  Colo.  App.  L10,  44  'Miller  v.  Barber,66  N.  Y.558;  Pad- 

Pac.   Rep.  854;   Roberts,  etc.,  Co.   v  dock  v.  Fletcher,  42  Vt.  389. 

Schlick,  62  Minn.  332,  64  X.  \V.  Rep.  'Statement  of  rule  in  7  Eng.  Rul. 

Cms.    197. 


§  57  CREATION,   ORGANIZATION    AND    CITIZENSHIP.  49 

a  small  portion  of  this  sum  should  be  retained  by  them,  and 
the  balance  divided  among  the  promoters,  and  the  prospectus 
did  not  disclose  these  contracts,  and  the  plaintiffs  subscribed  for 
shares  without  knowledge  of  the  facts,  they  were  allowed  to  re- 
cover the  value  of  the  shares,  for  which  they  subscribed,  from 
the  promoters.1 

§  57.     Fraudulent  prospectus. — One  who  is  induced  to  sub- 
scribe for  stock  in  a  corporation  by  fraudulent  representations 
contained  in  a  prospectus  issued  by  the  promoters  of  a  corporation 
may  recover  the  resulting  damages  from  the  promoters.   In  Eng- 
land the  original  allottee  of  shares  alone  is  entitled  to  maintain 
the  action.     But  a  purchaser  from  an  original  allottee  may  re- 
cover damages  caused  by  misrepresentations  in  the  prospectus, 
if  he  can  show  that  the  prospectus  was  intended  by  those  is- 
suing it  to  be,  and  was  in   fact,  communicated  to  him  prior 
to  his  purchase  of  the  shares.     The  rule  is  founded  upon  the 
theory  that   when   the  allotment  was   completed  the  office  of 
the  prospectus  was  exhausted,  and  that  a  person  who  had   not 
become  an  allottee,  but  was  a  subsequent  purchaser  of  shares 
in  the  market,  was  not  so  connected  with  the  prospectus  as  to 
render  those  who  had  issued  it  liable  to  indemnify  him  against 
the   losses   which  he  had  suffered  in  consequence  of  the  pur- 
chase.2    Under    the    American    decisions   when    directors  or 
promoters  of  a  corporation  knowingly  issue  or  sanction  the 
circulation  of  a  false  prospectus,  containing  untrue  statements 
of  material  facts,  the  natural  tendency  of  which  is  to  deceive 
and  mislead  the  community,  and  to  induce  the  public  to  pur- 
chase its   stock,  they  are  responsible  to  those  who  are  injured 
thereby.3     Judge  Thompson,  after  criticising  the  rule  of  Peek 
v.  Gurney,  says:4     "It   is  a  subject  of   congratulation   that  a 
doctrine    so   plainly  destitute    of    any    foundation  in   reason, 

Sullivan  v.  Metcalfe,  5  C.  P.  D.  455,  Cross  v.  Sackett,  2  Bosw.  617  (N.  Y.). ; 

7  Eng.  Rul.  Cas.  497.     ,  Watson  v.  Crandall,  7  Mo.  App.  233, 

2Peek  v.  Gurney,  L.  R.,6  H.  L.377;  78  Mo.  583;  Bruff  v.  Mali,  36  N.  Y. 

Scott  v.   Dickson,   29   L.   J.  Ex.  62;  200;   Cazeaux  v.  Mali,  25  Barb.  578 

Deny  v.  Peek,  14  App.  Cas.  337.  (N.  Y.). 

3Morgan  v.  Skiddy,  62  N.  Y.  319;  Thompson  Corp.,  II,  §  1472. 
4 — Private  Corp. 


50  THE    LAW    OF    PRIVATE    CORPORATIONS.  §    58 

and  so  opposed  to  common  opinions  of  justice  and  business 
morality,  has  not  obtained  a  foothold  in  this  country.  We 
follow  the  doctrine  of  the  overruled  decisions  in  England, 
and  hold  that  it  is  not  necessary  in  order  to  support  such  an 
action,  that  the  false  representations  were  made  directly  to  the 
plaintiff.  It  will  be  sufficient  if  they  were  contained  in  cir- 
culars, prospectuses,  or  other  advertisements,  with  a  view  of 
influencing  the  public  at  large,  or  any  member  of  the  public, 
who  might  be  influenced  by  them  to  purchase  shares;  and 
that  the  plaintiff  saw  them,  and  on  the  faith  of  the  state- 
ments contained  in  them  became  a  purchaser  of  shares.  ' 
It  is  not  necessary  that  the  representations  should  have  been 
communicated  directly  to  the  persons  thereby  induced  to  pur- 
chase the  shares.  Nor  is  it  necessary  that  they  should  have 
been  concocted  with  a  view  of  deceiving  those  particular  per- 
sons; it  is  sufficient  that  they  were  concocted  with  a  view  of 
deceiving  any  person  whom  the  deception  might  catch  and 
impose  upon." 

§  58.  Liability  of  corporation  on  contracts  made  by  pro- 
motors. — As  a  general  rule  a  corporation  is  not  liable  on  the 
contracts  of  its  promoters,  and  parties  who  have  contracted 
with  them  in  the  name  of  the  corporation  have  no  right  of 
action  against  it  unless  the  engagement  made  on  its  behalf  is 
subsequently  adopted  by  it.1  No  relation  of  agency  can  exist 
between  the  promoter  and  a  principal  not  in  existence.  The 
rule  of  non-liability  is  not  affected  by  the  fact  that  the  pro- 

'Munson   v.   Syracuse  R.   Co.,  103  Joaquin,  etc,  (V   v.    West,  94  Cal. 

N.  Y.  58;  Gent  v.    Mfg.,    etc.,    Co.,  399;  Pittsburgh,  etc.,  Co.  v.  Quintrell, 

107    Hi.  662;    Western,   etc.,   Co.   v.  91  Tenn.  693;    Winters  v.   Hub,  etc., 

Cousley,  72  111.  531;  Weatherford  \.  Co.,  67  Fed.  287.     A  contract  to  offer 

Railway  Co.,86Tex.  860;  Carey  v.Min-  stock  to  the  corporation  :it  tin'  lowest 

ingCo.,81  [owa674,  l7N.W.Rep.882;  price  al  which  the  holder  is  willing  to 

idard,  etc.,  Co.  v.  Dem.,  etc.,  Co.,  sell,  before  offering  it   to  any  other 

87  Wis.  127,58  X.  W.  Rep.  238;  Bat-  purchaser,  is  uot  binding  in  favor  of 

telle   v.    V    \\\,  He,   Co.,  37    Minn,  the  corporation  when  il  wasmadeby 

M.-  Vrthur  v.  Times,  etc.,  <'"..  48  proposed  stockholders  before  the  cor- 

Minn.819;  Davis  v.  Ravenna,  etc.,Co.,  poration   \\:is  in  existence  as  a  legal 

reb.  171,87  N.  W.  Rep.  136;  Buf-  entity.     Ireland    v.  Globe,  etc.,   Co. 

flngton  v.   Bardon,  80  Wis.  635;  San  f  U.  [.),88  Ail.  Rep.l  16,88  L.  R.A.299. 


§  59  CREATION,  ORGANIZATION    AND    CITIZENSHIP.  51 

moters  become  the  sole  stockholders  of  the  corporation.1  A 
corporation  is  not  responsible  for  representations  made  by  its 
promoters.2 

§  59.  Adoption  of  contract  by  corporation. — No  rights, 
legal  or  equitable,  arise  in  favor  of  a  corporation  in  respect  of 
transactions,  whether  complete  or  inchoate,  merely  because 
entered  into  in  contemplation  of  the  creation  of  such  corpora- 
tion.8 But  if  the  corporation  has  the  power  to  enter  into  such 
a  contract,  it  may  adopt  the  contract  made  in  its  name  by  the 
promoters,  and  thus  bind  itself  to  its  performance.  It  then 
becomes  liable  by  virtue  of  the  act  of  adoption,  and  not  upon 
the  theory  of  the  agency  of  the  promoters.  It  does  not,  strictly 
speaking,  ratify  the  acts  of  the  promoters,  as  ratification  im- 
plies an  existing  principal;  it  enters  into  a  new  contract,  which 
dates  from  the  time  of  the  act  of  adoption.4  The  act  of  adopt- 
ing the  contract  must  be  attended  by  the  formalities  necessary 
to  the  making  of  an  original  contract.  Thus,  if  the  use  of  a 
seal  or  a  resolution  of  the  board  of  directors  is  necessary  to 
the  making  of  such  a  contract,  it  is  necessary  when  the  cor- 
poration adopts  a  contract  made  by  a  promoter  for  it.  Under 
ordinary  circumstances  the  adoption  of  the  agreement  may  be 
shown  by  acts  of  acquiescence  on  the  part  of  the  corporation 
or  its  authorized  agents.5     The  president  or  general  manager  of 

^attelle  v.  N.  W.,  etc.,  Co.,  37  charged  by  virtue  of  the  technical  doc- 
Minn.  89.  But  see  Paxton  v.  Bacon,  trine  of  ratification,  which  applies  only 
etc.,  Co.,  2  Nev.  259  (New  ed.),  768.  to  acts  performed  on  behalf  of  an  ex- 

201dham  v.  Mt.  Sterling,  etc.,   Co.  isting  principal,  see    also  Caledonia, 

(Ky.),  45  S.  W.  Rep.  779.  etc.,  Co.  v.  Helensburg,  etc.,  Trustees, 

'Plaquemines,  etc.,  Co.  v.  Buck,  52  2  Macq.  H.  L.  Cas.  391,  409;  Oakes 

N.  J.  Eq.  219,  24  Atl.  Rep.  1094.  v.    Cattaraugus,    etc.,    Co.,    143  N.  Y. 

4Richardson  v.   Graham  (W.  Va.),  430;   dissenting  opinion,   Melhado  v. 

30  S.  E.  Rep.  92 ;  McArthur  v.  Times,  Porto  Alegre,  etc.,  R.  Co.,  L.  R.  9  C.  P. 

etc.,  Co.,  48  Minn.  319;   Huron,  etc.,  503.    It  is  sometimes  said  that  there 

Co.    v.    Kittleson,    4    S.    Dak.    520;  may  be  a  ratification.     See  Oakes  v. 

Weatherford  v.  R.  Co.,  86  Tex.  350,  24  Cattaraugus,  etc.,  Co.,  143  N.  Y.  430, 

S.  W.  Rep.  795;  Reichwald  v.  Com-  and  note  26  L.  R.  A.  546. 
mercial  Hotel,  106  111.  439.  5Oakes  v.  Cattaraugus,  etc.,  Co.,  143 

That  the  corporation   can    not    be  N.  Y.  430,  26  L.  R.  A.  544. 


52 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§60 


a  corporation  may  adopt  a  contract  made  by  himself  for  the 
corporation  before  it  was  legally  created  which  he  would  have 
power  to  make  at  the  time  of  the  adoption.1  An  adoption  pro- 
cured by  the  active  co-operation  of  directors  who  have  a  pri- 
vate interest  in  the  contract  does  not  bind  the  corporation.2 
In  Massachusetts  it  is  held  that  a  corporation  can  not  become 
a  party  to  a  contract  made  in  its  name  by  promoters  before 
the  organization  of  the  corporation,  even  by  adoption.3 

§  GO.  Acceptance  of  benefits  under  the  contract. — A  corpo- 
ration may  become  liable  on  a  contract  made  by  its  promoters 
by  reason  of  acts  which  create  an  estoppel.  If  it  accepts  the 
benefits  which  accrue  under  the  contract,  it  can  not  escape  re- 
sponsibility for  the  burdens.4  Thus  where  the  promoters 
agreed  on  behalf  of  a  railway  company  that  if  a  bonus  was 
given,  the  road  would  be  constructed  between  certain  points, 
and  that  coal  would  be  carried  at  a  stipulated  rate,  it  was  held 
that  by  accepting  the  bonus  the  company  was  bound  to  com- 


lBattelle  v.  N.  W.  Cement  Co.,  37 
Minn.  89;  Burden  v.  Burden,  40  N.  Y. 
Sup.  499;  Sch*eyer  v.  Mills  Co.,  29 
Ore.  1,  43  Pac.  Rep.  719. 

In  Ireland  v.  Globe,  etc.,  Co.(R.  I.), 
38  Atl.  Rep.  11(5,  38  L.  R.  A.  299,  it  was 
held  that  the  mere  issue  of  certificates 
of  stork  by  a  corporation  is  not  a  ratifi- 
cation of  a  contract  made  before  it 
came  into  existence,  between  the  pro- 
posed incorporators  to  the  effect  that 
they  would  not  transfer  their  shares 
without  giving  the  company  an  option 
to  purchase  them. 

8Munsou  v.  Syracuse,  etc.,  R.  Co., 
103  N.  V.  58. 

•Abbott  v.  Bapgood,  150  Mass.  248, 
22  N.  E.  Rep.  907;  Penn,  etc.,  Co.  v. 
Hapgood,  i  II  Mass.  145,  7  N.  E.  Rep. 
22. 

1  Chicago,  etc.,  Co.  v.  Creamery  Co. 

i.   Rep.809;  Weatherford, 

etc.,R.Co.v.  Granger,  86  Tex.  350,248. 

VV.  Rep.  795 ;  Pax  ton,  etc.,  <  !o.  v.  First 


National  Bank,  21  Neb.  621,  33  N.  W. 
Rep.  271 ;  Grape,  etc.,  Co.  v.  Small,  40 
Md.395 ;  Moore,  etc.,  Co. v. Towers, etc., 
Co.,  87  Ala.  206,  6  So.  Rep.  41 ;  Frank- 
fort, etc.,  Co.  v.  Churchill,  6  T.  B.  Mon. 
427,  17  Am.  Dec.  159.  In  Morton  v. 
Hamilton  College  (Ky.),  38  S.  W.  Rep. 
1,  35  L.  R.  A.  275,  it  was  held  that 
promoters  of  an  incorporated  college 
who  advance  money  or  assume  an  ob- 
ligation to  pay  the  interest  on  one  of 
the  subscriptions  to  a  fund  forthe pur- 
chase of  property  of  the  college,  when 
to  do  this  it  is  necessary  to  obtain  the 
subscription,  and  it  is  done  at  the  re- 
quest of  some  and  w  itli  the  consent  of 
all  Of   those  acting   as   trustees   of    the 

prospective  corporation,  on  the  under- 
standing that  the  college  will  repay 
them  or  save  them  harmless,  can  re- 
cover iroiii  it  the  amount  of  such  in- 
terest Which  fhev  have  been  compelled 
to  pay  and  which  went    into   the   fund 

used  in  buying  the  college  property. 


§  61  CREATION,   ORGANIZATION    AND    CITIZENSHIP.  53 

ply  with  the  terms  of  the  contract.1  So  where  a  number  of 
persons  not  incorporated,  but  associated  for  a  common  object, 
intending  to  procure  a  charter,  authorize  acts  to  be  done  in 
furtherance  of  their  object  by  one  of  their  number,  with  the 
understanding  that  he  should  be  compensated,  it  was  held  that 
if  such  acts  were  necessary  to  the  organization,  and  were  ac- 
cepted by  the  corporation  and  the  benefits  thereof  enjoyed,  they 
must  be  taken  with  the  burden.  The  court  said:  "If  the  body 
for  whom  the  projectors  assumed  to  act  does  come  into  exist- 
ence, it  can  not  take  the  benefits  of  the  contract  without  per- 
forming that  part  of  it  which  the  projectors  undertook  that  it 
should  perform."2 

Where,  after  the  execution  of  articles  of  incorporation  and 
the  selection  of  officers,  but  before  the  filing  and  recording  of 
the  articles,  and  before  the  time  fixed  by  the  articles  for  com- 
mencing business,  the  president  in  the  name  of  the  corpora- 
tion executed  a  promissory  note  in  payment  for  certain  prop- 
erty which  after  the  perfecting  of  the  corporation  came  into 
the  possession  of  the  corporation  as  its  property  and  continued 
to  be  used  by  it  as  such,  the  corporation  is  liable  on  the  note. 
The  court  said:  "The  conclusion  is  inevitable,  granting  the 
entire  want  of  power  on  the  part  of  the  officers,  or  promoters 
of  the  corporation  to  act  as  such  at  the  date  of  the  note,  that 
the  retaining  possession  of  the  consideration  by  the  corpora- 
tion after  its  organization  is  a  ratification  of  the  contract  with 
all  its  terms  and  obligations."3 

§  61 .    Limited  to  obligations  of  the  accepted  contract. — The 

acceptance  of  the  contract  entered  into  by  the  promoters  im- 
poses upon  the  corporation  liability  only  for  the  obligations 
which  grow  out  of  the  contract.  "When  it  is  said  that  when 
a  corporation  accepts  the  benefit  of  a  contract  made  by  its  pro- 
moters, it  takes  it  cum  onere,  it  is  important  to  understand  dis- 
tinctly what  is  meant.     There  is,  so  far  as  this  matter  is  con- 

1  Weatherford,  etc.,  R.  Co.  v.  Gran-  2Bell,  etc.,  R.  Co.  v.  Christy,  79  Pa. 

ger,  86  Tex.  350,  2*  H.  V/.  Rep.  795,  St.  54. 

Wilgus'  Cases ;  Burrows  v.  Smith,  10  3Paxton  Cattle    Co.   v.   First  Nat'l 

N.  Y.  550.  Bank,  21  Neb.  621,  33  N.  W.  Rep.  271. 


54  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  62 

cerned,  a  radical  difference  between  a  promise  made  on  behalf 
of  the  future  corporation  in  the  contract  itself,  the  benefits  of 
which  the  corporation  has  accepted,  and  the  promise  in  a  pre- 
vious contract  to  pay  for  services  in  procuring  the  latter  to  be 
made. "  Hence,  where  a  proposition  was  made  on  behalf  of  the 
company  by  its  promoters  that  if  a  bonus  should  be  subscribed 
and  paid  to  it,  it  would  build  its  road  between  certain  points, 
and  would  carry  coal  at  a  certain  stipulated  rate,  by  accepting 
the  bonus  the  company  became  bound  to  fulfill  the  stipulations 
of  the  contract.  But  where  it  appeared  that  one  of  the  pro- 
moters promised  the  plaintiff  that  if  he  would  assist  in 
procuring  subscribers  to  the  bonus,  the  company  would  pay 
him  for  his  services,  this  was  no  part  of  the  contract  the 
benefits  of  which  were  taken  by  the  company.  Hence,  by  ac- 
cepting the  contract,  the  company  did  not  become  liable  for 
such  services.1 

§  62.      The    expenses  and    services   of   promoters.  —  The 

great  weight  of  authority  supports  the  rule  that  corporations 
are  not  liable  for  expenses  incurred  or  services  rendered  in  the 
organization  of  the  corporation  unless  made  so  by  statute  or  by 
its  charter.2  But  it  has  been  held  that  where  the  corpora- 
tion accepts  the  benefit  of  the  services  legitimately  rendered  or 
of  expenses  incurred  before  its  organization,  and  which  were 
necessary  for  its  organization,  it  is  estopped  to  deny  liability 
therefor.3  In  such  case  the  services  must  have  been  necessary 
and  reasonable,  and  rendered  with  the  understanding  that  they 
should  accrue  to  the  benefit  of  the  corporation,  and  with  the 
expectation  that  they  would  bo  paid  for  by  it.4  The  liability 
rests  upon  a  promise  implied  by  law  from  the  fact  that  thecor- 
poration,  after  it  had  capacity  to  contract,  accepted  the  benefits, 
uii' I  therefore  must   he  deemed  to  have  taken  the  burdens  at  the 

1  Weatherford,  etc.,  It.  Co.  v.  Gran-  Div.  103;  Davie,  etc.,  Co.  v.  Hillaboro, 

ger,  86 Tex.  861,  24  S.  W.  Rep.  795.  etc.,  Co.,  10  [nd.  A.pp.  12. 

•Rockford,  <•<<-.,  R.  Co.  v.  Bsge,  65  *Low  v.  Conn.,  etc.,  R.  Co.,  15  N. 

III.  828,  16  \m.  R.587;  N.  Y.&  N.  II.  H.370. 

i:   Co        Ketchum,  27  Conn.  170;  Re  *  Perry  v.  R.  Co.,  44  Ark.  383;  West 

Elotherham  Alum  Co.,  L.  R.  25  Ch.  Point,  etc.,  Co.  v.  Robo  (Miss.,  May 

23,  1898),  23  So.  Rep.  629. 


§  63  CREATION,  ORGANIZATION    AND    CITIZENSHIP.  55 

same  time,  and  is  estopped  to  show  want  of  capacity  to  make 
the  contract.  This  rule  practically  renders  a  corporation  liable 
in  all  cases  for  services  and  expenses  rendered  in  its  organiza- 
tion, which  it  necessarily  accepts  by  existing. 

Where  services  are  rendered  at  the  request  of  all  the  corpo- 
rators, and  after  incorporation  no  outside  persons  or  capital  are 
taken  in,  it  is  held  that  the  corporation  may  be  liable  in  equity 
for  the  value  of  such  services.  "  Under  such  circumstances 
the  property  of  no  one  but  those  who  contracted  the  debts  and 
were  originally  liable,  would  be  taken  or  subjected  to  the  pay- 
ment of  it.  The  same  persons  continue  the  same  business 
with  the  same  property  with  no  substantial  change  except  in 
name.  In  such  a  case  there  is  no  reason  why  in  equity  the 
corporation  should  not  be  primarily  liable  for  the  debts,  as  it 
has  succeeded  to  the  property  of  the  association."  But  this 
rule  does  not  apply  where  third  persons  join  the  corporation.1 

IV.      Corporations    as    Persons    and    Citizens. 

§  63.  The  citizenship  of  a  corporation. — For  the  purposes 
of  jurisdiction  a  corporation  is  taken  to  be  a  citizen  of  the 
state  by  which  it  was  created.2  The  theory  that  the  corporate 
person  has  a  residence  in  the  land  of  its  birth  without  refer- 
ence to  its  constituent  parts  controls  the  decision  in  many 
cases.  But  the  supreme  court  of  the  United  States  bases  its 
decisions  upon  the  presumption  that  all  of  the  stockholders  of 
a  corporation  are  citizens  of  the  state  which  created  the  cor- 
poration. Originally  this  presumption  was  one  of  fact  and 
the  subject  of  allegation  and  traverse,  which  permitted  the 
jurisdiction  of  the  federal  courts  to  be  defeated  by  showing 
the  actual  residence  of  the  stockholders.  But  after  a  long 
contest,  it  is  settled  that  the  presumption  of  citizenship  is  one 
of  law,  which  can  not  be  overthrown  by  evidence.3     "  Strictly 

iPaxton  v.  Bacon  Mill  Co.,  2  Nev.  106  U.  S.  118;  Connor  v.  Yicksburg  E. 

258 ;  Ritchie  v.  McMullen,  79  Fed.  Rep.  Co.,  36  Fed.  Rep.  273,  1  L.  R,  A.  331 ; 

523  (C.  C.  A.),  64  Fed.  Rep.  253.  St.  Louis,  etc.,  R.  Co.  v.  Newcom,  6 

EShaw  v.  Quincy  Min.  Co.,  145  U.  S.  C.  C.  A.  172,  Ann. 

444;  Nashua  R.  Co.  v.  Lowell  R.  Co.,  3St.  Louis,  etc.,  R.'Co.  v.  James,  161 

136  U.   S.  356;  S.  S.  Co.  v.  Tugman,  U.  S.  545,  Wilgus'  Cases;    Muller  v. 

Dows,  94  IT.  S.  444. 


56  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  64 

speaking,"  says  Judge  McCrary,1  "  corporations  can  not  be 
citizens;  and,  therefore,  in  order  to  hold  them  amenable  to  the 
federal  jurisdiction  on  the  ground  of  citizenship,  it  has  been 
found  necessary  to  assume,  often  contrary  to  the  fact,  that  all 
the  stockholders  are  citizens  of  the  state  by  which  the  corpora- 
tions are  created.  It  is  only  by  virtue  of  this  assumption  that 
a  corporation  can  be  said  to  be  a  citizen  of  any  state.  The 
presumption  that  all  the  stockholders  are  citizens  of  the  state 
under  whose  laws  they  incorporate  is  a  conclusive  presump- 
tion, and  the  facts  will  not  be  inquired  into." 

§  64.  Incorporation  in  several  states. — It  is  not  uncommon 
for  several  states  to  incorporate  what  to  all  intents  and  pur- 
poses is  the  same  corporation.  It  is  impossible,  however,  for  a 
state  to  give  extraterritorial  force  to  its  laws.2  And,  hence, 
although  bearing  the  same  name,  there  are  as  many  corpora- 
tions as  there  are  creating  states.3  For  purposes  of  jurisdic- 
tion the  corporation  is  a  corporation  of  each  state,  and  when 
acting  in  either  of  the  states  it  acts  under  the  authority  of  the 
charter  from  that  state.4  Subject  to  constitutional  limitations, 
a  legislature  has  entire  control  over  the  matter  of  creating  cor- 
porations, and  may  thus  provide  a  method  by  which  a  foreign 
corporation  may  become  a  domestic  corporation.  A  corpora- 
tion, as  chartered  in  a  foreign  state,  may  thus  be  made  a 
domestic  corporation.5     "  It  is  not  true  that  one  state  may  not 

'Pac.  R.  Co.  v.  Mo.  Pac.  R.  Co.,  23  8Mo.  Pac.  R.  Co.  v.  Meeh,  69   Fed. 

Fed.  Rep.  565.  Rep.  753,  30  L.  R.  A.  250;  Bridge  Co. v. 

As  the  jurisdiction   rests  upon  the  Woolley,  78  Ky.  623;  Louisville,  etc., 

citizenship  of  the  parties,  a  pleading  R.  Co.v.  N.A.  &0.  R.  Co., 75 Fed.  Rep. 

musl   allege  the  state  by  which  the  433;  R. Co.  v.  Roberson,  01  Fed.  Rep. 

corporation     was  created,    ami    this  592;   Nashua,  etc.,  Corp.  v.  Boston, 

musl  be  a  foreign  state.     Noaverment  etc.,  Corp.,  136  U.  S.  356. 

of  citizenship  of  the  stockholders   is  'Quincy  Bridge  Co.  v.  Adams,  88  111. 

permitted.  ,;i"'- 

LaFayette  [ns.   Co.  v.    French,  18  "Stout  v.  R.  Co.,  8  Fed.  Rep.  7t)4; 

How.  (U.  S.)  404;    B.  &  0.   R.  Co.  v.  James  v.  R.  Co.,  46   Fed.  Rep.  47.    A 

Mil,        [2   Wallace  (TJ.   B.)  65;  St..  railroad  corporation  chartered  by  one 

Louis,  etc.,R.  Co.  v.  Newcom,66  Fed.    state  becomes  adomesti rporation 

Rep,  951,  <>  < '.  < '.  A.  172.  of  another  state  by  acquiring  by  con- 

*Rece  v.  Newport  News    R.   Co.,  82  solidation  the  property  and  franchises 

\V.  Va.  L64,  3  L.  R.  A.  672.  of  two  domestic  railway  corporations 


§  65  CREATION,   ORGANIZATION    AND    CITIZENSHIP.  57 

incorporate  a  corporation  of  another  state  as  such.  It  may  be 
done,  too,  without  any  specific  provisions  for  the  stock  or  inter- 
nal government  of  the  new  corporation."1  When  a  corporation 
is  created  out  of  a  corporation  of  another  state,  the  indisputable 
presumption  of  citizenship  of  the  members  which  arises  when 
the  corporators  are  individuals  does  not  apply  ;  and  the  new 
corporation  for  purposes  of  Federal  jurisdiction  is  regarded  as 
a  citizen  of  the  same  state  as  that  of  the  constituent  corpora- 
tion.2 

§  65.  Citizenship  within  the  fourteenth  amendment. — A  cor- 
poration is  not  a  citizen  of  the  United  States  within  the  mean- 
ing of  all  the  provisions  of  the  constitution  of  the  United 
States  ;  but  it  is  a  person  within  the  meaning  of  the  clause  in 
§  1  of  the  fourteenth  amendment  to  the  constitution,  which 
forbids  a  state  to  deny  to  any  persons  in  its  jurisdiction  the 
equal  protection  of  the  laws.3  A  statute  of  Tennessee  which 
gave  to  residents  of  that  state  priority  over  non-residents  in  the 
distribution  of  the  assets  of  a  foreign  corporation,  which,  by 
riling  its  articles  of  association  in  the  state,  became  a  domestic 
corporation,  was  held  unconstitutional,  in  so  far  as  it  discrim- 
inated against  citizens  of  other  states.4  "  But  it  is  equally  well 
settled,"  said  Mr.  Justice  Harlan,  "and  we  now  hold  that  a 
corporation  is  not  a  citizen  within  the  meaning  of  the  constitu- 
tional provision  that  '  the  citizens  of  each  state  shall  be  en- 
titled to  all  privileges  and  immunities  of  citizens  in  the  several 
states.'      *     *     *      Since,  however,  a  corporation   is  a   '  per- 

of  the  latter  state.     Bradley  v.  Ohio,  R.  Co.  v.  Beckwith,  129  U.  S.  26;  Cov- 

etc,  R.  Co.,  78  Fed.  Rep.  387,  119  N.  ington,  etc.,  Co.  v.  Sanford,  164  U.  S. 

C.  718.  592;  Smythe  v.  Ames,  169  IT.  S.  522; 

Louisville,  etc.,  R.  Co.  v.  Ry.  Co.,  Hammond,  etc.,  Co.  v.  Best,  91  Me. 

75  Fed.  Rep.  433;  Clark  v.Barnard,  108  431,  42  L.  R.  A.  528.     But  the  four- 

U.  S.  436;  Graham  v.  Ry.  Co.,  118  IT.  S.  teenth  amendment  does  not  destroy 

161 ;  Railway  Co.  v.  Roberson,  61  Fed.  the  police  power  of  the  state.   See  note 

Rep.  592.  to  State  v.  Goodwill,  25  Am.  St.  Rep. 

2Railway  Co.  v.  James,  161 TJ.  S.  545.  870-890. 

3Santa  Clara  County  v.  South.  Pac.  4  Blake  v.  McClung,  172  TJ.  S.  239, 

R.,  118  U.  S.  394;  Pembina,  etc.,  Co.  Wilgus'  Cases.     The  chief  justice  and 

v.  Pa.,  125  TJ.  S.  187;  Mo.  Pac.  R.  Co.  Mr.  Justice  Brewer  dissenting, 
v.  Mackey,  127  TT.  S.  205 ;  M.  &  St.  L. 


58  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  65 

son  '  within  the  meaning  of  the  fourteenth  amendment  *  *  * 
may  not  the  Virginia  corporation  invoke  for  its  protection  the 
clause  of  the  amendment  declaring  that  no  state  shall  deprive 
any  person  of  property  without  due  process,  nor  deny  to  any 
person  within  its  jurisdiction  the  equal  protection  of  the  laws? 
We  are  of  opinion  that  this  question  must  receive  a  negative 
answer.  Although  this  court  has  adjudged  that  the  prohibi- 
tions of  the  fourteenth  amendment  refer  to  all  the  instrumen- 
talities of  the  state,  to  its  legislative,  executive,  and  judicial 
authorities,  it  does  not  follow  that  within  the  meaning  of  that 
amendment  the  judgment  below  deprived  the  Virginia  corpora- 
tion of  property  without  due  process  of  law,  simply  because 
its  claim  was  subordinated  to  the  claims  of  the  Tennessee 
creditors.  That  corporation  was  not,  in  any  legal  sense,  de- 
prived of  its  claim,  nor  was  its  right  to  reach  the  assets  of  the 
British  corporation  in  other  states  or  countries  disputed.  It 
was  only  denied  the  right  to  participate  upon  terms  of  equality 
with  Tennessee  creditors  in  the  distribution  of  particular  assets 
of  another  corporation  doing  business  in  that  state.  It  had 
notice  of  the  proceedings  in  the  state  court,  became  a  party  to 
those  proceedings,  and  the  rights  asserted  by  it  were  adjudi- 
cated. If  the  Virginia  corporation  can  not  invoke  the  pro- 
tection of  the  second  section  of  article  four  of  the  constitution  of 
the  United  States  relating  to  the  privileges  and  immunities  of 
citizens  in  the  several  states,  as  its  co-plaintiffs  in  error  have 
done,  it  is  because  it  is  not  a  citizen  within  the  meaning  of 
that  section  ;  and  if  the  state  court  erred  in  its  decree  in  refer- 
ence to  that  corporation,  the  latter  can  not  be  said  to  have  been 
thereby  deprived  of  its  property  without  due  process  of  law 
within  the  meaning  of  the  constitution. 

"It  is  equally  clear  that  the  Virginia  corporation  can  not 
rely  upon  (lie  clause  declaring  that,  no  state  shall  '  deny  to  any 
person  within  its  jurisdiction  the  equal  protection  of  the  laws.' 
*  *  *  Withoui  attempting  i<»  state  whal  is  the  full  import 
of  the  words,  'within  its  jurisdiction,'  it  is  safe  to  say  that  a 
corporation  uol  created  by  Tennessee,  nor  doing  business  there 
under  conditions  that  subjected  it  to  process  issuing  from  the 


§  66  CREATION,  ORGANIZATION    AND    CITIZENSHIP.  59 

courts  of  Tennessee  at  the  instance  of  suitors,  is  not,  under  the 
above  clause  of  the  fourteenth  amendment,  within  the  juris- 
diction of  that  state.  Certainly,  when  the  statute  in  question 
was  enacted  the  Virginia  corporation  was  not  within  the  juris- 
diction of  Tennessee.  *  *  *  We  adjudge  that  the  statute, 
so  far  as  it  subordinates  the  claims  of  private  business  corpora- 
tions not  within  the  jurisdiction  of  the  state  of  Tennessee 
(although  such  private  corporations  may  be  creditors  of  a  cor- 
poration doing  business  in  the  state  under  the  authority  of 
that  statute),  to  the  claims  against  the  latter  corporation,  of 
creditors  residing  in  Tennessee,  is  not  a  denial  of  the  '  equal 
protection  of  the  laws'  secured  by  the  fourteenth  amendment 
to  persons  within  the  jurisdiction  of  the  state,  however  unjust 
such  a  regulation  may  be  deemed." 

§  66.   A  corporation  as  an  "inhabitant"  of  a  state. — The 

weight  of  authority  establishes  a  distinction  between  the  citi- 
zenship and  inhabitancy  of  a  corporation,  at  least  if  an  alien 
corporation.1  Although  a  corporation  is  a  citizen  only  of  the 
state  by  which  it  is  created,  if  an  alien  corporation  it  may  for 
certain  purposes  be  considered  an  inhabitant  of  a  state  where  it 
has  its  principal  place  of  business.  Under  the  statute  which 
provides  that  except  when  "the  jurisdiction  is  founded  only 
on  the  fact  that  the  action  is  between  citizens  of  different  states, 
no  civil  suit  shall  be  brought  *  *  *  against  any  person 
by  original  process  or  proceeding  in  any  other  district  than 
that  whereof  it  is  an  inhabitant,"  it  has  been  held  in  the  lower 
United  States  courts  that  a  corporation  is  an  inhabitant  of  the 
place  in  which  it  has  its  principal  place  of  business,  and  where 
it  keeps  its  records  and  holds  its  corporate  meetings.  These 
holdings  were  made  under  the  provisions  of  the  Revised  Stat- 
utes of  1875,  when  the  word  "inhabitant"  was  followed  by 
"or  that  in  which  he  was  found."  Since  the  latter  words  are 
not  in  the  law  as  amended  in  1888,  it  is  held  that  a  corporation 

United  States  v.  Southern  Pac.  R.     Rep.  884;    In  re  Hohorst,  150  U.  S. 
Co.,  49  Fed.  Rep.  297;  East  Tennessee    653. 
R.  Co.  v.  Insurance  Co.,  49  Fed.  Rep. 
608 ;  Gilbert  v.  Insurance  Co.,  49  Fed. 


60  THE  LAW  OF  PRIVATE  CORPORATIONS.  §  67 

is  an  inhabitant  only  of  the  state  and  district  in  which  it  is  in- 
corporated.1 

§  67.  Place  of  doing  business— License— Effect  on  citizen- 
ship.— As  a  corporation  is  a  creature  of  local  law  it  does  not 
change  its  citizenship  by  extending  its  business  into  other 
states.2  A  foreign  corporation  does  not  by  filing  its  articles  of 
incorporation  in  another  state  as  required  by  the  laws  of  that 
state,  lose  its  status  as  a  foreign  corporation.3  This  is  also  true 
where  a  corporation  goes  into  another  state  and  there  purchases 
and  operates  a  line  of  railways.4  Where  a  corporation  has  the 
right  to  sell  its  railroad  to  a  company  incorporated  by  another 
state,  under  a  law  which  provides  that  the  purchasing  com- 
pany shall  have  "all  the  rights  and  privileges"  of  the  vendor, 
the  purchasing  company  does  not  acquire  the  citizenship  of 
the  vendor  company.5  The  granting  of  a  license  to  a  corpora* 
tion  to  do  business  in  another  state  does  not  make  it  a  citizen 
of  that  state.  Thus,  a  Maryland  corporation  was  authorized 
to  do  business  in  Virginia  under  an  act  which  declared  "that 
the  same  rights  and  privileges  shall  be,  and  are  hereby  granted 
to  the  aforesaid  company  within  the  territory  of  Virginia,  and 
the  said  company  shall  be  subject  to  the  same  pains,  penalties 
and  obligations  as  are  imposed  by  said  act,  and  the  same  rights, 
privileges  and  immunities,  which  are  reserved  to  the  state  of 
Maryland  as  to  the  citizens  thereof,  are  hereby  reserved  to  the 
state  of  Virginia  and  her  citizens."  The  act  was  construed  as 
granting  a  license  only,  and  therefore  as  not  making  the  corpo- 
ration a  Virginia  corporation.6  In  a  case  where  it  appeared 
that  an  existing  railroad  corporation  was  authorized  by  the 
laws  of  a  state  other  than  that  by  which  it  was  created  to  ex- 

iGormully,  etc.,  Co.  v.  Pope  Mfp.  'Chicago,  etc,   R.  Co.  v.   Minn., 

Co.,  34  Fed.  Rep.  818;  Filli  v.  Rail-  etc.,  R.  Co.,  29  Fed.  Rep.  837. 

way  Co.,  37  Fed.  Rep.  65.     But  Bee  *B. &0. R. Co.  v.  Koontz,  104 U.S. 

Riddle  v.  Railway  Co.,  39  Fed.  Rep.  5;  R.  Co.  v.  Cary,  28 Ohio  St.  208. 

[nreKeasbyA  M .  Co.,  160  U.  S.  6  Morgan  v.  E.Tenn.  R.  Co., 48 Fed. 

221.  Rep.  705;    St.   Louis,  etc.,  R.  Co.  v. 

!-..&O.R.Co.v.  Koontz,  101  U-S.r,.  Newcom,  2  C.  C.  A.  174,  Ann. 

6B.&O.R.Co.v.  Harris,  L2 Wall. 65. 


§  68  CREATION,   ORGANIZATION    AND    CITIZENSHIP.  61 

tend  its  road  into  such  state,  Mr.  Justice  Miller  said:1  "It 
may  not  be  easy  in  all  such  cases  to  distinguish  between  the 
purpose  to  create  a  new  corporation  which  shall  owe  its  ex- 
istence to  the  law  or  statute  under  consideration,  and  the  in- 
tent to  enable  the  corporation  already  in  existence  under  laws 
of  another  state  to  exercise  its  functions  in  the  state  where  it  is 
so  received.  *  *  *  To  make  such  a  company  a  corpora- 
tion of  another  state,  the  language  used  must  imply  creation  or 
adoption  in  such  form  as  to  confer  the  power  usually  exercised 
over  corporations  by  the  state,  or  by  the  legislature,  and  such 
allegiance  as  a  state  corporation  owes  to  its  creator.  The  mere 
grant  of  privileges  or  powers  to  it  as  an  existing  corporation, 
without  more,  does  not  do  this,  and  does  not  make  it  a  citizen 
of  the  state  conferring  such  powers."  And  even  where  the 
statute  provided  that  upon  filing  a  certified  copy  of  its  articles 
of  association,  by  a  foreign  railroad  company,  with  the  secre- 
tary of  state,  it  should  become  a  corporation  of  Arkansas,  it 
was  held  that  compliance  with  such  statute,  and  leasing,  pur- 
chasing and  operating  a  railroad  in  Arkansas,  did  not  make  it 
a  citizen  of  Arkansas  within  the  meaning  of  the  federal  con- 
stitution.2 

§  68.  A  corporation  as  a  person.3 — Corporations  are  to  be 
deemed  persons  within  the  meaning  of  statutes  when  the  cir- 
cumstances in  which  they  are  placed  are  identical  with  those  of 
natural  persons  who  are  expressly  included  within  the  operation 
of  the  statutes.4  They  are  within  the  meaning  of  statutes  using 
such  words  as  person  and  inhabitant  when  they  come  within 
the  reason  and  purport  of  the  statutes.5  Generally,  a  statute 
will  be  held  to  include  corporations,  unless  there  is  something 
in  the  statute  tending  to  show  that  it   is  intended  to  be  re- 

1  Penn.  Co.  v.  St.  Louis,  etc.,  R.  Co.,  10  L.  R.  A.  129;  Beaston  v.  Farmers' 
118  U.  S.  290.  Bank,  12  Peters  (U.  S.)  102. 

2  St.  Louis,  etc.,  R.  Co.  v.  James,  5  People  v.  TJtica,  etc.,  Co.,  15  Johns. 
161  IT.  S.  545,  Wilgus'  Cases.  358 ;  Proprietors  v.  Ipswich,  153  Mass. 

3  See  Wilgus'  Cases,  Corporation  as  42,  26  N.  E.  Rep.  239;  Denny,  etc.,  Co. 
a  Person,  and  note.  v.  Schram,  6  Wash.  134. 

4  Crafford  v.  Supervisors,  87  Va.  110, 


62  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   68 

stricted  in  its  application  to  natural  persons.1  Corporations 
are  persons  within  the  meaning  of  statutes  relating  to  taxa- 
tion, unless  a  contrary  intent  appears.2  So  a  foreign  corpora- 
tion is  a  person  within  the  statute  relating  to  the  limitation  of 
actions.3  Statutes  which  prohibit  persons  from  engaging  in 
banking,4  or  provide  that  all  persons  shall  be  liable  for  inju- 
ries which  result  in  death;5  or  that  all  inhabitants  or  residents 
shall  pay  taxes;6  that  testimony  shall  be  admitted  as  against 
certain  persons;7  that  all  persons  may  do  certain  acts  in  rela- 
tion to  promissory  notes,  apply  to  corporations.8  The  term 
"persons,"  when  used  in  attachment  and  garnishment  stat- 
utes, includes  corporations  when  they  are  placed  in  a  position 
identical  with  that  of  natural  persons.9  The  words  "debtor" 
and  "creditor,"  used  in  a  statute  giving  a  remedy  by  attach- 
ment, include  corporations.10 

1  Stribfling  v.  Bank,  5  Rand.  (Va.)  7  LaFarge  v.  Exchange,  etc.,  Co.,  22 
132.  N.  Y.  352. 

2  British,  etc.,  Co.  v.  Comm'rs,  31  8  State  v.  Waram,  6  Hill  (N.  Y.)  33. 
N.Y.  32.  9B.,   etc.,   R.   Co.   v.  Gallahue,  12 

8  Alcot  v.  Tioga  R.  Co  ,20N.  Y.  210.  Grat.    (Va.)   055,  05   Am.    Dec.   254; 

4  People  v.  Utica,  etc.,  Co.,  15  Johns.  Knox  v.  Protection,  etc.,  Co.,  9  Conn. 
358.  430,  25  Am.  Dec.  33. 

5  South  v.  Paulk,  24  Ga.  350.  10  Union   Bank    v.   U.   S.    Bank,  4 

6  Bank  v.  Deveaux,  5  Cranch  01.  Humph.  (Tenn.)  309. 


CHAPTER  3. 

CORPORATIONS    EXISTING    WITHOUT    LEGAL    RIGHT. 

§  69.   General  statement.  79.   Fraudulent  organization. 

70.  Manner  of  raising  the  question       80.   Powers  of  de  facto  corporations. 

of  corporate  existence. 

71.  Collateral  attack  upon  de  facto    n-  Estoppel  to  Deny Corporate  Existence. 

corporation,  and  the  doctrine  gl.  General  statement, 

of  estoppel.  82.  The  general  rule. 

/.  De  Facto  Corporations.  83-  In  actions  against  members  as 

72.  Definition.  partners. 

73.  Necessity  for  a  valid  law.  84-  Actions  on  stock  subscriptions. 

74.  Good  faith  attempt  to  organize.  85-  Subscriptions  in  contemplation 

75.  User  of  franchise.  of  incorporation. 

76.  Organization  under  unconstitu-  86-  Estoppel  by  acquiescence. 

tional  statute.  8^ '•   Estoppel  limited  to  de  facto  cor- 

77.  Status  after  expiration  of  term  of  porations. 

existence.  88.  The  contrary  doctrine — Uncon- 

78.  Collateral   attack  on  the   right  stitutional  statutes. 

to  exercise  a  franchise. 

§  69.  General  statement. — It  has  already  been  stated  that 
there  can  not  be  a  legal  incorporation  until  there  has  been  a 
substantial  compliance  with  all  the  requirements  of  the  statute 
which  are  made  conditions  precedent  to  incorporation.  When 
such  conditions  have  been  thus  complied  with  there  results  a 
corporation  de  jure  which  is  able  to  prove  its  right  to  exist  as 
against  the  direct  attack  of  the  state.1  If,  however,  there  is 
not  substantial  compliance  with  the  statutory  requirements, 
there  may  under  certain  conditions  be  a  de  facto  corporation, 
which,  except  as  against  the  state,  is  as  effective  for  all  prac- 
tical purposes  as  a  de  jure  corporation.  By  the  great  weight 
of  authority,  its  right  to  exist  and  exercise  the  powers  assumed 
can  not  be  questioned  collaterally  by  a  private  individual.     If 

1  Capps  v.  Hastings,  etc.,  Co.,  40  Neb.  470,  24  L.  R.  A.  259,  Wilgus'  Cases. 

(63) 


64  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  70 

the  state  chooses  to  waive  any  of  the  conditions,  it  can  do  so, 
and  on  grounds  of  public  policy  no  one  else  can  successfully 
question  the  validity  of  incorporation. 

§  70.  Manner  of  raising  the  question  of  corporate  exist- 
ence,— if  a  pretended  corporation  is  neither  de  jure  nor  de  facto, 
it  has  no  standing,  and  its  corporate  existence  may  be  ques- 
tioned collaterally  by  the  state  or  by  an  individual,  at  least 
when  there  is  no  reason  for  an  estoppel.1  The  right  to  exer- 
cise the  franchise  of  being  a  corporation  can  be  called  in 
question  only  by  proceedings  in  the  nature  of  quo  warranto  in- 
stituted by  the  state."  This  rule  applies  to  corporations  organ- 
ized under  general  laws,  and  to  those  created  by  special 
charter.3  "Where  the  law  authorizes  a  corporation,  and  there 
is  an  effort  in  good  faith  to  organize  the  corporation  under  the 
law,  and  thereafter,  as  a  result  of  such  effort,  corporate  func- 
tions are  assumed  and  exercised,  the  organization  becomes  a 
corporation  de  facto,  and  as  a  general  rule,  the  legal  existence 
of  such  a  corporation  can  not  be  inquired  into  collaterally,  al- 
though some  of  the  required  legal  formalities  may  not  have 
been  complied  with.  Ordinarily  such  an  inquiry  can  only  be 
made  in  a  direct  proceeding  in  the  name  of  the  state,  and  no 
private  persons  having  dealings  with  a  de  facto  corporation 
can  be  permitted  to  say  that  it  is  not  also  a  corporation 
de  jure."*     This  rule  is  held  to  have  no  application  where  in- 

lMartin  v.  Deetz,  102  Cal.55;  Childs  way,  etc.,  Church  v.  Froislie,  37  Minn. 

v.  rlurd,  32  W.  Va.  66,  9  S.  K.  Rep.  447,  and  cases  cited  in  the  following 

362  ;   Att'v-Gen.  v.  Hanchett,  42  Mich,  notes. 

136,  "st. ,ut  v.   Zulick,  48  N.  J.  L.  599; 

Only  the  state  can   claim   that    the  Wood   v.    Wiley,   etc.,   Co.,  56  Conn. 

charter  of  a  de  facto  corporation  is  87. 

void hecause unconstitutional.  Taylor  *Andes  v.  Ely,158U.  S.  812;  Has- 

, .  Portsmouth,  etc.,  R.  Co.  (Me.),  39  selinan  v.  Mfg.  Co., 97  [nd.365;  North 

Atl.  Rep.  660;   Dubs  v.   Egli,   167  111.  v.  The  state,    lit?    [nd.  356,  8  V  E. 

514,  i:  N.  E.  Rep.  766;  Smith  v.May-  Rep.  159;  Hamilton  v.   Railroad  Co., 

field,  163  111.  H7.  Ill     Pa.    St.    34.     See    the    review    of 

'Andrews  v.  Nat.,  etc.,  Works,  46  authorities  by  Mr.  JuBtice  Marshall  in 

U.  8.  App.  281,  619,  36   L.  R.  A.  139;  dissenting   opinion    in    Bergeron    v. 

Paulino  v.  Portuguese,etc.,  Lssn.,18R.  Hobbs,  96  Wis.  641,  71  N.  W.  Rep. 

I.  165  ;  John  V.  Farwell  Co.  v.  Wolf  L056. 
(Wis.),  70  N.  \v    Rep.  289;  E.  Nor- 


§  71  CORPORATIONS    EXISTING    WITHOUT    LEGAL    RIGHT.  65 

dividuals  sued  for  services  alleged  to  have  been  rendered  them 
personally,  deny  personal  liability,  and  allege  the  existence  of 
a  corporation  to  which  the  services  were  rendered.1  As  long  as 
irregularities  in  the  matter  of  organization  are  overlooked  by 
the  state,  it  is  settled  by  the  great  weight  of  modern  authority 
that  an  individual  can  not  successfully  object.  This  principle 
applies  to  a  de  facto  foreign  corporation  as  well  as  to  a  de  facto 
domestic  corporation.2 

§  71.  Collateral  attack  upon  de  facto  corporation,  and  the 
doctrine  of  estoppel. — The  courts  sometimes  fail  to  distinguish 
the  principle  which  prevents  an  individual  from  questioning 
the  right  of  a  corporation  to  exist  and  exercise  its  franchises3 
from  the  doctrine  of  estoppel,  which  prevents  one  who  has 
dealt  with  a  de  facto  corporation  from  questioning  its  corporate 
existence  in  the  particular  case  under  consideration.  In  dis- 
cussing this  question  the  supreme  court  of  Minnesota  said  :4 
"  Under  the  view  we  take  of  the  case,  it  is  wholly  unnecessary 
to  consider  any  of  these  questions.  The  plaintiffs  are  at  least 
corporations  de  facto.  Such  a  corporation,  at  least  where  there 
is  a  law  under  which  a  corporation  might  have  been  legally 
formed  with  such  power,  is  capable  of  taking  and  holding 
property  as  grantee,  as  well  as  a  corporation  de  jure,  and  con- 
veyances to  it  are  valid  as  to  all  the  world  except  the  state  in 
proceedings  in  quo  warranto,  or  other  direct  proceedings  to 
inquire  into  its  right  to  exercise  corporate  franchises.  And  in 
an  action  by  it  to  recover  such  property,  no  private  person  will 
be  allowed  to  inquire  collaterally  into  the  regularity  of  its 
organization.  This  rule  is  not  founded  upon  any  principle  of 
estoppel,  as  is  sometimes  assumed,  but  upon  the  broader  princi- 
ples of  common  justice  and  public  policy.  It  would  be  unjust 
and  intolerable  if,  under  such  circumstances,  every  interloper 

1Owen  v.  Shepard,  8  C.  C.  A.  244,  3Andrew  v.  National,  etc.,  Works, 

59  Fed.  Rep.  746.  46  U.   S.  App.  281,  619,  36  L.  R.  A. 

HVright  v.  Lee,  4  S.  D.  237,  55  N.  139,  153. 

W.  Rep.  931 ;  Lancaster  v.  Amsterdam  4Trustees,  etc.,  v.  Froislie,  37  Minn. 

Imp.  Co.,  140  N.  Y.  576,35  N.  E.  Rep.  447.     See  language  of  Brewer,  J.,  in 

964.  Pape  v.  Capital  Bank,  20  Kan.  440. 
5 — Private  Corp. 


66  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   72 

and   intruder  were  allowed  to  take  advantage  of  every  infor- 
mality or  irregularity  of  organization." 

In  considering  the  same  question,  the  supreme  court  of  Ohio 
said  :*  "  The  theory  that  a  de  facto  corporation  has  no  real  ex- 
istence, that  it  is  a  mere  phantom,  to  be  invoked  only  by  that 
rule  of  estoppel  which  forbids  a  party  who  has  dealt  with  a 
pretended  corporation  to  deny  its  corporate  existence,  has  no 
foundation  either  in  reason  or  authority.  A  de  facto  corpora- 
tion is  a  reality.  It  has  an  actual  and  substantial  legal  exist- 
ence.    It  is,  as  the  term  implies,  a  corporation." 

I.     De  Facto  Corporations. 

§  72.  Definition. — A  de  facto  corporation  is  an  apparent 
corporate  organization  asserted  to  be  a  corporation  by  its 
members  and  actually  existing  as  such,  but  lacking  the  crea- 
tive fiat  of  the  state.2  It  is  a  fact,  and  not  a  mere  figment  of 
the  legal  imagination.  Its  existence  is  the  result  of  certain 
conditions  resulting  from  the  acts  of  its  incorporators.  A  de 
facto  corporation  exists  when,  from  defect  or  irregularity  in 
the  organization,  or  from  some  omission  to  comply  with  the 
conditions  precedent,  a  corporation  de  jure  is  not  created. 
There  must,  however,  have  been  a  colorable  compliance  with 
the  requirements  of  some  law  under  which  an  association 
might  lawfully  be  incorporated,  for  the  purpose  and  with  the 
powers  assumed,  and  a  user  of  the  rights  claimed  to  be  con- 
ferred by  the  law.3  While  the  decisions  are  not  entirely  clear,4 
it  is  evident  that  three  things  must  exist  before  there  can  be  a 
corporation  de  facto.  1.  Capacity  to  become  a  corporation  de 
jure.  There  must  be  at  the  time  of  its  organization  a  valid 
law  under  which  ;i  corporation  with  the  powers  assumed  might 

' Society Perunv. Cleveland, 43 Ohio  AH.  Rep.  862;    Eaton  v.  Walker,  76 

St.  181, 3  N.E.  Rep.  357,  Wilgus' Cases.  Mich.579,  13N.W.  Rep.638;  Johnson 

•Re  Gibbs'  Estate,  L57  Pa.  St.  59,  22  v.  Schulin  (Minn.),  73  N.W.  Rep.  L47; 

L.  R.   L  276,  Wilgus'  Cases.  Eftnnegan  v.  Noerenberg,  52  Minn.  239. 

'Snider's  Sons  Co.  v.  Troy,  91  Ala.  'See  for  illustration  the  case  of  Berg- 

224,  11  L.  R.  A.  516,  24  Am.  St.  Rep.  eron  v.  Hobbs,  96  Wis.  641,  71  N.  W. 

887;  Btoul  . .  Zulick,  is  N.  .1.  L.599,7  Rep.  1066.  Wilgus'  Cases. 


§   73  CORPORATIONS    EXISTING    WITHOUT    LEGAL    RIGHT.  67 

lawfully  be  created.  2.  A  good  faith  attempt  to  form  a  cor- 
poration under  such  a  statute;  and,  3.  User  of  the  powers  and 
franchises  claimed  by  the  organization. 

§  73.  Necessity  for  a  valid  law. — By  the  weight  of  authority 
there  can  not  be  a  de  facto  corporation  unless  there  is  a  valid 
law  under  which  the  corporation  might  have  been  legally  in- 
corporated. "To  be  a  corporation  de  facto,  it  must  be  possible 
to  be  a  corporation  de  jure;  and  acts  done  in  the  former  case 
must  be  legally  authorized  to  be  done  in  the  latter,  or  they  are 
not  protected  or  sanctioned  by  the  law.  Such  acts  must  have 
an  apparent  right."1  An  attempt  to  organize  under  a  void 
special  law  may  result  in  a  de  facto  corporation  if  there  was  a 
general  law  under  which  such  a  corporation  could  be  organ- 
ized.2 There  may  be  a  de  facto  corporation  resulting  from  an 
unsuccessful  attempt  to  consolidate  existing  corporations. 
Thus,  where  the  laws  authorize  the  consolidation  of  corpora- 
tions of  different  states,  the  result  of  an  attempted  consolida- 
tion may  be  a  de  facto  corporation.3  A  de  facto  corporation  can 
never  result  from  an  attempt  to  organize  a  corporation  in  di- 
rect violation  of  a  prohibitive  statute.4  An  attempt  to  organ- 
ize a  corporation  in  one  state  under  a  charter  granted  by  an- 
other state,  does  not  create  a  de  facto  corporation.5 

§  74.  Good  faith  attempt  to  organize. — There  must  also  be 
a  bona  fide  attempt  to  organize  a  legal  incorporation  under  the 
statute.  "To  give  a  body  of  men  assuming  to  act  as  a  corpo- 
ration, where   there  has  been  no  attempt  to  comply  with  the 

xEveneon  v.  Ellingson,67Wis.  634,  2  McTighe  v.  Macon,  etc.,  Co.,  94 

31  N.  W.  Rep.  342;  Eaton  v.  Walker,  Ga.  306,  32  L.  R.  A.  208. 

76  Mich.  579,6  L.  R.  A.  102;  Heaston  3  Continental,  etc.,  Co.    v.    Toledo, 

v.  Cincinnati,  etc.,  R.  Co.,  16Ind.  275;  etc.,  R.  Co.,  82  Fed.  Rep.  642. 

Abbott  v.  Omaha,  etc.,  Co.,  4  Neb.416;  *  McTighe  v.  Macon,  etc.,  Co.,  94 

Am.,  etc.,  Co.  v.  Minn.,  etc.,  R.  Co.,  Ga.  306;  B.  &  L.  Ass'n  v.  Chamber- 

157  111.  641,  42  N.  E.  Rep.  153;  Guth-  lain,  4  S.  Dak.  271,  56  N.  W.  Rep.  897. 

rie  v.  Oklahoma,  1  Okla.  188,  21  L.  R.  5  Duke  v.  Taylor,  37  Fla.  64,  31  L. 

A.  841 ;  Duggan  v.  Colorado,  etc.,  Co.,  R.  A.  484.    But  see  Demarest  v.  Flack, 

11  Colo.   113;    Jones  v.   Aspen,  etc.,  128  N.  Y.  205,  and  Lancaster  v.  Am- 

Co.,  21  Colo.  263,  29  L.  R.  A.  143 ;  So-  sterdam  Imp.  Co.,  140  N.Y.  576,  hold- 

ciety  Perun  v.  Cleveland,  43  Ohio  St.  ing  that  one  state  may  grant  a  charter 

481;    Dobson  v.    Simonton,  86  N.  C.  to  non-residents  enabling  them  to  or- 

493;  Norton  v.  Shelby  Co.,  118  U.  S.  ganize  a  valid  corporation  in  the  state 

426.  of  their  residence. 


(J8  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  75 

provisions  of  any  law  authorizing  them  to  become  sucn,  the 
statu?;  of  a  de  facto  corporation,  might  open  a  door  to  frauds 
upon  the  public.  It  would  certainly  be  impolitic  to  permit  a 
number  of  men  to  have  the  status  of  a  corporation  to  any  ex- 
tent merely  because  there  is  a  law  under  which  they  might  be- 
come incorporated,  and  they  have  agreed  among  themselves  to 
act,  and  they  have  acted  as  a  corporation.  *  *  *  "  Color  of 
apparent  organization  under  some  charter  or  enabling  act"  does 
not  mean  that  there  shall  have  been  a  full  compliance  with 
what  the  law  requires  to  be  done,  nor  a  substantial  compli- 
ance. A  substantial  compliance  will  make  a  corporation  de 
jure.  But  there  must  be  an  apparent  attempt  to  perfect  an 
organization  under  the  law.  There  being  such  apparent  at- 
tempt to  perfect  an  organization,  the  failure  as  to  some  sub- 
stantial requirement  will  prevent  the  body  being  a  corporation 
de  jure;  but  if  there  be  user  pursuant  to  such  attempted  organ- 
ization, it  will  not  prevent  it  being  a  corporation  de  facto.' 

§  75.  User  of  franchise. — It  is  also  necessary  that  there 
be  user  of  the  franchise  to  be  a  corporation  conferred  by  the 
charter  or  law  under  which  the  organization  was  attempted.2 
Slight  evidence  of  user  is  sufficient  when  the  other  requisites 
exist.8  But  the  acts  relied  upon  to  show  user  must  be  in  their 
nature  corporate  acts  and  not  such  as  are  perfectly  consistent 
with  the  conduct  of  an  unincorporated  society  or  partnership.* 

§  70.     Organization  under  unconstitutional  statute. — As  an 

unconstitutional  act  of  the  legislature  is  not  a  law5  it  logically 

lFinnegan  v.  Noerenberg,  52  Minn,  whelming  weighl  of  authority  istothe 

239;  Bash  v. Mining  Co., 7  Wash.  122,  contrary,  as  pointed  out   in  the  ex- 

MPac.Rep.  464;  Williamson  v.  Koko-  haustive  dissenting   opinion    of   Mr. 

mo,  etc.,  Ass'n,  89  End.  389;  Venable  Justice  Marshall. 

v.  Ebenezer,etc.,Ch.,25  Kan.  L77,and  'Martin  v.  Deetz,  L02Cal.55;  Miami, 

cases  cited  in  preceding  notes.  In  Ber-  etc., Co.  v.  Hotchkiss,  17  III.  App.622. 

goron  v    Hobbs,  96  Wis.  641, 71  N.  W.  BEaton  v.  Walker,  76  Mich.  579. 

Bep.  L066,  it  was  held    thai  because  *Fredenberg  v.   Lyon    Lake  M.  E. 

of  failure  to  file  the  certiflcateof  or-  Ch.,  87  Mich.  476. 

ganization  and  a  copy  of  theconstitu-  58eean  article  by  the  present  writer 

Hon   ;,,   the  office  of  the  register  of  on  " The  Legislature  and  the  Courts " 

deeds,  the  organizers  'li'l  nut  become  in  Pol   Bci.  Quarterly,  v.,  p.  238. 
a   de  facto   corporation.     The   over- 


§  76         CORPORATIONS    EXISTING    WITHOUT    LEGAL    RIGHT.  69 

follows  that  the  legal  status  of  a  company  organized  under  au- 
thority assumed  to  be  granted  by  such  an  act  is  the  same  as 
one  formed  when  there  is  no  law.1  This  would  seem  to  be 
the  prevailing  doctrine,  although  there  are  authorities  to  the 
contrary.8 

In  a  recent  case  it  was  said:8  "  We  may  assume  that  where 
the  existence  of  a  corporation  of  a  given  kind  is  positively 
forbidden  by  law,  or  where  there  is  no  valid  constitutional  law 
authorizing  the  creation  of  such  a  corporation,  it  can  not  exist 
even  as  a  corporation  de  facto.  The  rule  thus  stated  does  not 
by  any  means,  however,  negative  the  soundness  of  the  propo- 
sition that  an  organization  assuming  to  be  a  corporation  de 
jure,  but,  for  sufficient  reasons,  is  not  so  in  fact,  may  be  a  corpo- 
ration de  facto,  when  it  is  of  such  a  character  that  it  could  un- 
der existing  laws  have  full  and  complete  corporate  being 
and  powers.  *  *  *  Our  decision  is  not  based  upon  the 
idea  that  the  organization  of  these  railroad  companies  under 
unconstitutional  charters  would  make  them  de  facto  corpora- 
tions, but  upon  the  idea  that  the  purpose  for  which  they  were 
organized  being  lawful  and  proper,  if  they  had  obtained  char- 
ters under  the  general  law  and  organized  under  them,  which 
they  might  have  done,  they  would  in  substance  have  done 
what  they  actually  did;  that  is,  they  would  have  observed 
about  the  same  forms  and  requirements  in  the  one  case  as  in 
the  other.  *  *  *  If  the  laws  under  which  they  proceeded 
were  not  good,  they  may,  in  our  judgment,  avail  themselves 
of  the  existence  of  the  general  law  on   our  statute  book,  and 

'Eaton  v.  Walker,  76  Mich.  579;  can  not  enforce  a  mortgage  made  to  it ; 
Burton  v.  Schildbach,  45  Mich.  504,  but  if  not  organized  for  an  unlawful 
8  N.  W.  Rep.  497;  Brandenstein  v.  purpose,  a  receiver  for  it  can  demand 
Hoke,  101  Cal.  131;  Heaston  v.  R.  in  equity  an  accounting  for  the  debt 
Co.,  16  Ind.  275;  Snyder  v.  Stude-  purporting  to  be  secured  by  it.  Bur- 
baker,  19  Ind.  462 ;  McTighe  v.  Macon,  ton  v.  Scheildbach,  45  Mich.  504. 
etc.,  Co.,  94  Ga.  306;  Evenson  v.  El-  "McTighe  v.  Macon,  etc.,  Co.,  94  Ga. 
lingson,  67  Wis.  634;  Thomps.  Corp.,  306,  32  L.  R.  A.  208.  Citing  and  com- 
§  505.  menting  on  McCarthy  v.  Lavasche,  89 

2Coxe  v.  State,  144  N.  Y.  396,  39  N.  111.   270,   31    Am.    Rep.    83,    Wilgus' 

E.  Rep.  400.     See  Winget  v.   Ass'n,  Cases;    Hudson    v.    Greenhill,    etc., 

128   111.  67,  21  N.  E.  Rep.  12.     A  cor-  Corp.,   113  111.  618,   and  many  other 

poration  organized  under  a  void  law  cases. 


70  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   77 

of  its  terms,  at  least  so  far  as  to  enable  them  to  be  regarded 
as  de  facto  corporations,  because  they  had  done  practically 
what  that  general  law  required,  though  not  actually  following 
it  nor  professing  to  do  so." 

§  77.      Status    after  expiration   of    term   of    existence. — 

Where  the  term  of  existence  of  a  corporation  is  definitely  de- 
termined by  the  charter  or  statutes,  the  better  rule  is  that  the 
corporation  is  ipso  facto  dissolved  by  the  expiration  of  the 
time.1  From  this  it  follows  that  after  such  dissolution  there  is 
not  even  a  corporation  de  facto,  and  the  fact  of  corporate  ex- 
istence can  be  successfully  raised  by  any  one  not  otherwise 
estopped. 

§  78.    Collateral  attack  on  the  right  to  exercise  a  franchise. 

The  rule  that  the  right  to  exercise  the  franchise  of  being  a 

corporation  can  not  be  collaterally  questioned  in  the  suit  of  an 
individual  does  not  extend  so  far  as  to  prevent  an  individual 
from  questioning  the  right  of  a  corporation  to  exercise  a  par- 
ticular franchise  or  power.  Thus,  where  a  corporation  was 
granted  the  franchise  of  collecting  tolls  for  a  certain  period  or 
under  certain  conditions,  an  individual  is  not  prevented  from 
asserting  that  the  time  during  which  the  franchise  was  to  be 
enjoyed  has  expired.2 

'Bradley  v.  Reppell,  1. ".3  Mo.  545,  32  The  dissolution  in  such  case,  it  has 
S  \V.  Rep. 645;  Dob8onv.Simonton,86  been  said,  'is  declared  by  the  act  of 
b!c.494;  Kurtzv.  Paola,  etc.,Co.,  20  the  legislature  itself.'  The  limited 
Kan.  397;  Grand  Rapids,  etc.,  Co.  v.  time  of  existence  has  expired  and  no 
Pran<r,::">  Mich. 400;  Sturgess  v.  Van-  judicial  determination  <>f  that  tact  is 
derbilt,73N.  V.  384;  LaGrange,  etc.,  requisite  The  corporation  iBdefacto 
I;  Co.  v.  Rainey,  7  Coldw.  (Tenn.)  dead."  Thompson  Corps.,  §  530.  Con- 
132,  "There  is  much  judicial  author-  tra:  "Forthe  mere  exercise  of  its  Can- 
ity for  the  proposition  thai  where  a  chise  beyond  the  period  for  which  it 
corporation  is  broughl  to  an  end  by  was  organized,  the  slate  alone  can 
ti)1.  i;,,,,,.  (,i  time,  thai  is,  by  the  ex-  complain."  Bushnellv.  Machine  Co., 
pirationof  the  distinct  limitations  of  138  111.  67,  27  N.  E.  Rep.  596.  See 
Its  life  in  its  charter,  any  further  exer-  commenl  upon  Miller  v.  Newburgh, 
rporate  powers  may  be  etc.,Co.,31  W.  Va.  836, and  8t.  Louis, 
questioned  collaterally.  The  govern-  etc.,  Co.  v.  St.  Louis,  hi  Mo.  202,  in 
,,,.,  principle  here  is  thai   upon    the  Bradley  v.  Reppell,  133  Mo.  545,  32  S. 

ration    of  the    time    limited    by  W.  Rep.  645. 

thecharter  for  the  existence  of  the  'Grand    Rapids,  etc,  Co.  v.  Prang, 

corporation,  its  dissolution  is  complete.  35  Mich.  400. 


§   79         CORPORATIONS    EXISTING    WITHOUT    LEGAL    RIGHT.  71 

§  79.  Fraudulent  organization. — It  has  been  held  that  where 
the  organization  is  manifestly  a  fraud  upon  the  statute  a  de 
facto  corporation  is  not  created.  Thus,  where  citizens  of  New 
Jersey  went  to  New  York,  and  attempted  to  form  an  organiza- 
tion under  the  laws  of  New  York  for  the  purpose  of  doing  busi- 
ness in  New  Jersey,  it  was  held  that  not  even  a  de  facto  corpo- 
ration was  created.1  But  in  New  York  and  Ohio  this  sort  of 
transaction,  unless  something  more  appears,  is  not  considered 
to  be  a  fraud  upon  the  law.2  Where  the  whole  purpose  of  the 
corporation  is  to  perpetrate  a  fraud,  it  will  not  be  considered  a 
de  facto  or  a  de  jure  corporation  as  to  those  defrauded,  even 
though  all  the  statutory  forms  are  followed.3 

§  80.  Powers  of  de  facto  corporations. — A  de  facto  corpo- 
ration may  legally  do  every  act  and  thing  which  the  same 
entity  could  do  were  it  a  de  jure  corporation.  As  to  all  the 
world,  except  the  paramount  authority  under  which  it  acts  and 
from  which  it  receives  its  charter,  it  occupies  the  same  posi- 
tion as  though  in  all  respects  valid;  and  even  as  against  the 
state,  except  in  direct  proceedings  to  arrest  its  usurpation  of 
power,  its  acts  will  be  treated  as  efficacious.4  It  has  been  held 
that  this  rule  applies  only  to  the  ordinary  business  transac- 
tions of  such  a  business  corporation,  and  that  it  has  no  appli- 
cation when  the  corporation  attempts  to  exercise  the  power  of 
eminent  domain,5  but  there  appears  to  be  no  valid  reason  for 
this  distinction,  and  it  is  generally  held  that  proof  of  a  de  facto 
corporation  is  sufficient  in  a  proceeding  by  a  railway  company 
to  condemn  land.6 


'Hill  v.  Beach,  12  N.   J.   Eq.   31;  530;  Bushnell  v.  Machine  Co.,  138  111. 

Booth  v.  Wonderly,  36  N.  J.  L.  250;  67,  27  N.  E.  Rep.  596;  Butchers'  Bank 

Elizabethtown,  etc.,  Co.  v.  Green,  46  v.  McDonald,  130  Mass.  264;  Whitney 

N.  J.  Eq.118;  Empire  Mills  v.  Alston,  v.  Robinson,  52  Wis.  308,  10  N.  W. 

etc.,  Co.  (Tex.),  15  S.  W.  Rep.  200.  Rep.  512;  Duggan  v.  Col.,  etc.,  Co., 

See    Lancaster   v.   Amsterdam,   etc.,  11  Colo.  113. 

Co.,  140N.  Y.  576,  and  §550,  infra.  See        5Atkinson  v.  Railway  Co.,  15  Ohio 

Demarest  v.  Flack,  128  N.  Y.  205,  28  St.  21;  Atlantic,  etc.,  Co.  v.  Sullivant, 

N.  E.  Rep.  645.  5  Ohio  St.  276;  Miller  v.  Newburgh, 

2  Second  Nat'l  Bank  v.  Hall,  35  Ohio  etc,    Co.,    31    W.    Va.    836;    Society 

St.  158.   See  also  Wright  v.  Lee  (S.D.),  Perun  v.  Cleveland,  43  Ohio  St.  481. 
51  N.  W.  Rep.  706.  « Ward  v.  Min.,  etc.,  R.  Co.,  119  111. 

sMetcalf  v.  Arnold,   110   Ala.   180;  287,  10  N.  E.  Rep.  365;  McAuley  v. 

First  Nat'l  Bank  v.  F.  C.  Trebein  Co.,  Col.,  etc.,  R.  Co.,  83  111.  348;  Beisner 

59  Ohio  St.  316;  Christian,  etc.,  Co.  v.  Strong,  24  Kan.  410;  Asheville  Div. 

v.   Fruitdale,  etc.,   Co.  (Ala.),  25  So.  No.  15  v.  Astor,  92  N.  C.  578;  Welling- 

Rep  566.  ton,  etc.,  R.  Co.  v.  Cashie,  etc.,  Re 

4  Miller  v.  Newburgh,  etc.,  Co.,  31  Co.,  114  N.  C.  690. 
W.  Va.  836;  People  v.  LaRue,  67  Cal. 


72  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  81 

II.     Estoppel  to  Deny  Corporate  Existence. 

§  81.  General  statement. — The  rule  which  forbids  a  private 
individual  to  raise  the  question  of  corporate  existence  in  a  col- 
lateral proceeding,  is  of  the  widest  application  and  applies  to  all 
cases  where  the  organization  is  a  de  facto  corporation.  Where, 
however,  the  objection  goes  to  the  fact  of  de  facto  corporate  ex- 
istence, as  where  there  is  no  law  under  which  the  incorpora- 
tion might  have  been  effected,  or  where  the  law  expressly  for- 
bids the  creation  of  such  a  corporation,  the  rule  has  no  appli- 
cation. In  many  cases  we  find  that  the  doctrine  of  estoppel 
has  been  applied  in  such  manner  as  to  prevent  one  who  has 
dealt  with  a  corporation  as  such  from  denying  that  it  is  a  cor- 
poration, in  a  proceeding  growing  out  of  the  transaction. 
Where  there  is  a  de  facto  corporation,  it  is  unnecessary  to  in- 
voke the  doctrine  of  estoppel,  as  the  general  rule  of  public  pol- 
icy forbids  anyone  but  the  state  raising  the  question.  The 
doctrine  of  estoppel  is,  hence,  of  more  limited  application  than 
the  general  principle  discussed  in  the  preceding  sections.  In 
some  cases  an  estoppel  is  applied  in  such  manner  as  to  prevent 
a  party  from  raising  the  question  of  the  legal  right  to  become 
incorporated.  But  the  authorities  are  conflicting,  and  no  gen- 
erally accepted  rule  exists. 

§  82.  The  general  rule. — The  rule  is  established  that  one 
who  has  contracted  with  a  de  facto  corporation,  as  such,  will 
not  be  permitted,  after  having  received  the  benefit  of  his  con- 
trail, to  allege  and  prove  any  defect  in  the  organization  of  such 
corporation,  which  affects  its  capacity  to  enforce  the  contract. 
"Where  there  is  thus  a  corporation  de  facto,  with  no  want  of 
legislative  power  to  itsdueand  Legal  existence;  where  il  is  pro- 
ceeding in  the  performance  of  corporate  functions,  and  the 
public  are  dealing  with  it  on  the  supposition  that  if  is  what  it 
profi  ■  I"  ;    and  the  questions  suggested  are  only  whether 

there  has  been  exacl  regularity  and  strict  compliance  with  the 
provisions  of  the  law  relating  to  incorporation,  it  is  plainly  a 
dictate  alike  of  jus!  ice  and  of  public  policy  that  in  controver- 


§  83  CORPORATIONS    EXISTING    WITHOUT    LEGAL    RIGHT.  73 

sies  between  the  de  facto  corporation  and  those  who  have  en- 
tered into  contractual  relations  with  it  as  corporators  or  other- 
wise, such  question  should  not  be  permitted  to  be  raised."1 
Those  who  have  engaged  in  organizing  a  corporation  can  not, 
when  sued  on  a  contract  made  in  a  corporate  character,  be 
heard  to  deny  the  fact  of  corporate  existence.2  This  rule  ap- 
plies when  such  parties  seek  to  escape  statutory  liability  for  its 
debts.3  The  grantor  of  a  deed  in  which  the  grantee  is  named 
as  a  corporation,  is  thereafter  estopped  to  deny  the  fact  of  in- 
corporation.4 The  maker  of  a  promissory  note,  in  which  the 
payee  is  named  as  a  corporation,  can  not  deny  the  fact  of  in- 
corporation in  an  action  on  the  note.5  One  who  executes  a 
mortgage  to  a  corporation  as  such,  to  secure  a  loan  of  money, 
can  not  deny  the  corporate  character  to  defeat  an  action 
brought  to  foreclose  the  mortgage.6 

§  83.  In  actions  against  members  as  partners.7 — The  weight 
of  authority  seems  to  support  the  proposition  that  those  who 
deal  with  an  association  as  a  corporation  are  estopped  to  deny 
its  existence  as  such,  even  for  the  purpose  of  holding  its  mem- 

1  Swartwout  v.  Michigan, etc.,  R. Co.,  Minn.  256;  Perrine  v.  Grand  Lodge, 
24  Mich.  389;  Wadesboro,  etc.,  Co.  v.  48  Minn.  82;  Stewart,  etc.,  Co.  v. 
Burns,  114  N.  C.  353, 19  S.  E.  Rep.  238 ;  Rau,  92  Ga.  511 ;  Farmers',  etc.,  Co. 
M.  E.  Church  v.  Pickett,  19  N.  Y.  482;  v.  Toledo,  etc.,  R.  Co.,  67  Fed.  Rep.  49. 
Stofflet  v.  Strome,  101  Mich.  197,  59  3  B.  and  L.  Assn.  v.  Chamberlain,  4 
N.  W.  Rep.  411;  Com.  Bank  v.  Pfeif-  S.  Dak.  271,  56  N.W.  Rep.  897;  Slocum 
fer,  108  N.  Y.  242,  15  N.  E.  Rep.  311;  v.  Gas-pipe  Co.,  10  R.  I.  112;  Hamil- 
Columbia,  etc.,  Co.  v.  Dixon,  46  Minn,  ton  v.  R.  Co.,  144  Pa.  St.  34  ;  McCar- 
463;  Minn.,  etc.,  Co.  v.  Denslow,  46  thy  v.  Lavasche,  89  111.  270;  Altman 
Minn.  171;  B.  and  L.  Assn.  v.  Cham-  v.  Waddle,  40  Kan.  195. 

berlain,  4  S.  Dak.  271 ;  Butchers'  Bank  4  Whitney  v.  Robinson,  53  Wis.  309, 

v.  MacDonald,  130  Mass.  264 ;  Hassin-  10  N.  W.  Rep.  512. 

ger  v.  Ammon,  160  Pa.  St.  245;  Bank  5  Stoutimore  v.  Clark,  70  Mo.  471; 

of  Shasta  v.  Boyd,  99  Cal.  604;  Hause  Brickley  v.  Edwards,  131  Ind.  3,  30 

v.  Mannheimer,  67  Minn.  194 ;  Perrine  N.  E.  Rep.  708. 

v.  Grand  Lodge,  48  Minn.  82.  6  Falls  v.  United  States,  etc.,  Co.,  97 

2  Fitzpatrick  v.  Rutter,  160  111.  282,  Ala.  417,  24  L.  R.  A.  174. 

43  N.  E.  Rep.  392;  Bon  Aqua,  etc.,  7  See  Wilgus' '  Cases,  particularly 
Co.  v.  Standard,  etc.,  Co.,  34  W.  Va.  Martin  v.  Fewell,  79  Mo.  401;  Fay  v. 
764;    Scheufler  v.    Grand   Lodge,   45    Noble,  7  Cush.  (Mass.)  188. 


74  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  84 

bers  as  partners.1     There  are  well-considered  cases,  however, 
which  hold  the  contrary.2 

Where  the  plaintiff  was  one  of  the  organizers  and  a  member 
of  the  first  board  of  directors,  it  was  held,  in  an  action  against 
the  corporation  to  have  it  declared  a  co-partnership,  that  he  was 
estopped  to  claim  that  the  corporation  had  never  been  legally 
organized.  If  the  plaintiff  had  been  sued  by  the  corporation 
on  his  subscription  to  its  capital  stock  he  "could  not  have 
questioned  its  corporate  existence  on  the  grounds  alleged  in 
his  bill.  *  *  *  It  is  equally  clear  that  if,  during  the  time 
he  was  a  member  of  said  corporation,  it  had  been  sued  as  such, 
neither  he  nor  any  other  of  its  members  could  have  been  heard 
to  say  that  no  such  corporation  existed.  The  general  rule  is, 
that  one  who  deals  with  a  corporation  as  existing  de  facto,  is 
estopped  to  deny,  as  against  it,  that  it  has  been  legally  organ- 
ized. It  is  the  settled  rule  in  this  state  that  the  legal  existence 
of  a  corporation  de  facto  can  not  be  questioned  collaterally."3 

§  84.  Actions  on  stock  subscriptions. — In  an  action  brought 
by  the  corporation,  its  receiver,  or  its  creditors,  to  enforce  a 
stock  subscription,  one  who  subscribed  for  the  stock  after  the 
organization  of  the  pretended  corporation  is  estopped  to  deny 
the  legality  of  the  incorporation.4  This  is  but  an  application 
of  the  general  principle  that  a  subscriber  can  not,  as  against 
creditors,  set  up  the  invalidity  of  a  subscription  to  stock  as  to 
which,  if  valid,  he   was   in    'pari  delicto.5     One   who   has  been 

'Sniders,  etc.,  Co.  v.  Troy,  91  Ala.  8Bushnell  v.  Consolidated,  etc.,  Co., 

224;  Cochrane  v.  Arnold,  58   Pa.  St.  138  [11.67. 

399;  Bradford  v.  K.  Co.,  142  Ind.  383,  *Hause  v.   Mannheimer,  67  Minn. 

!  .  Rep.  Til;  Black   River,  etc.,  194;  Hickling  v.  Wilson,  lit  I  III.  54; 

I         .  Holway,  85  Wis.  344,55  N.  W.  Wheelockv.  Kost,  77  [11.296;  Hamil- 

Rep.   lis;  Phinizyv.  R.  Co.,62  Fed.  ion  v.  R.  Co.,  in  I'm.  St.  34;  Craven 

Rep. 678;  Johnston  v.Gumbel  (Miss.),  v.  Mill  Co.,  L20  [nd.  6,  21  N.  I*:.  Rep. 

».  Rep.  100;  Shields  v.  Land  Co.,  94  981;  Capps  v.  Hastings,  etc.,  Co.,  40 

Neb.  470,  24  L.  R.  A.  259;  Thompson 

Friedenberg  v.  Lynn,  etc.,  Church,  v.    Reno,   etc.,    Bank,    L9    Nev.    L03; 

87  Mich.  176;  and  see  Bchloss  v.  Trade  Chubb  v.  Upton,  95  U.  S.  665;  W  ad<  s- 

Co.,87Ala.  411 ;  De  Witt  v.  Hastings,  boro,  etc.,  Co.  v.  Burns,  Ml  N.  C.  353. 

y.  518;  Clarke  v.  J ss,  87  Ala.  BCapps    v.    Hastings,   etc.,   Co.,    W 

474,6  Bo.  Rep.  362.  Neb.  170,24   L.  R.   A.  259,  58  N.   W. 


§  85  CORPORATIONS    EXISTING    WITHOUT    LEGAL    RIGHT.  75 

induced  by  fraud  to  become  a  subscriber  to  the  stock  of  a  cor- 
poration is  estopped  from  asserting  the  fact  as  a  defense 
when  he  failed  to  repudiate  the  subscription  until  after  the 
corporation  became  insolvent.1 

§  85.      Subscriptions   in    contemplation   of    incorporation. 

When  a  subscription  for  stock  is  made  before  and  in  contem- 
plation of  the  incorporation  of  a  company,  and  there  is  no  sub- 
sequent acquiescence  such  as  will  create  an  estoppel,  the  sub- 
scriber may  insist  upon  a  legal  corporation,  and  defend  in  an 
action  upon  his  contract  of  subscription  by  showing  that  there 
was  no  legal  incorporation.2 

"  Until  the  statutory  requirements  to  organize  a  corporation 
have  been  complied  with,  a  subscriber  to  the  articles  of  incor- 
poration is  not  estopped  to  deny  the  existence  of  the  corpora- 
tion."3 

But  if  such  a  subscriber  takes  an  active  part  in  the  organi- 
zation of  the  corporation  or  its  management  after  organization 
he  is  thereafter  estopped  to  deny  that  it  was  legally  organized.1 

§  86.  Estoppel  by  acquiescence. — A  member  of  a  corpora- 
tion who  has  acquiesced  in  the  illegal  or  irregular  acts  of  the 
corporation  is  estopped  to  deny  his  liability  to  the  corporation. 
Thus,  if  he  has  acted  as  a  director,  attended  stockholders' 
meeting,  paid  calls,  or  done  any  other  act  indicating  acquies- 
cence, he  can  not  be  heard  to  say  that  the  corporation  is  illegal, 
when  it  is  sought  to  hold  him  liable  for  his  acts  as  a  member.5 

Rep.  956 ;  Rikhoff  v.  Brown,  etc.,  Co.,  Sweeny,60N.Y.463  ;  Capps  v. Hastings, 

68    Ind.   388.     See    Martin  v.   South  etc.,  Co.,  40  Keb.  470,  58  N.  W.  Rep. 

Salem,  etc  ,  Co.,  94  Va.  28.     In  an  ac-  955,  24  L.  R.  A.  259 ;  Rikhoff  v.  Brown, 

tion  by  a  receiver  on  a  stock  subscrip-  etc.,   Co.,  68  Ind.  388;    Indianapolis, 

tion  the  subscriber  is  estopped  to  deny  etc.,  Co.  v.  Herkimer,   46  Ind.   142; 

the  legality  of  the  object  of  the  corpo-  Richmond  Fac.  Assn.  v.  Clarke,  61  Me. 

ration,  where  the  subscription  is  law-  351  ;  Taggart  v.  West  Md.  R.  Co.,  24 

ful  on  its  face.    Cardwell  v.  Kelly,  95  Md.  563,  Wilgus'  Cases. 

Va.  (1898)  570,  28  S.  E.  Rep.  953.  3Ind.,  etc.,  Co.  v.  Herkimer,  46  Ind. 

JMartin  v.  Land  Co.,  94  Va.  28,  26  143. 

S.  E.  Rep.  591.     See  infra,  §  389.  4Danbury  &  N.  R.  Co.  v.  Wilson,  22 

2Schloss  v.  Montgomery,  etc.,  Co.,  87  Conn.  456 ;  Phoenix  W.  Co.  v.  Badger, 

Ala.411,  6  So.  Rep.360;  Columbia  Elec.  67  N.  Y.  294 ;  Canfield  v.  Gregory,  66 

Co.  v.  Dixon,  46  Minn.  463;  Doris  v.  Conn.  9,  Wilgus'  Cases. 

•  5Swartwout  v.  Mich.,  etc.,  Co.,  24 


76  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   87 

§  87.  Estoppel  limited  to  de  facto  corporations. — The  rule  in 
many  states  seems  to  be  that  the  doctrine  of  estoppel  is  limited 
to  cases  in  which  there  is  a  de  facto  corporation  in  existence.1 
In  a  well-known  case  Judge  Cooley  said  2:  "  Where  there  is  a 
corporation  de  facto,  with  no  want  of  legislative  power  to  its 
due  and  legal  existence,  *  *  *  it  is  plainly  a  dictate,  alike  oi 
justice  and  public  policy,  that,  in  controversies  between  the  de 
facto  corporporation  and  those  who  have  entered  into  contract 
relations  with  it,  as  corporators  or  otherwise,  such  questions 
should  not  be  suffered  to  be  raised."  The  reasons  upon  which 
this  rule  rests  are  thus  stated  :3  "The  statute  laws  of  the  state 
expressly  requiring  certain  prescribed  acts  to  be  done  to  con- 
stitute a  corporation,  to  permit  parties  indirectly,  or  upon  the 
principle  of  estoppel,  virtually  to  create  a  corporation  for  any 
purpose,  would  be  in  manifest  opposition  to  the  statute  and 
clearly  against  its  policy,  and  justified  upon  no  sound  princi- 
ple in  the  administration  of  justice."  In  another  case  it  was 
said  :4  "The  estoppel  arises  upon  matter  of  fact  only,  and  not 
upon  matter  of  law.  Hence,  if  there  be  no  law  which  author- 
ized the  supposed  corporation,  or  if  the  statute  authorizing  it  be 
unconstitutional  and  void,  the  contract  does  not  estop  the  party 
making  it  to  dispute  the  existence  of  the  corporation.  But  if. 
on  the  other  hand,  there  be  a  law  which  authorized  the  corpora- 
tion, then,  whether  the  corporators  have  complied  with  it  so  as 
to  become  duly  incorporated,  is  a  question  of  fact,  and  the 
party  making  the  contract  is  estopped  to  dispute  the  organiza- 
tion or  the   legal   existence  of   the   corporation."      Where   the 

Mich.  389;  Home,  etc.,  Co.  v.  slier-  Walker,  76  Mich.  579,  13  N.  W.  Rep. 

wood,  72  Mo.  461;  Meadow  v.  Gray,  638;   Maryland,  etc.,  Works  v.  West 

30  Me.  547;  [ntermountain,  etc.,  Co.  End,  etc.,  Co.,  87  Md.  207,  39 L.  R.  A. 

k,  •"»  Mont.  568;   Appleton,  etc.,  810. 

Co.  v.  Jesser,  87  Mass.  (5  Allen)  446;  BSwartwou1  v.  Mich.,  etc.,  R.  Co.,  24 

Central,  etc.,  Assn.  v.  Ala.,  etc.,  Co  ,  Mich.  390. 

7o  \i;i.  130.  ^Boyce  v.  Towsontowu,  etc..  Tins.. 

'Heaston  v.   Railroad  Company,  16  46  Md.  373;  Jones  v.  Aspen,  etc..  Co., 

[nd.  275;   Snyder  v.  Studebaker,    L9  21   Colo.  263,  29  L.  I.'.  A.  L43:  Snyder 

[nd.  162;  Jones  v.  Aspen,  etc.,  Co.,  21  v.  Btudebaker,  19  [nd.  46?. 

Colo.  263,  29  L.   R.  A.  143;   Banden-  *Snyderv   Studebaker,  L9Ind.462, 

Htein  v.  Hoke,  L01  Cal.  LSI;  Eaton  v.  Wilgus'  Cases. 


§  88.         CORPORATIONS    EXISTING    WITHOUT    LEGAL    RIGHT.  77 

corporation  bringing  an  action  had  not  paid  the  state  fees  upon 
the  filing  of  its  articles  of  incorporation,  and  the  statute  de- 
clared that  until  this  fee  was  paid  the  corporation  should  have 
no  corporate  powers,  it  was  held  that  the  defendant,  who  had 
dealt  with  the  corporation  as  a  corporation,  was  not  estopped 
to  assert  this  defense.1 

§  88.     The  contrary  doctrine — Unconstitutional  statutes. — 

If  the  doctrine  of  estoppel  is  to  be  limited  to  cases  where  a 
de  facto  corporation  exists,  it  seems  unnecessary,  as  all  cases 
are  covered  by  the  rule  that  no  one  but  the  state  can  raise  the 
question  of  the  existence  of  such  corporation.  There  are 
strong  arguments  against  allowing  an  estoppel  where  there 
has  not  been  sufficient  done  to  create  a  de  facto  corporation,  or 
where  there  is  no  law  under  which  such  a  corporation  can  be 
organized.  But  there  are  many  cases  where  the  language  used 
is  so  general  that  it  may  be  understood  as  applying  to  all  cases 
where  a  party  deals  with  an  organization  which  assumes  to  be 
a  corporation.2     There  are   also    numerous   cases3  which   hold 

Maryland,  etc.,  Works  v.  West  End,  897;  Wright  v.  Lee,  4  S.  D.  237,  55 
etc.,  Co.,  87  Md.  207,  39  L.  R.  A.  810;  N.  W.  Rep.  931;  Freeland  v.  Ins.  Co., 
Jones  v.  Aspen,  etc.,  Co.,  21  Colo.  263,  94  Pa.  St.  504;  Dows  v.  Napier,  91  111. 
29  L.  R.  A.  143;  Slocum  v.  Prov.,  etc.,  44;  Irrigation  Co.  v.  Warner,  72  Cal. 
Co.,  10  R.  I.  112.  A  duly  organized  for-  379 ;  St.  Louis  v.  Shields,  62  Mo.  247 ; 
eign  corporation  is  a  de  jure  corpora-  McCarthy  v.  Lavasche,  89  111.  270; 
tion,  although  it  has  not  complied  with  Morawetz  II,  §  759.  In  Building,  etc., 
a  statute  which  requires  a  foreign  cor-  Assn.  v.  Chamberlain,  supra,  the  court 
poration  to  pay  a  purchase  fee  and  said:  "The  rule  in  Michigan  appears 
making  void  all  contracts  of  one  not  to  be  different,  and  when  a  corpora- 
paying  such  fee.  Rough  v.  Breitung  tion  is  organized  under  a  void  act  of 
(Mich.  1898),  75  N.  W.  Rep.  147.  the    legislature,   the  courts  will    not 

2Close  v.  Cemetery,  107  U.  S.  477 ;  recognize  the  corporation  for  the  pur- 

Winget  v.  Association,  128  111.  67,  21  pose  of  enforcing  a  contract  made  by 

N.  E.  Rep.  12;  Building,  etc.,  Assn.  it  or  with  it.    The  cases  which  have 

v.  Chamberlain,  4   S.  D.   271 ;  Bash-  been  decided   by  the   supreme  court 

ford,   etc.,    Co.    v.    Agua,    etc.,    Co.  of  that  state  in   which  the  question 

(Ariz.),  35  Pac.  Rep.  983;  Schloss  v.  arose,  viz:  State  v.  How,  1  Mich.  512; 

Trade   Co.,  87   Ala.   411;   6  So.   Rep.  Green  v.  Graves,  1  Doug.  (Mich.)  351 ; 

360;  Slocum  v.  Providence,  etc.,  Co.,  Hurlbut  v.   Britain,  2   Doug.  (Mich.) 

10  R.  I.  112.  191;  Burton  v.  Schildbach,  45  Mich. 

8Building,  etc.,    Assn.  v.  Chamber-  504;    Mok  v.    Association,   30    Mich, 

lain,  4  S.    D.    271,    56    N.    W.  Rep.  511 — were  cases  where  the  corpora- 


78  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  88 

that  persons  who  aid  in  organizing  a  corporation,  subscribe 
for  its  stock  and  induce  others  to  transact  business  with  the 
corporation  on  the  faith  of  its  being  legally  incorporated,  are 
estopped  from  alleging  that  the  law  under  which  the  corpora- 
tion is  organized  is  unconstitutional. 

tions  appear  to  have  been  formed  for  to  have  receded  somewhat  from  this 

illegal  purposes,   namely,  to    violate  position  in  the  later  case  of  Manufac- 

lawa  against  unauthorized  banking,  as  turing  Co.  v.  Runnells,  55  Mich.  130, 

well  as  without  constitutional  legisla-  20  N.  W.  Rep.  823,"  Wilgus'  Cases, 
tive  authority.    But  that  court  seems 


CHAPTER  4. 


THE    CORPORATION    AND    THE    STATE1 THE    CHARTER 


§  89:  The  control  of  the  state. 

90.  Visitorial  power. 

91.  Corporations  of  a  g«asi-public 

character. 

92.  Reports. 

93.  Consequences  of  illegal  or  ultra 

vires  acts. 

94.  Forfeiture  distinguished   from 

repeal. 

95.  The  charter. 

96.  The  charter  as  a  contract. 

97.  The  Dartmouth  College  case. 

98.  Contracts  contained  in  charter. 

99.  Reservation  of  right  to  repeal 

or  amend  charter. 

100.  Exercise  of  the  reserve  power 

— Illustration. 

101.  Effect  of  dissolution  of  corpora- 

tion. 

102.  Vested  rights — Reservation  of 

power. 

103.  Acceptance  of  amendment. 

104.  Amendment  must  not  create  a 

new  charter. 


§  105.   Offer  of  amendment. 

106.  Illegal     amendments  —  Reme- 

dies. 

107.  Implied    contracts — Grant    of 

exclusive  franchise. 

108.  Eminent  domain. 

109.  The  police  power. 

110.  Statutes  affecting  the  remedy. 

111.  Construction       of       corporate 

grants. 

112.  Taxation  of  corporations. 

113.  Situs  of  taxable  property. 

114.  Restrictions  imposed  by  federal 

constitution. 

115.  Federal  agencies. 

116.  State     taxation      of    national 

banks. 

117.  Meaning  of  "other  money  and 

capital." 

118.  Telegraph  companies. 

119.  Other  agencies  of  commerce. 

120.  Exemption  from  taxation. 


§  89.  The  control  of  the  state. — Every  corporation  is  sub- 
ject to  the  control  of  the  state,  the  power  by  which  it  is  cre- 
ated. This  control  must,  however,  be  exercised  subject  to  the 
restrictive  provisions  contained  in  the  state  and  national  con- 
stitutions. The  relations  between  the  state  and  a  corporation 
may  be  contractual,  and  are  then  governed  by  the  same  gen- 
eral principles  of  law  which  govern  contracts  between  indi- 
viduals.2 


1  See  Wilgus'  Cases,The  Corporation    the  meaning  of  the  14th  amendment 
and  the  State.  to    the    constitution    of    the    United 

2  A  corporation  is  a  person  within     States.     Hammond,  etc.,  Co.  v.  Best, 

(79) 


80  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  3(3 

§  90.  Yisitorial  power. — All  corporations  are  subject  to  the 
visitorial  power  of  the  state;  i.  e.,  to  the  control  and  inspection 
of  tribunals  created  by  the  law  of  the  land.  Civil  corpora- 
tions are  visited  by  the  government  itself  through  the  medium 
of  the  courts  of  justice;  but  the  internal  affairs  of  ecclesias- 
tical and  eleemosynary  corporations  are,  in  general,  inspected 
and  controlled  by  a  private  visitor.1  Civil  corporations  being 
created  for  public  use  and  advantage,  properly  fall  under  the 
superintendency  of  the  sovereign  power  whose  duty  it  is  to 
take  care  of  the  public  interest;  but  corporations  whose  object 
is  the  distribution  of  a  private  benefaction  may  well  find  jeal- 
ous guardians  in  the  zeal  or  vanity  of  the  founder,  his  heirs 
or  appointees.2  The  present  power  of  control  over  corpora- 
tions is  founded  more  on  grounds  of  public  policy  than  on 
any  theory  of  succession  to  the  rights  of  a  prehistoric  founder. 
As  a  general  rule  the  state  has  the  same  control,  in  this  re- 
spect, over  corporations  that  it  has  over  individuals.3 

§  91.  Corporations  of  a  quasi-public  character. — The  state 
exercises  extensive  control  over  private  corporations  which 
have  a  public  character,  such  as  railways,  water,  gas,  telegraph 
and  telephone  corporations.  Certain  corporations,  like  banks, 
are,  to  a  certain  extent,  agencies  of  government,  while  the 
control  over  others  is  based  upon  the  extraordinary  powers 
and  franchises  which  have  been  granted  to  them.  This  is 
particularly  true  of  common  carriers  and  corporations  which 
exercise  the  power  of  eminent  domain.  Thus  the  rates  and 
contracts  of  these  corporations  are  subject  to  the  control  of  the 

91  Me.  431,  42  L.  R.  A.  529;   see  §68,  v.  Milwaukee  Co.,  95  Wis.  153,  36  L. 

supra:  Santa  Clara  Co.  v.  Southern,  R.  A.  55. 

etc.,  R.  Co.,  118  U.S.  Rep.  394;  Mem-  "Bank  v.  Hamilton,  21  111.53.    A 

phis,  etc.,    R.   Co.   v.    Beck  with,    129  court  will  not  exercise  visitorial  power 

I'.S.  Rep.  26.  over  a  foreign  corporation.    See  Clark 

'Phillips  v.  Bury,  2 T.  R.  346.    See  v. Mutual, etc., Co.  (D. C.),48L.B  A. 

Wilgus' Cases,  Visitation.  391.    The  old  law  of  visitation  does 

1  Angell  &  Ames  Priv.  Corps.,  §684,  uol  apply  to  modern  business  corpo- 

Kyd  Corp.,  17  1,  I  Black.  Com.,  p. 280,  rations.  The  so-called  visitorial  power 

2  Knit  Com.,  p.  300;  Burner's  Case,  2  over  them  is  in  the  courts.    See  State 

Bland.  Ch.  141;   Wisconsin,  etc..  Co.  v.  Georgia,  etc.,  Society,  38  Ga.  608, 

95  Am.  Dec  408,  Wilgus'  Cases. 


§  91  THE  CORPORATION  AND  THE  STATE THE  CHARTER.  81 

state,  which  generally  acts  through  a  board  of  visitors,  such 
as  railway  commissioners  or  interstate  commerce  commis- 
sions.1 The  power  of  these  bodies  is  very  extensive,  and  in 
some  cases,  where  they  have  discretionary  power,  no  appeal 
lies  from  their  decision,2  unless  there  has  been  fraud,  or  its 
exercise  results  in  practical  confiscation  of  property.3  Water 
and  gas  companies  are  subject  to  extensive  control.  Thus  a 
water  company  may  be  compelled  to  supply  water  to  all  im- 
partially at  reasonable  rates,  and  will  be  enjoined  from  cutting 
off  the  water  supply  from  any  one  without  good  cause.4  The 
rates  may  be  fixed  by  commissioners.  The  same  control  is 
exercised  over  gas  companies.5  They  must  not  act  arbitrarily.6 
Thus,  where  there  is  a  chance  that  the  charges  are  erroneous, 
notwithstanding  the  reading  of  the  meter,  the  company  will  be 
enjoined  from  cutting  off  the  supply  till  the  matter  can  be  de- 
termined in  a  court  of  law.7  Such  a  corporation  must  furnish 
gas  to  all  who  comply  with  reasonable  regulations.8  The  com- 
pany can  not  refuse  to  furnish  gas  to  the  occupant  of  certain 
premises  because  he  has  not  paid  an  account  incurred  for  gas 
while  occupying  other  premises.9  Telegraph  and  telephone 
companies  are  subject  to  the  same  control  as  other  common 

1  State  v.  Cincinnati,  etc.,  R.  Co.,  47        5  Water-works  v.  Schottler,  110  U.  S. 
Ohio  St.  130, 23  N.  E.  Rep.  928 ;  Minne-    347,  Wilgus'  Cases. 

'apolis,  etc.,  R.  Co.  v.  Railroad  Com-  6  See  generally  Ernst  v. New  Orleans, 

missioners,44  Minn.  336,  46  N.W.  Rep.  etc.,  Co.,  39  La.  Ann.  550,  2  So.  Rep. 

559;  State  v.  Mo.  Pac.  R.  Co.,  29  Neb.  415;  McCrary  v.  Beaudry,  67  Cal.  120; 

550,  45  N.  W.  Rep.  785;  Central,  etc.,  Silkman  v.  Yonkers  Water  Comrs.,  152 

R.  Co.  v.  State  (Ga.),  42  L.  R.  A.  518.  N.  Y.  327,  37  L.  R.  A.  827.    Water  rates 

2  See  Minneapolis,   etc.,   R.   Co.  v.  not  a  tax.   Wagner  v.  Rock  Island,  146 
Railroad  Commissioners, 44  Minn.  336.  111.  139,  21  L.  R.  A.  519. 

3  San  Diego,  etc.,  Co.  v.  San  Diego,  7  Sickles  v.  Manhattan,  etc.,  Co.,  66 
118  Cal.  556,  38  L.  R.  A.  460,  and  cases  How.  (N.  Y.)  305. 

cited.      But  see  Smyth  v.  Ames,  169  8  Coy  v.  Indianapolis,  etc.,  Co.,  146 

U.  S.  466.  Ind.  655,  36  L.  R.  A.  535. 

4  American,  etc.,  Co. v.  State,  46  Neb.  That  a  person  is  already  supplied 
194,  30  L.  R.  A.  447;  State  v.  Butte  with  gas  by  another  company  is  no 
City,  etc.,  Co.,  18  Mont.  199,  32  L.  R.  justification.    Portland,   etc.,    Co.    v. 
A.  697.     See  notes  in  15  L.  R.  A.  321  State,  135  Ind.  54,  21  L.  R.  A.  639. 
and  29  L.  R.  A.  376.  9 Lloyd  v.  Washington,  etc.,  Co.,  1 


6 — Private  Corp. 


Mackey  (D.  C.)  331. 


82  THE  LAW  OF  PRIVATE  CORPORATIONS.         §  92 

carriers.1  But  every  corporation  is  not  necessarily  obliged  to 
deal  with  the  whole  community.  Thus  a  board  of  trade  may 
decide  among  what  outside  persons  its  telegraphic  reports 
shall  be  distributed.2  But  a  corporation  organized  for  the  pur- 
pose of  transmitting  stock  quotations  by  telegraph  is  of  a 
quasi-public  character,  and  must  serve  all  who  are  willing  to 
pay  for  the  service.3 

§  92.  Reports. — All  private  corporations  may  be  required 
to  make  periodical  reports  of  their  capital,  business  and  gen- 
eral condition  to  a  state  board  or  official.  But  a  failure  to  do 
so  does  not  itself  work  a  forfeiture  of  the  charter,4  although  it 
may  render  the  directors  personally  liable  for  the  debts  of  the 
corporation,5  and  under  some  circumstances  ma}r  be  a  good 
ground  of  forfeiture.6  But  usually  if  quo  warranto  is  brought 
for  failure  to  file  reports,  the  state  will  accept  a  tender  of  the 
reports.7 

§  93.  Consequences  of  illegal  or  ultra  vires  acts. — In  order 
that  the  state  may  retain  control  over  corporations,  it  is  nec- 
essary that  it  should  have  the  power  to  restrain  or  punish  un- 
authorized acts.  It  may  do  this  by  scire-facias  or  quo  warranto. 
The  exercise  by  a  private  corporation  of  franchises  or  privi- 
leges not  conferred  by  law  may  result  in  the  forfeiture  of  the 
charter  8  or  in  merely  ousting  the  corporation  from  the  exercise 
of  the  powers  illegally  assumed.9  If  the  corporation  violates 
its  charter  or  fails  in  the  performance  of  its  corporate  duties 
in  material  and  important  particulars,  there  will  generally 
be  a  judgment  of  ouster.10  But  according  to  modern  au- 
thorities this  result  does  not  necessarily  follow  when  the  cor- 
poration has  entered  into  ultra  vires  contracts  which  arc  not 

'Central  Union,  etc.,  Co.  v.  Brad-  6  Post  Express,  etc.,  Co.  v.  Coursey 

bury,  106  Ind.  l;  State  v.  Nebraska,  (X.  Y.),  ION.  V.  Supp.  197. 

etc., Co.,  17  Neb.  126,52  Am.  Rep. 404;  ,;  Attorney-General  \.  Petersburg  It. 

American,  etc.,  <'<>.   v.   Connecticut,  Co  ,  6  Ired.  (N.  C.)  156. 

etc.,  Co.,  19  Conn.  352,  -II  Am.  Rep.  7Statev.  Barron,  57  N.  H.  498. 

generally  notes  in  L' I  Am.  L.  8  People  v.  Pullman,  etc.,  Co.,  175111. 

Reg.  N.  8.  573,  59  Am.  Rep.  172,  17.'),  L26;  Hartnett  v.  Plumbers', etc.,  Assn. 

•II  Am.  Rep.  241, 243, 38  Am.  Rep.  689.  (Mass.),  17  N.  E.  Rep    L002,  38  L.   R. 

1  Marine,  etc.,  Exchange  v.  Western  A.  L94;   State  v.   Pennsylvania,  etc., 

Union,  etc.,  Co.,  22  Fed.  Rep.  23, I  Co.,  23  Ohio  St.  121. 

note  to  17  Fed.  Rep.  23 ;  Metropolitan,  'People  v.   Building  Assn.,  35  Ohio 

etc.,   Exchange  v.  Chicago   Board  of  8t.  258. 

Trade,  15  Fed.  R<  p.  "l  People  v.  N.  R.,etc  ,  Co.,  121  \.  V. 

dman   v.   Gold,  etc.,   (Jo.,  82  582;Peoplev. Chicago, etc., Exchange, 

Hun  (N.  Y.i  I.  I7()  III.  556.  39  I,.   R.  A.  373;  Capital 

••State   v.   Brownton,  etc..   R.  Co.,  City,  etc.,  Co.  v.  State,  105  Ala.  406, 29 

120  In.  I.  337,  22  N.  E.  Rep.  JIG.  L.  R,  A.  743. 


§  93  THE  CORPORATION  AND  THE  STATE THE    CHARTER.  83 

prohibited  because  contrary  to  morals  or  express  statute. 
Ultra  vires  acts  are  not  necessarily  a  misuse  of  franchisee  to 
such  an  extent  as  will  warrant  their  forfeiture.  A  certain 
measure  of  discretion  is  exercised,  and  it  is  safe  to  assume 
that  so  severe  a  penalty  will  follow  only  when  the  act  is  of 
such  a  nature  as  to  affect  the  public  interests.1  As  a  result  a 
corporation  may  do  many  things  which  are  not  authorized  by 
its  charter,  and  the  state  will  not  interfere  so  long  as  the 
stockholders  or  other  private  persons  only  are  affected  thereby. 
Of  course,  where  the  statute  provides  that  certain  acts  shall  be 
punished  by  forfeiture  the  courts  have  no  discretion.2  The 
proper  proceeding  is  by  quo  warranto  on  the  motion  of  the 
attorney-general  or  on  the  relation  of  some  citizen.3 

A  court  of  equity  does  not  sit  to  administer  punishment  or 
enforce  forfeitures  for  violations  of  law;  its  jurisdiction  is  lim- 
ited to  the  protection  of  civil  rights,  and  the  cases  in  which 
full  and  adequate  relief  can  not  be  had  at  law.  An  ice  com- 
pany imported  two  cargoes  of  tea,  and  the  attorney-general 
filed  an  information  in  equity  to  restrain  the  company  from 
longer  carrying  on  the  ice  business.  The  court  said:4  "  The 
company  is  a  private  trading  corporation.  It  is  not  in  any 
sense  a  trustee  for  public  purposes.  This  is  not  a  suit  by  a 
stockholder  or  a  creditor.  The  acts  complained  of  are  not 
shown  to  have  injured  or  endangered  any  rights  of  the  public 
or  any  individual  or  other  corporation,  and  can  not  upon  any 

1  State   v.  Minnesota,  etc.,  Co.,  40  the  public  welfare ;  for  the  state  does 

Minn.  213;  Thompson  Priv.  Corp.,  §  not  concern  itself  with  the  quarrels  of 

6034;  article  by  Jesse  W.  Lilienthal,  in  private    litigants.      It    furnishes    for 

11  Harv.  Law  Rev.  387,  on  Non-Public  them  sufficient  courts  and  remedies, 

Corporations  and  Ultra  Vires.   In  Peo-  but  intervenes  as  a  party  only  when 

pie  v.  N.  R.  Ref.  Co.,  121  N.  Y.  582,  some  public  interest  requires  its  ac- 

the  court  said  that  to  justify  forfeiture  tion." 

of  corporate  existence  "the  state  must  2  State  v.  Pennsylvania,  etc.,  Co.,  23 

show,  on  the  part  of  the  corporation  Ohio  St.  121 ;  State  v.  Oberlin,  etc., 

accused,  some  sin  against  the  law  of  its  Assn.,  35  Ohio  St.  258. 

being  which  has  produced  or  tends  to  3Attorney-Generalv.Utica,etc,  Co.„ 

produce  injury  to  the  public.      The  2  John.  Ch.  371 ;  People  v.  Utica,  etc., 

transgression  must  not  be  merely  for-  Co.,  15  John.  358,  Wilgus'  Cases, 

mal   or    incidental,   but    material    or  4  Attorney-General    v.  Tudor,  etc., 

serious,  or  such  as  to  harm  or  menace  Co.,  104  Mass.  239,  Wilgus'  Cases. 


84  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  94 

legal  construction  be  held  to  constitute  a  nuisance.  *  *  * 
No  case  is  therefore  made  upon  which,  according  to  the  prin- 
ciples of  equity  jurisprudence  and  the  practice  of  this  court, 
an  injunction  should  be  issued  upon  an  information  in  chan- 
cery." But  when  a  quasi-public  corporation  is  doing  and 
contemplating  acts  which  are  ultra  vires  and  illegal,  the  neces- 
sary effects  of  which  are  not  only  to  impair  the  rights  of  the 
public,  but  also  to  create  a  nuisance,  an  injunction  will  issue. 
The  principle  here  is  that  the  court  has  jurisdiction  to  restrain 
and  prevent  nuisances,  and  where  the  nuisance  is  a  public 
one,  information  by  the  attorney-general  is  the  appropriate 
remedy.1  Grounds  of  forfeiture  must  be  taken  advantage  of 
through  the  law  courts.  The  state  does  not  waive  the  for- 
feiture  by  recognizing  the  corporation  as  such  after  a  cause  for 
forfeiture  exists.  Notwithstanding  an  existing  ground  of  for- 
feiture, the  corporation  may  continue  to  exercise  its  franchises 
until  judgment  of  ouster  is  pronounced.2 

§  94.  Forfeiture  distinguished  from  repeal. — The  repeal  of 
a  charter  by  the  legislature  under  a  reserve  power,  must  be  dis- 
tinguished from  a  forfeiture.  The  legislature  exercises  the 
power  of  repeal  in  accordance  with  the  conditions  of  the  con- 
tract, while  a  court  declares  a  forfeiture  for  non-user  or  mis- 
user of  corporate  franchises  or  powers,  independent  of  any  re- 
served right.3  A  corporation  is  not  dissolved  by  an  act  of 
non-user  or  misuser,  which  is  a  cause  of  forfeiture  of  its  fran- 
chise. The  franchise  exists  until  the  forfeiture  is  declared  in 
a  judicial  proceeding  by  the  state  against  the  corporation  for 
that  purpose,  unless  a  contrary  legislative  intent  is  clearly 
manifested.4     The    statute    required    a    turnpike    company    to 

•Attorney-General  v.  Aqueduct  Cor-  son,  etc.,  R.  Co.  v.  Nave,  38  Kan.  744, 

poration,  L33  Maes.  361.  -r>  Am.  Si.  Rep.  803.    In  State  v.  Spar- 

•People  v.  Bank,  24  Wend.  (N.  Y.)  tanburg,  etc.,  R.  Co.  (S.  C),  28  S.  E. 

,1:;i  Rep.  II"),  ii  was  held  that  the  failure 

•Erie,  etc.,  R.  Co.  v.  Casey,  26  Pa.  to  complete  a  railroad  under  the  pro- 
si.  L's7;  Detroil  v.  Plank  Road  Co.,  43  visions  of  the  company's  charter,— to 
M;,.|,.  i  nt.  the  effed  thai  the  powers,  rights,  privi- 

•Statev.  Atchison,  etc.,   R.  Co., 24  leges,  and  immunities  granted  there- 

143,8  Am.  St.  Rep.  179;  Atchi-  by  should  ceasejdetermine,  and  be  void 


§  95  THE   CORPORATION  AND  THE  STATE THE    CHARTER.  85 

make  an  annual  report  to  the  legislature  "under  forfeiture  of 
the  privileges  of  the  act  in  future."  The  court  said:  "The 
meaning  of  this  is  that  the  forfeiture  shall  be  proved  in  the 
regular  legal  manner;  upon  the  institution  and  prosecution  of 
proceedings  in  the  established  course,  such  neglect  of  this  duty 
shall  be  cause  of  forfeiture."1 

§  95.  The  charter. — The  charter  of  a  corporation  is  the  act 
or  acts  of  the  legislature  by  which  the  corporation  is  created 
and  its  powers  and  franchises  granted.  Under  general  cor- 
poration laws  the  articles  of  incorporation,  read  in  connection 
with  the  general  laws  of  the  state,  constitute  the  charter.2 

§  96.  The  charter  as  a  contract. — Each  corporate  charter 
contains  at  least  one  contract,  the  franchise  of  being  a  corpo- 
ration. This  privilege  "is  a  distinct,  independent,  essential 
franchise,"  complete  within  itself,  having  no  necessary  con- 
nection with  other  distinct  franchises,  which  are  the  subjects 
of  legislative  grant  and  which  may  or  may  not  be  given  to 
corporations  once  created,  as  well  as  to  natural  persons,  as 
to  the  legislature  may  seem  advisable.3 

The  franchise  of  acting  as  a  private  corporation  is  a  contract 
between  the  state  and  the  incorporators,  which  can  not  be  im- 
paired by  the  subsequent  acts  of  the  state  without  violating 
the  constitutional  provision  which  forbids  the  states  to  pass 
laws  impairing  the  obligation  of  a  contract.*  "It  is  now  too 
late  to  contend  that  any  Contract  which  a  state  actually  enters 
into,  when  granting  a  charter  to  a  private  corporation,  is  not 
within  the  protection  of  the  clause  in  the  constitution  of  the 
United  States  that  prohibits  states  from  passing  laws  impairing 

unless  the  company   shall  complete  ville  Water  Co.  v.  Clark,  143  XJ.  S.  1 ; 

the    road     within     three     years, — is  People  v.  Chicago,  etc.,  Co.,  130  111. 

merely  a  cause  of  forfeiture,  and  not  268. 

an  express  limitation  of  the  existence  3  Southern,  etc.,  R.  Co.  v.  Orton,  32 
of  the  corporation,  and  does  not  ipso  Fed.  Rep.  457,  Wilgus'  Cases. 
facto  dissolve  the  corporation.     But  4  Const.  U.  S.,  Art.  1,  §10.     Dart- 
see  The  Brooklyn,  etc.,  Co.  v.  City  of  mouth  College  v. Woodward,  4  Wheat 
Brooklyn,  78  N.Y.  524,  Wilgus' Cases.  518;    Carv,  etc.,  v.  Bliss,  151   Mass. 

1  State  v.  Turnpike,  15  N.  H.  162.  364,  25  N.  E.  Rep.  92;    Downing  v. 

2  Lincoln,  etc.,  Co.  v.  Sheldon,  44  Board,  129  Ind.  443,  28  N.  E.  Rep. 
Neb.  279,  62  N.  W.  Rep.  480;  North,  123,  614;  Zimmers  v.  State,  30  Ark. 
etc.,  Co.  v.  Utah,  etc.,  Co.  (Utah),  52  677.  The  rule  applies  to  private  cor- 
Pac.  Rep.  168,  40  L.  R.  A.  851  ;  Louis-  porations  only. 


86  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  97 

the  obligation  of  contracts.  The  doctrines  of  Dartmouth  Col- 
lege v.  Woodward,  announced  by  this  court  more  than  sixty 
years  ago,  have  become  so  imbedded  in  the  jurisprudence  of  the 
United  States  as  to  make  them  to  all  intents  and  purposes  a  part 
of  the  constitution,  itself.  In  this  connection,  however,  it  is  to 
be  kept  in  mind  that  it  is  not  the  charter  that  is  protected,  but 
only  any  contract  which  the  charter  may  contain.  If  there  is 
no  contract  there  is  nothing  in  the  grant  on  which  Ihe  consti- 
tution can  act;  consequently,  the  first  inquiry  in  this  class  of 
cases  always  is :  whether  a  contract  has  in  fact  been  entered 
into,  and  if  so,  what  its  obligations  are."1 

§  97.  The  Dartmouth  College  case. — Of  this  famous  case2 
Mr.  Justice  Miller  said:  3  "It  may  well  be  doubted  whether 
any  decision  ever  delivered  by  any  court  has  had  such  a  per- 
vading operation  and  influence  in  controlling  legislation  as 
this.  It  is  founded  upon  the  clause  of  the  constitution  which 
declares  that  no  state  shall  make  any  law  impairing  the  obli- 
gation of  contracts.  Dartmouth  College  existed  as  a  corpora- 
tion under  a  charter  granted  by  the  British  crown  to  its  trus- 
tees in  New  Hampshire  in  the  year  17G9.  This  charter  con- 
ferred upon  them  the  entire  governing  power  of  the  college, 
and,  among  other  powers,  that  of  filling  up  all  vacancies  oc- 
curring in  their  own  body,  and  of  removing  and  appointing 
tutors.  It  also  declared  that  the  number  of  trustees  should  for- 
ever consist  of  twelve,  and  no  more. 

"After  the  revolution  the  legislature  of  New  Hampshire 
passed  a  law  to  amend  the  charter  and  to  improve  and  enlarge 
the  corporation.  It  increased  the  number  of  trustees  to  twenty- 
one,  gave  the  appointment  of   the  additional  members  to  the 

'Chief    .lustier     W'nile     ill     Stone     V.       ill    Toledo    Bank    V.     lioinl,   1    Ohio   St. 

Mi:-  i    ippi,  LO]  U.  S.  814.  626,  et aeq.  (1858).    The  manifold  ap- 

2  1  Wheat.  (U.  S.)  518.  plications  of  Ihe  doctrines  of  I  he  case 

•  For  an    "inside"   history  of  the  and  their  limitations  are  best  set  forth 

Bhirley's  "Tin-  Dartmouth  by  Mr.  .lust ice  Brown  in  Pearsall  v. 

College  Ca  e  and  the  Supreme  Courl  Greal  Northern  R.  Co.,  KM  IT.  S.  646, 

ofthi  tates."    For  criticisms,  Wilgus'   Cases.      I    have    given    the 

!,.,.    ishuelol    R.  <"o.  v.  Elliot,  -">s   N.  statemenl  of  this  famous  case  in  Hie 

l .  151,  mi  el  ;in  article  by  Seyi r  l>.  authoritative  language  of  Mr.  Justice 

Thompson,   26    \m.    Law    Rev.    L69.  Miller,  used  in  his  Lectures  on  the 

•  ( Ihief  Justice  Hartley,  (  oust ituiion,  page  392. 


§  98    THE  CORPORATION  AND  THE  STATE THE  CHARTER,    87 

executive  of  the  state,  and  created  a  board  of  overseers,  to  con- 
sist of  twenty-five  persons,  of  whom  twenty-one  were  also  to  be 
appointed  by  the  executive  of  New  Hampshire.  These  over- 
seers had  power  to  inspect  and  control  the  most  important  acts 
of  the  trustees.  The  supreme  court,  reversing  the  decision  of 
the  superior  court  of  New  Hampshire,  held  that  the  original 
charter  constituted  a  contract  between  the  crown,  in  whom  the 
power  was  then  vested,  and  the  trustees  of  the  college,  which 
was  impaired  by  the  act  of  the  legislature  above  referred  to. 
The  opinion,  to  which  there  was  but  one  dissent,  establishes 
the  doctrine  that  the  act  of  a  government,  whether  it  be  by  a 
charter  of  the  legislature  or  of  the  crown,  which  creates  a  cor- 
poration, is  a  contract  between  the  state  and  the  corporation  and 
that  all  the  essential  franchises,  powers  and  benefits  conferred 
upon  the  corporation  by  the  charter  become,  when  accepted  by 
it,  contracts  within  the  meaning  of  the  clause  of  the  constitu- 
tion referred  to.  The  opinion  has  been  of  late  years  much 
criticised,  as  including  with  the  class  of  contracts  whose  founda- 
tion is  within  the  legislative  action  of  the  states,  many  which 
were  not  properly  intended  to  be  so  included  by  the  framers  of 
the  constitution,  and  it  is  undoubtedly  true  that  the  supreme 
court  itself  has  been  compelled  of  late  years  to  insist  in  this 
class  of  cases  upon  the  existence  of  an  actual  contract  by  the 
state  with  the  corporation  when  relief  is  sought  against  subse- 
quent legislation." 

§  98.  Contracts  contained  in  charter.1 — The  contracts  which 
are  ordinarily  found  in  the  charter  of  a  private  corporation  fall 
into  three  classes: 

(1.)    Those  between  the  state  and  the  incorporators,2  such 

1  See  especially,  opinion  of  Story,  and  can  not  be  taken  without  com- 
in  Dartmouth  College  v.  Woodward,  pensation,  even  for  public  use.  *  *  * 
Wilgus'  Cases,  All  the   cases  agree   that  the   indis- 

2  The  Delaware  Railroad  Tax,  18  pensable  franchises  of  a  corporation 
Wall.  206;  Bank  of  Pa.  v.  Comw.,  19  can  not  be  destroyed  or  essentially 
Pa.  St.  144.  In  Thorpe  v.  Rutland  &  modified.  This  is  the  verv  point  upon 
Burlington  R.  Co.,  27  Vt.  141  (1885),  which  the  leading  case  of  Dartmouth 
Redfield,  C.  J.,  said:  "It  is  admitted  College  v.  Woodward  was  decided, 
that  the  essential  franchise  of  a  pri-  and  which  every  M^ell  considered  case 
vate  corporation  is  recognized  by  the  in  this  country  maintains." 

best  authorities  as  private  property, 


88  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  98 

as  the  franchise  of  acting  as  a  corporation,  of  exemption  from 
taxation,1  or  that  the  charter  shall  not  be  subject  to  amendment 
or  repeal  without  the  consent  of  the  corporation.2 

(2.)  Contracts  between  the  corporation  and  the  stock- 
holders. When  one  becomes  a  member  of  a  corporation,  it 
is  upon  certain  terms  and  conditions  and  for  certain  specified 
purposes.  He  subjects  his  interests  to  the  control  of  proper 
authorities  to  accomplish  the  object  of  the  organization,  but 
he  does  not  agree  that  the  purpose  shall  be  changed  in  its  char- 
acter at  the  will  of  the  directors,  or  a  majority  of  the  stock- 
holders even.  The  contract  can  not  be  changed  without  the 
consent  of  both  parties.3  Hence  there  arises  a  contract  which 
the  legislature  can  neither  impair,  nor  authorize  a  majority  of 
the  members  to  impair.  Thus,  where  the  act  of  incorporation 
provides  for  the  election  of  directors  by  majority  vote,  it  is  not 
within  the  power  of  the  legislature  to  change  the  method  of 
voting  so  as  in  effect  to  place  the  control  in  the  hands  of  a  mi- 
nority,4 or  provide  for  cumulative  voting.5  So  a  law  authorizing 
consolidation  with  another  corporation  and  the  transfer  of  the 
property  to  the  consolidated  company  is  invalid.6  The  contract 
between  the  corporation  and  its  stockholders  is  violated  by  a 
statute  which  authorizes  a  majority  of  the  stockholders  to  en- 
gage in  a  business  not  authorized  by  the  charter.7 

(3.)  Contracts  between  the  corporation  and  persons  deal- 
ing with  the  corporation;  such  as  statements  in  the  charter  or 
law,  that  the  capital  stock  shall  be  a  certain  amount,  or  that 
the  stockholders  of  an  insolvent  corporation  shall  be  liable  for 
an  amount  in  excess  of  the  face  value  of  their  stock.8 

«New  Jersey  v.  Wilson,  7  Crunch  8Hawthorn    v.  Calef,  2  Wall.  10; 

L64.  McDonnell  v.  Alabama,  etc.,  Co.,  85 

( Louisville  Gas  Co.  v.  Citizens',  etc.,  Ala.  401;  Nome  v.    Wrenschall,   34 

Co.,  115  l  .  8.  6  Md.  492 ;  Sinking  Fund  Cases,  99  U.  S. 

ater v.Meredith,  l  Wall.25.  700;  Conanl  v.  VanSchaick,  24   Barb. 

4  Haya  v.  <  !omw.,  82  Pa.  St.  518.  89.  Where  the  liability  is  placed  upon 

bate  v.  Greer,  78  Mo.  L88;  Haysv.  an  officer  as  a  penalty  (or  failing  to 

I          .,  82  Pa.  SI  518;  Orrv.  Bracken  comply   with   the    statutory    require- 

-i    Kv.  593.     Bui   Bee  Cross   v.  ment,  all  rights  of  the  creditor  are  lost 

Railroad  <  '<».,  35  W.  Va.  L72.  by  a  repeal  of  the  Btatute.  There  is  no 

uman  v.  R.  Co.,  30  Pa.  St.  48.  such  thing  as  a  vested  interest  in  an 

7Zabriskiev.  R.  Co.,  L8N.  J.  ESq.  178.  unenforced  penally.    Gregory  v.  Ger- 


§  99  THE  CORPORATION  AND  THE  STATE THE    CHARTER.  89 

§  99.     Reservation  of  right  to  repeal  or  amend  charter. — 

Since  the  decision  of  the  Dartmouth  College  case  the  states 
generally  reserve  the  right  to  repeal  or  amend  corporate  char- 
ters without  the  consent  of  the  corporation.  The  reservation 
may  be  in  the  particular  charter,  but  is  now  commonly  con- 
tained in  a  constitutional  provision  or  a  general  law.1  Such 
general  reservations  apply  to  all  charters  granted  or  enabling 
acts  passed  subsequent  to  their  adoption  unless  expressly  ex- 
empted therefrom.2  A  charter  accepted  while  a  law  contain- 
ing a  reservation  of  power  to  repeal  or  amend  corporate  char- 
ters is  in  existence  is  subject  to  such  conditions,  although  the 
act  creating  the  corporation  contains  no  reference  to  the  res- 
ervation.3 A  reservation  of  power  to  amend  or  repeal  a  charter 
contained  in  a  general  incorporation  law,  has  been  held  not  to 
affect  specific  legislation  applicable  only  to  a  single  city  or  cor- 
poration.4 

A  corporation  formed  by  consolidation  after  the  adoption  of 
a  constitution  reserving  the  right  to  amend,  alter  or  repeal 
charters,  is  subject  to  that  provision,  although  the  original 
corporation  was  not.5 

§  100.  Exercise  of  the  reserve  power — Illustrations. — When 

the  power  to  amend  or  repeal  the  charter  is  thus  reserved,  it 
is  to  be  exercised  by  the  legislature,  and  according  to  the  weight 

man  Bank,  3  Colo.  336;   Breitung  v.  reserved  in  the  organic  law,  and  there- 

Lindauer,  37  Mich.  217 ;   Union  Iron  fore    necessarily  inherent    in    every 

Co.    v.   Pierce,   4  Biss.   327;    Cooley  other;    but  a  legislative   declaration 

Const.  Lim.  (5th  ed.),  444,  474;  Wait  that  all  future  charters  shall  be  sub- 

Insolv.  Corps.,  §  600.  ject   to    modification  or    appeal   will 

Greenwood  v.  Freight  Co.,  105  U.  enter  into  and  qualify  every  subse- 
S.  13;  Tomlinson  v.  Jessup,  15  Wall,  quent  act  of  incorporation  which  does 
(IT.  S.)  454;  Iron  City  Bank,  Pitts-  not  clearly  indicate  a  different  de- 
burg,  37  Pa.  St.  341.  See  note  on  re-  sign."  Hare  Am.  Const.  Law  II,  p.  654. 
peal  or  modification  of  charters  and  s  Jackson  v.  Walsh,  75  Md.  304,  23 
franchises,  21  Am.  St.  Rep.  148;  also  Atl.  Rep.  778. 

on  reservation  of  power  to  alter  char-  *  Central,  etc.,  Co.  v.  Citizens,'  etc., 

ters,  7  Am.  St.  Rep.  721.  R.  Co.,  80  Fed.  Rep.  218. 

2  Close  v.  Greenwood,  etc.,  Co.,  107  5  Smith  v.  Lake  Shore,  etc.,  R.  Co. 
IT.  S.  466;  Miller  v.  New  York,  15  114  Mich.  460,  72  N.W.  Rep.  328;  Pear- 
Wall.  478;  The  Monongahela,  etc.,  sail  v.  Great  Northern  Ry.,  161  IT.  S. 
Co.  v.  Coon,  6  Pa.  379;  Pa.  R.  Co.  v.  646.  See  Lake  Shore,  etc.,  R.  Co.  v. 
Duncan,  111  Pa.  St.  352.  "In  these  Smith,  173  U.  S.  684,  reversing  the 
instances  the  power  of  revocation  was  Ik, Ming  Qf  the  state  court. 


90 


THE    LAW    CF    PRIVATE    CORPORATIONS. 


100 


of  authority  its  action  can  not  be  controlled  by  the  courts.1  If 
the  reservation  is  of  the  right  to  repeal  if  certain  conditions 
are  not  complied  with,  there  may  be  a  repeal  without  a  previ- 
ous judicial  determination  of  failure  to  comply.2  In  some 
jurisdictions  it  is  held  that  although  the  legislature  may  exer- 
cise the  power  before  a  judicial  investigation,  its  acts  are  subject 
to  review  by  the  courts.3  Alterations  must  be  reasonable,  made 
in  good  faith,  and  consistent  with  the  scope  and  object  of  the  act 
of  incorporation.4    Where  the  reservation  is  of  power  to  repeal 


1  Spring  Valley  W.  W.  v.  Schottler, 
110  U.  S.  317 ;  Greenwood  v.  Freight 
Co.,  105  U.S.  13. 

2  Miners'  Bank  v.  U.  S.,  1  Greene 
553  (la.),  s.  c.  43  Am.  Dec.  115;  Oak- 
land R.  Co.  v.  Oakland  R.  Co.,  45  Cal. 
365;  X.  Y.,  etc.,  R.  Co.  v.  Boston, 
etc.,  R.  Co.,  36  Conn.  196;  contra, 
Flint,  etc.,  R.  Co.  v.  Woodhull,  25 
Mich.  99;  State  v.  Noyes,  47  Me.  189. 
In  Myrick  v.  Brawley,  33  Minn.  377, 
the  court  said:  "  The  insertion  in  leg- 
islative grants,  like  the  one  in  ques- 
tion, of  express  provisions  for  for- 
feiture in  case  of  non-user  or  misuser, 
i-  not  uncommon,  and  it  can  hardly 
be  questioned  that  it  is  competenl  for 
the  legislature,  which  is  the  law-mak- 
ing power,  as  well  as  one  of  the  con- 
tracting parties,  to  provide  in  the 
granl  a  mode  of  enforcing  the  forfeit- 
ure, either  by  repeal  <>i  the  act  mak- 
ing the  granl  or  otherwise,  and  there 
can  in-  as  litt le  doubl  that  the  forfeit- 
ure will  he  effectually  enforced  hy  re- 
sult  tip  the  stipulated  mode,  provided 

the  even)   mii   \\  hid]   it    is  hi  he  resorted 

t<.  has  arisen.     When'   the   righl   re- 

i  recall  t  lie  granl  depends  on 

t!i"  happening  of  a  contingeni  event, 

the    existence    Of    'he    iaet    ;il     the    time 

of  the  recall  must,  of  course,  lie  a  mat- 
ter for  judicial  investigation.  Whether 

the    re-ent  i  y    h\    a    |.i  i  \  ale  grantor  )>er- 

:i  forfeiture  must  depend  on  the 
fad    "i    condition    broken,   ami    that 


must  be  ascertained  by  the  judiciary ; 
but  in  no  case,  where  the  forfeiture 
may  be  enforced  by  act  of  the  grantor, 
need  he  secure,  before  he  enforces  it, 
a  judicial  determination,  that  the  fact 
upon  which  the  right  to  forfeiture  de- 
pends exists.  The  courts  will  decide 
upon  the  effect  of  his  act  subse- 
quently. But  neither  does  the  legisla- 
ture, when  it  exercises  a  reserved 
rightto  repeal,  nor  the  private  grantor, 
when  he  exercises  a  reserved  right 
of  re-entry,  perform  any  judicial  func- 
tion. The  act  of  neither  assumes  to 
determine  finally  the  rights  of  the 
parties  as  effected  by  the  act  to  en- 
force the  forfeiture,  That  is  necessa- 
rily and  inherently  a  judicial  ques- 
tion." Erie,  etc.,  R.  Co.  v.  Casey,  26 
Pa.  St.  287;  Crease  v.  Babcock,  23 
Pick.  334;  McLaren  v.  Pennington,  1 
Paige  102;  Read  v.  Frankfort  Bank, 
23  Me.  318.  As  to  whether  a  judicial  act 
declaring  a  forfeiture  is  not  necessary 
tor  the  non-performance  of  a  condi- 
tion in  a  grant  on  franchise,  see  note 
to  Atchison,  etc..  Co.  v.  Nave,  38  Kan. 
717,  5  Am.  St.  Rep.  804.  .Mere  non- 
action does  not  destroy  a  franchise, 
although  it  may  justify  a  forfeiture  In- 
judicial proceedings.  I  tiggins  v.  Down- 
ward, 8  Houst.  227,  Kt  Am.  St.  Rep. 
Ill,  Wilgus'  Ca 
•Erie,  etc.,  Co.  v.  Casey,  26  Pa.  St. 

2S7. 

•The   Sinking    Fund  Cases,  99  lT.  S. 


§   101       THE  CORPORATION  AND  THE  STATE THE  CHARTER.  91 

or  amend  "at  the  pleasure  of  the  legislature,"  the  motives  of 
the  legislature  are  immaterial.1  A  statute  requiring  railroads 
to  issue  mileage  books  good  for  two  years,  and  fixing  the  mini- 
mum price  thereof,  is  not  within  the  reserve  power  to  alter, 
amend  or  repeal  the  charter  of  a  railroad  corporation.2  A 
statute  making  the  validity  of  a  lease  by  a  railroad  company, 
whose  charter  vests  the  power  of  making  such  a  lease  in  the 
stockholders,  dependent  upon  its  acceptance  by  the  board  of 
directors,  is  an  amendment  to  the  charter.3  Under  this  reserve 
power  the  legislature  may  require  a  railroad  company  to  change 
its  grade  and  make  new  structures  at  crossings.4  So  such  com- 
panies may  be  compelled  to  unite  in  and  extend  their  tracks 
to  a  union  passenger  station,  and  to  discontinue  the  use  of 
their  former  station.5  A  corporation  may  be  required  to  estab- 
lish a  sinking  fund.6  The  legislature  has  power,  according  to 
some  authorities,  under  the  reserve  power  to  alter  or  amend, 
to  authorize  cumulative  voting  at  stockholders'  meeting  incor- 
porations previously  formed.7 

§  101.  Effect  of  dissolution  of  corporation. — The  dissolution 
of  a  corporation  does  not  impair  the  obligation  of  contracts  be- 
tween the  company  and  third  persons.  In  a  well  known  case,8 
Mr.  Justice  Story  said:  "The  dissolution  of  the  corporation 
under  the  acts  *  *  *  can  not  in  any  just  sense  be  considered 
within  the  clause  of  the  constitution  of  the  United  States  on 
this  subject  an  impairing  of  the  obligation  of  the  contracts  of 
the  company  by  those  states  any  more  than  the  death  of  a  pri- 
vate person  can  be  said  to  impair  the  obligation  of  his  con- 
tracts.    The  obligation   of  those  contracts  survives,  and  the 

700;   Shields  v.   Ohio,  95  U.  S.  319;  Mass.  254;   Albany,  etc.,   R.   Co.  v„ 

Flint,  etc.,   R.    Co.  v.  Woodhull,   25  Brownell,  24  N.  Y.  345. 

Mich.  99.  5  Mayor  v.  Norwich,  etc.,  R.  Co.,  109 

Greenwood    v.    Freight    Co.,    105  Mass.  103. 

U.  S.  13.  6  Union,  etc.,  Co.  v.  U.  S.,  99  U.  S. 

2  Lake  Shore,  etc.,  R.  Co.  v.  Smith,  700. 

173  U.S.  684,  overriding  Smith  v.  Lake  7  Cross  v.  R.  Co.,  35  W.   Va.    172. 

Shore,  etc.,  R.  Co.,  114  Mich.  460,  72  Contra,  Orr  v.  Bracken  Co.,  81  Ky. 

N.  W.  Rep.  328.  593.    Supra,  §98. 

3  Opinion  of  Judges  (N.  C),  28  S.E.  8  Mumma  v.   Potomac   Co.,   8  Pet. 
Rep.  18.    .  (U.  S.)  281.     See  People  v.  O'Brien, 

4  Comw.  v.  Eastern,  etc.,  R.  Co.,  103  111  N.  Y.  1,  52  N.  Y.  Sup.  Ct.  519. 


92  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  102 

creditors  may  enforce  their  claims  against  any  property  be- 
longing to  the  corporation  which  has  not  passed  into  the  hands 
of  bona  fide  purchasers,  but  is  still  held  in  trust  for  the  com- 
pany, or  for  the  stockholders  thereof  at  the  time  of  its  dissolu- 
tion, in  any  mode  permitted  by  the  local  laws."  Upon  an  ab- 
solute repeal  of  a  corporate  charter  by  the  legislature  acting 
within  its  constitutional  authority  the  corporation  ceases  to  ex- 
ist, and  no  judgment  can  thereafter  be  rendered  against  it.1  If 
the  legislature  has  not  provided  some  method  for  protecting 
the  rights  of  creditors  and  stockholders  in  case  of  a  dissolution 
of  a  corporation,  the  court  will  protect  them  by  such  means  as 
are  within  its  power.2 

§  102.  Tested  rights — Reservation  of  power. — The  state 
can  not,  by  virtue  of  power  reserved  to  repeal,  amend  or  alter 
corporate  charters,  destroy  rights  which  have  become  vested 
in  the  corporation.  The  power  thus  reserved  can  be  exercised 
only  for  the  purpose  of  controlling  the  corporation  and  carry- 
ing out  the  purposes  of  the  original  grant.  "  Sheer  oppres- 
sion and  wrong  can  not  be  inflicted  under  the  guise  of  amend- 
ment or  alteration.  Beyond  the  sphere  of  reserved  powers,  the 
vested  rights  and  property  of  corporations,  in  such  cases,  are 
surrounded  by  the  same  sanctions  and  are  as  inviolable  as  in 
other  cases."3 

Upon  the  repeal  of  the  corporate  charter  the  life  of  the  cor- 
poration is  ended,  but  the  property  of  the  corporation,  includ- 
ing street  franchises,  mortgages  and  valid  contracts,  survive.4 

'Thornton  v.  Marginal  R.  Co.,  123  ing  legislature  can  not  undo  it.    The 

Mass.  32;   Marion,  etc.,  Co.  v.  Ferry,  past  ran  not  be  recalled  by  the  must 

71  Fed.  Rep.  426;  Nelson  v.  Hnbbard,  absolute  power.     Conveyances  have 

96    \la.   238,  17   l>.  1{.   A.  :\7'>;   Combes  been   made;  these    conveyances   have 

\.   Mil.,  etc.,  R.  Co.,  Hit  Wis.  297,  27  vested  legal  estates,  and  if  those  es- 

L.  R.  L  369.  tates  can  be  seized  by  the  sovereign 

•Greenwood  v.  Freighl  Co.,  105  U.  authority,  still  thai  they  were  origin- 

B.  L3  06,  Infra.  ally  vested  is  a  facl  and  can  not  cease 

bields    v.    Ohio,   95    U.    8.    319;  fcobeafact.     When,  then,  a  law  is  in 

Close  v.  Qlenwood,  etc.,  L07U.S.466.  the  nature  of  a  contract,  when  abso- 

'People  v.  O'Brien,    in    \'.   V.    1.  lute  rights  have  vested    under   that 

In  Fletcherv.  Peck,  6  Cranch  (U.  8.)  contract,  a  repeal  oi  the  law  can  not 

87,  Chief  Justice  Marshall  Baid:  "If  divest  those  rights." 
an  art  be  done  under  a  law,  a  succeed- 


§   103       THE  CORPORATION  AND  THE  STATE THE    CHARTER.  93 

A  corporation  authorized  to  construct  a  dam  across  a  river  may 
afterward  be  required  to  construct  and  maintain  a  fish  way  in 
the  dam.  But  after  this  is  done  and  the  corporation,  in  consid- 
eration of  a  grant  of  enlarged  powers,  has  paid  certain  damages 
caused  by  the  construction  of  the  dam  with  a  fishway  which 
the  legislature  knew  to  be  insufficient,  the  legislature  can  not 
legally  require  the  corporation  to  construct  a  new  fishway  at 
great  cost.1 

Where  a  plank  road  company  had  power  to  maintain  a  road 
within  the  city  limits  and  to  charge  toll,  an  act  which  requires 
all  plank  road  companies  "to  discontinue  and  remove  said  toll 
gates  beyond  the  limits  of  the  city"  was  held  invalid.2  A  bare, 
unexecuted  power  to  consolidate  with  other  corporations  given 
to  a  railroad  company  by  its  charter,  is  not,  while  unexecuted, 
a  vested  right  protected  from  control  or  revocation  by  the  legis- 
lature.3 

§  103.  Acceptance  of  amendment. — Although  the  state  re- 
serves the  right  to  amend  the  charter  of  a  corporation,  it  can  no 
more  compel  the  acceptance  of  such  an  amendment  than  of  an 
original  charter.  The  corporation  has  the  option  of  accepting 
the  amendment  or  going  out  of  existence.4  If  the  corporation 
acts  under  the  amendment,  it  will  be  presumed  to  have  ac- 
cepted the  same.5  The  mere  collecting  of  tolls  in  conformity 
with  reduced  rates  fixed  by  a  statute  does  not  show  an  assent 
by  a  turnpike  company  to  the  exercise  by  the  legislature  of  the 
power  to  amend  its  charter.6 

§  104.    Amendment  must  not  create  a  new  charter. — The 

power  to  amend  does  not  include  the  power  to  so  far  alter  a 
charter  as  to  change  the  nature  and  purpose  of  the  corporation. 
Under  a  charter  which  authorized  the  amendment  of  the  arti- 

'Comw.     v.    Essex    Co.,    13    Gray  ton  v.  Bank,  21  Grat.(Va.)  593;  Ellisv. 

(Mass.)  239.  Marshall,  2  Mass.  279,  Wilgus'  Cases. 

'Detroit  V.   Detroit,    etc.,    Co.,    43  5 Miller  v.  Insurance  Co.,  92  Tenn. 

Mich.  140.  167 ;  Demarest  v.  Flack,  128  N.  Y.  205. 

3Pearsall  v.  Great  Northern,  etc.,  R.  6 Covington,  etc., Co.  v.  Sandford,  164 

Co.,  161  U.  S.  646.  U.  S.  578. 

4  Com.  v.  Cullen,  13  Pa.  St.  133 ;  Yea- 


94  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   105 

cles  of  incorporation,  provided  the  original  purpose  of  the  cor- 
poration should  not  be  substantially  changed,  it  was  held 
that  a  corporation  organized  for  the  business  of  manufacturing 
gas  and  electricity,  and  furnishing  gas  for  light,  heat,  power 
and  other  purposes,  could  not  so  change  its  articles  by  amend- 
ment as  to  become  empowered  to  own  and  operate  a  street  rail- 
way, to  be  operated  by  electricity  or  other  motive  power  over 
a  certain  route,  with  power  to  extend  its  line  beyond  the  city 
limits.1  The  rule  is  that  the  state  may  repeal  or  supersede, 
alter  or  modify  a  charter,  but  it  can  not  take  away  the  charter, 
propose  a  new  one  and  oblige  the  stockholders  to  accept  it. 
Power  to  alter  or  modify,  does  not  imply  power  to  substitute  a 
thing  entirely  different.2 

§  105.  Offer  of  amendment.8 — When  an  amendment  to  a 
corporate  charter  can  not  lawfully  be  imposed  by  the  legisla- 
ture, because- the  power  is  not  reserved,  but  is  offered  to  a  cor- 
poration for  its  acceptance,  it  may  be  accepted  or  rejected  by 
the  stockholders  without  having  any  effect  upon  their  right  to 
proceed  under  the  existing  charter.  If  the  proposed  amend- 
ment is  fundamental  and  changes  the  original  plan  of  the 
corporation,  it  can  only  be  accepted  by  the  unanimous  vote  of 
the  stockholders.*     If,  however,  it  is  merely  auxiliary  and  in- 

1  State  v.  Taylor,  55  Ohio  St.  61,  44  jects  and  purposes  of  the  corporation 

N.  E.  Rep.  513.  remaining  still  the  same.    It  may  be 

'Zabriskie  v.  Hackensack,  etc.,  1!.  admitted    that,    under   this    reserve 

Co.,18N.  J.Eq.  179.  Where  it  appeared  power  to  alter  and  repeal,  the  legis- 

that  after  the  defendant  subscribed  for  lature  would  have  n<>  right  to  change 

stock,  the  name  of  the  corporation,  the  the  fundamental  character  of  the  cor- 

amounl  of  the  capital  stock,  and  the  poration  and  convert  it  into  a  different 

tt  of  railway  was  increased  by  the  legal  being."     Buffalo,  etc.,  R.  Co.  v. 

amendmenl  of  the  charter,  the  « rt  Dudley,  ll  N.  Y.  336;  Durfee  v.  Old 

said:      "The   ilghl   to  alter  was  re-  Colony,  etc.,  R.  Co.,  5    lllen  (Mass.) 
ed  in  the  charter  and  the  subscrip-  230;  Ashuelot,  etc.,  R.  Co.  v.  Elliot, 
tion  Hid -t  be  taken  to  have  been  made  52  X.  II.  387,  58  N.  H.  451. 
subjecl  to  having  such  add  itionaj  pow-  'See  Wilgus'  Cases,  Power  of  Ma- 
cro conferred  as  the  legislature  might  jority. 

deem  essential  and  expedient.    The  'Winter  v.  Muscogee,  etc.,  Co.,  M 

new  powers  conferred  are  identical  in  Qa.  438;    Ellis  v.  .Marshall,  2  Mass. 

kind  with  tl               inally  given.  They  279.    See  note  to  Comm.  v.  Cullen,  53 

d  men  ly,  the  general  ob-  Am.  Dec.  161. 


§   106       THE  CORPORATION  AND  THE  STATE THE    CHARTER.  95 


cidental  and  in  aid  of  the  original  design,  it  may  be  accepted 
by  a  majority  of  the  stockholders.1 

§  106.  Illegal  amendment — Remedies. — When  a  funda- 
mental amendment  to  the  charter  has  been  wrongfully  accepted 
by  a  corporation  without  the  consent  of  all  the  stockholders,  a 
dissenting  stockholder  who  acquired  his  interest  before  the 
amendment  was  made2  may  obtain  a  perpetual  injunction  re- 
straining action  under  the  amendment3  or  may  refuse  to  pay 
his  subscription.4  There  are  a  few  cases  which  hold  that  a  dis- 
senting stockholder  may  restrain  action  under  the  amendment 
only  until  the  corporation  offers  to  purchase  his  interest,5  but 
these  decisions  have  been  criticised  and  are  not  consistent  with 
the  general  current  of  authorities.6  In  all  cases  equity  will  aid 
only  such  stockholders  as  have  not  acquiesced  in  the  action  of 
the  majority  and  have  acted  promptly.7 

§  107.     Implied  contracts — Grant  of  exclusive  franchise. — 

In  the  absence  of  a  constitutional  prohibition  the  state  may 
grant  an  exclusive  franchise   to  a  corporation.     The  charter 


1  Durfee  v.  Old  Colony  R.  Co.,  5  Al- 
len (Miss.)  230;  Zabriskie  v.  Hacken- 
sack,  etc.,  Co.,  18  N.  J.  Eq.  178 ;  Black 
v.  Canal  Co.,  24  N.  J.  Eq.  455;  Wood- 
ford v.  Union  Bank,  3  Cold.  (Tenn.) 
488;  111.,  etc.,  R.  Co.  v.  Zimmer,  20 
111.  658;  Supervisors  v.  M.,  etc.,  Co., 
21  111.  338.  As  to  the  powers  of  a  ma- 
jority, see  §486,  infra. 

2McClure  v.  People's,  etc.,  Co.,  90 
Pa.  St.  269. 

3Mowrey  v.  Ind.,  etc.,  R.  Co.,  4 
Biss.  (C.  C.)  78. 

4  Clearwater  v.  Meredith,  1  Wall.  25 ; 
Greenbrier  v.  Rodes  (  ,V.  Va.),  17  S. 
E.  Rep.  305;  Youngblood  v.  Ga.,  etc., 
Co.,  83  Ga,  797,  10  S.  E.  Rep.  124; 
Champion  v.  Memphis,  etc.,  R.  Co., 
35  Miss.  692;  Stevens  v.  R.  &  B.  R. 
Co.,  29  Vt.  545.  In  Mercantile,  etc., 
Co.  v.  Kneale,  51  Minn.  263,  it  was 
held  that  under  Gen.  St.  1878,  ch.  34, 
tit,  1,  §  4,  and  tit.  2,  §§  110,  118,  a  cor- 


poration organized  as  provided  in  title 
2  is  authorized  by  a  majority  vote  in 
number  and  amount  of  its  sharehold- 
ers and  stock  shares  to  amend  its  arti- 
cles of  association,  including  the  arti- 
cle which  prescribes  the  nature  of  its 
corporate  business  in  any  respect,  pro- 
vided the  amendment  is  germane  to 
the  subject-matter  of  the  article  to  be 
amended,  and  could  have  been  law- 
fully incorporated  into  the  original 
articles  of  incorporation. 

5Lauman  v.  L.  V.  R.  Co.,  30  Pa.  St. 
42;  State  v.  Bailey,  16  Ind.  46. 

6Mowry  v.  Ind.,  etc.,  R.  Co.,  4  Biss. 
(C.  C.)  78. 

7  Bryan  v.  Board,  90  Ky.  322,  13  S. 
W.  Rep.  276;  Bedford  R.'Co.  v.  Bow- 
ser, 48  Pa.  St.  29;  State  v.  Sibley,  25 
Minn.  387;  Gifford  v.  N.  J.  R.  Co.,  10 
N.  J.  Eq.  171;  Rabe  v.  Dunlap,  51 
N.  J.  Eq.  40,  25  Atl.  Rep.  959. 


96  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   107 

then  constitutes  a  contract  which  can  not  be  impaired  by  fut- 
ure legislation.1  Thus,  a  legislative  grant  of  an  exclusive 
right  to  supply  gas  to  a  municipality  and  its  inhabitants, 
through  pipes  or  mains  laid  in  the  public  streets,  and  upon 
condition  of  the  performance  of  the  service  by  the  grantee  is  a 
grant  of  a  franchise  vested  in  the  state  in  consideration  of 
the  performance  of  a  service,  and  after  the  performance  of 
the  service  is  a  contract  which  can  not  be  impaired  by  state 
legislation.2  So,  where  the  charter  of  a  company  authorized 
it  to  build  and  maintain  a  bridge  across  a  river  for  the  accom- 
modation of  the  public  in  consideration  for  which  it  was  given 
the  right  to  charge  tolls  and  provided  that  it  should  be  un- 
lawful for  anyone  to  erect  a  bridge  or  establish  a  ferry  within 
a  distance  of  two  miles  on  that  river  either  above  or  below  the 
bridge,  it  was  held  to  be  a  contract  within  the  meaning  of  the 
constitution  of  the  United  States.3  These  decisions  rest  upon 
the  fact  that  the  franchise  granted  was  exclusive,  but  the  mere 
grant  of  a  charter  to  a  private  corporation  does  not  prevent  the 
state  from  making  a  similar  grant  to  another  corporation.4 
Thus,  when  a  state  grants  a  charter  to  a  railway  or  canal  com- 
pany there  is  no  implied  contract  between  the  corporation  and 
the  state  that  the  state  will  not  subsequently  grant  a  similar 
franchise  to  another  company  which  may  render  the  franchise 
of  the  first  corporation  less  valuable.  In  a  famous  case*  it 
appeared  that  in  the  year  1650  the  legislature  of  Massa- 
chusetts granted  to  the  president  of  Harvard  College  "the  lib- 
erty and  power"  to  dispose  of  the  ferry  right  from  Boston 
to  Charlestown  for  the  benefit  of  the  college.  Under  this  act 
the  college  held  the  right  till  1775,  when  the  legislature  in- 
corporated a  company  by  the  name  of  "The  Proprietors  of 
the  Charles  River  Bridge,"  for  the  purpose  of  erecting  a 
bridge  over  the  river  "in  the  place  where  the  ferry  between 

'Louisville,  etc.,  Co.  v.  Citizens',  *  White  River,  etc.,  Co.  v.  Vt.  Cent, 

etc.,  Co.,  1 16  U.  S.  683.  R.Co.,  21  Vt.  690. 

•New  Orleans,  etc.,  Co.  v. La.,  etc.,  "Charles   River  Bridge  v.  Warren 

Co.,  L15  U.  8.660.  Bridge,  u  Pet.  (U.  S.)  420,  431. 

•The  Binghamton  Bridge,  3  Wall. 

i '   3.)  61. 


§  107       THE  CORPORATION  AND  THE  STATE THE    CHARTER.  97 

Boston  and  Charlestown  was  then  kept."  Under  this  char- 
ter  the  bridge  company  was  required  to  pay  to  Harvard  Col- 
lege the  sum  of  two  hundred  pounds  per  year  as  compensa- 
tion for  what  it  might  have  received  had  the  bridge  not 
been  erected.  The  bridge  was  constructed  and  operated  until 
1828,  when  the  legislature  incorporated  a  new  company  by 
the  name  of  "The  Proprietors  of  the  Warren  Bridge,"  for  the 
purpose  of  erecting  another  bridge  over  the  Charles  river. 
The  new  bridge  was  erected  within  a  few  rods  of  the  old 
one,  and  was  to  be  surrendered  to  the  state  as  soon  as  the  pro- 
prietors were  reimbursed  for  the  expenses  of  building  and 
supporting  it,  not  to  exceed  six  years  from  the  time  the  company 
commenced  to  receive  tolls.  The  bill  for  an  injunction  charged 
that  the  act  for  the  erection  of  the  Warren  bridge  impaired 
the  obligation  of  the  contract  between  the  state  and  The  Pro- 
prietors of  the  Charles  River  Bridge.  The  state  court  was 
evenly  divided  and  therefore  dismissed  the  bill,  and  the  de- 
cision was  affirmed  by  the  supreme  court  of  the  United 
States.  Before  the  hearing  in  the  supreme  court  it  was  ad- 
mitted that  the  Warren  bridge  proprietors  had  been  reim- 
bursed, and  that  the  bridge  was  then  the  property  of  the  state 
and  a  free  bridge.  After  an  extensive  analysis  of  the  grants 
and  charter,  Chief  Justice  Taney  said:  "The  charter  confers  on 
them  the  ordinary  faculties  of  a  corporation  for  the  purpose 
of  building  the  bridge;  and  establishes  certain  rates  of  toll 
which  the  company  is  authorized  to  take;  this  is  the  whole 
grant.  There  is  no  exclusive  privilege  given  to  them  over 
the  waters  of  Charles  river,  above  or  below  their  bridge;  no 
right  to  erect  another  bridge  themselves,  nor  to  prevent  other 
persons  from  erecting  one;  no  engagement  from  the  state 
that  another  shall  not  be  erected,  and  no  undertaking  not  to 
sanction  competition,  nor  to  make  improvements  that  may  di- 
minish the  amount  of  its  income.  Upon  all  these  subjects, 
the  charter  is  silent,  and  nothing  is  said  in  it  about  a  line  of 
travel,  so  much  insisted  on  in  the  argument,  in  which  they 
are  to  have  exclusive  privileges.  No  words  are  used  from 
7 — Private  Corp. 


98  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  108 

which  an  intention  to  grant  an}'  of  these  rights  can  be  in- 
ferred; if  the  plaintiff  is  entitled  to  them,  it  must  be  im- 
plied, simply  from  the  nature  of  the  grant,  and  can  not  be 
inferred  from  the  words  by  which  the  grant  is  made.  *  *  * 
The  inquiry,  then,  is,  does  the  charter  contain  such  a  contract 
on  the  part  of  the  state?  Is  there  any  such  stipulation  to  be 
found  in  that  instrument?  It  must  be  admitted  on  all  hands 
that  there  is  none;  no  words  that  even  relate  to  another  bridge, 
or  to  the  diminution  of  their  tolls,  or  to  the  line  of  travel. 
If  a  contract  on  that  subject  can  be  gathered  from  the  char- 
ter, it  must  be  by  implication,  and  can  not  be  found  in  the 
words  used.  Can  such  an  agreement  be  implied?  The  rule 
of  construction  before  stated  is  an  answer  to  the  question; 
in  charters  of  this  description  no  rights  are  taken  from  the 
public,  or  given  to  the  corporation,  beyond  those  which  the 
words  of  the  charter,  by  their  natural  and  proper  construc- 
tion, purport  to  convey.  There  are  no  words  which  import 
such  a  contract  as  the  plaintiffs  in  error  contend  for,  and  none 
can  be  implied." 

§  108.  Eminent  domain. — The  property,  franchises  and 
contracts  of  corporations,  like  those  of  individuals,  are  subject 
to  the  sovereign  power  of  eminent  domain,  and  even  the  fran- 
chise of  being  a  corporation  may,  under  express  legislative  au- 
thority, be  condemned  for  the  benefit  of  another  corporation.1 

'Appeal  of  Pittsburgh  Junction  K.  483,  L5  Pac.  Rep.  74.  In  New  Orleans, 
Co.,  122  Pa.  St.  611,  9  Am.  St.  Rep.  etc., Co.  v.  Louisiana,  etc.,  Co.,  115  U. 
L28,  Ann.  Sec  also  note  to  4  Am.  5.650,  Mr.  Justice  Harlan  said:  "If,  in 
St.  Rep.  404.  Greenwood  v.  Freight  the  judgment  of  the  state,  the  public  in- 
1  L05 U.  S.  13,22;  NewOrleansG.  teresl  will  be  besl  subserved  by  an 
L.  Co,  v.  La.  G.  <'o.,  U5  r.s.  650;  abandonment  of  the  policy  of  granting 
\\i-t  River,  etc.,  Co.  v.  Dix,  6  How.  exclusive  privileges  to  corporations, 
607;  Central,  etc.,  <o.  v.  Lowell,  l  other  than  railroad  companies,  in  con- 
Gray  171:  Richmond,  etc.,  R.  Co.  v.  sideration  of  services  to  be  performed 
Louisa.  R.  Co,  L3  How.  (U.  S.)  71,  by  them  tor  the  public,  the  way  is 
73;  In  re  Minneapolis,  etc.,  R.Co.,86  open  tor  the  accomplishment  of  that 
Minn.,  181;  Clarke  v.  Blackmar,  47  result,  with  resped  to  corporations 
\.  Y  150;  lii  re  Providence,  etc.,  R.  whose  contracts  with  the  state  are  un- 
c...  I7i:  [.824,21  Ail.  Rep.  965;  affected  by  that  change  in  her  organic 
Amador,  etc.,  Co   v.  Dewitt,  73  Cal.  law.  The  rights  and  franchises  which 


§   109       THE  CORPORATION  AND  THE  STATE THE    CHARTER.  99 

§  109.  The  police  power. — Corporations,  like  individuals, 
are  subject  to  the  police  power  of  the  state.1  "The  rights  of  all 
persons,  whether  natural  or  artificial,  are  subject  to  such  legisla- 
tive control  as  the  legislature  may  deem  necessary  for  the  gen- 
eral welfare,  and  it  is  a  fundamental  error  to  suppose  that 
there  is  any  difference  in  this  respect  between  the  rights  of 
natural  and  artificial  persons.  They  both  stand  precisely  upon 
the  same  footing.  While  personal  liberty  is  guaranteed  by 
the  constitution  to  every  citizen,  yet,  by  disregarding  the  rights 
of  others,  one  may  forfeit  not  only  liberty,  but  life  itself.  So 
a  corporation  by  refusing  to  conform  to  the  laws  of  its  creation, 
or  by  so  conducting  its  business  affairs  as  to  defeat  the  objects 
and  purposes  of  its  promoters  and  the  design  of  the  legislature 
in  creating  it,  may  forfeit  its  right  to  further  carry  on  its  busi- 
ness, and  also  its  existence  as  an  artificial  being." 

A  charter  which  confers  the  right  to  manufacture  and 
sell  malt  liquors  does  not  exempt  the  corporation  from  legisla- 
tive control  any  more  than  an  individual  with  the  same  powers. 
A  statute  which  forbids  the  manufacture  and  sale  of  intoxicat- 
ing liquors  does  not  violate  the  constitution.  "  If  the  public 
safety  or  the  public  morals  require  the  discontinuance  of  any 
form  of  manufacture  or  traffic,  the  hand  of  the  legislature  can 
not  be  stayed  from  providing  for  its  discontinuance  by  any  in- 
cidental inconvenience  which  individuals  or  corporations  may 
suffer.  All  rights  are  held  subject  to  the  police  power  of  the 
state."  But  property  already  manufactured  can  not  be  taken 
or  destroyed  without  compensation.3 

have  become  vested  upon  the  faith  of  Goodwill,  25   Am.  St.  Rep.  870-890; 

such  contracts  can   be  taken  by  the  Thorp  v.  Rutland,  etc.,  R.  Co.,  27  Vt. 

public,  upon  just  compensation  to  the  141. 

company,  under  the  state's  power  of        2  Ward  v.  Farwell,  97  111.593;  Stone 

eminent  domain."     Woods    Railway  v.  Mississippi,    101   U.  S.  814;    Beer 

Law,  I,  pp.  661,  670.     Lewis  Eminent  Co.   v.   Massachusetts,   97   U.  S.   25; 

Domain,  §§  274,  275.  Northwestern,  etc.,  Co.  v.  Hyde  Park, 

Chicago,  etc.,  Co.  v.  Needles,  113  97  U.  S.  659;  Mugler  v.  Kansas,  123 

U.  S.  574;  New  York,  etc.,  R.  Co.  v.  U.  S.  623. 

Bristol,  151  U.  S.  556;  Eagle,  etc.,  Co.        8  Boston,  etc.,  Co.  v.  Massachusetts. 

v.  Ohio,  153  U.  S.  446 ;  note  to  State  v.  97  U.  S.  26. 


100  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   110 

§  110.  Statutes  affecting  the  remedy.— The  constitutional 
prohibition  against  the  enactment  of  state  laws  impairing  the 
obligation  of  contracts  has  no  application  to  statutes  modify- 
ing an  existing  remedy  and  providing  a  new  and  reasonably 
adequate  one. 

"  The  general  doctrine  of  this  court  on  this  subject  may  be 
thus  stated:  In  modes  of  proceeding  and  forms  to  enforce  the 
contract  the  legislature  has  the  control  and  may  enlarge,  limit, 
or  alter  them,  providing  it  does  not  deny  a  remedy  or  so  em- 
barrass it  with  conditions  or  restrictions  as  seriously  to  impair 
the  value  of  the  right. 


J  5   1 


§  111.  Construction  of  corporate  grants. — Charters  of  pri- 
vate corporations  are,  when  accepted,  executed  contracts,  but 
the  different  provisions,  when  not  clear  and  unambiguous,  are 
subject  to  construction.2  A  grant  to  a  corporation  must  be 
conveyed  in  clear  and  unmistakable  terms.  If  the  meaning 
of  the  words  is  doubtful  they  are  to  be  taken  most  strongly 
against  the  corporation,3  and  especially  is  this  true  when  the 
corporation  is  claiming  some  exclusive  privilege  or  exemp- 
tion.4 Thus  it  is  held  that  an  enumeration  of  burdens  to 
which  a  corporation  is  or  may  be  subjected  will  not  preclude 
the  state  from  imposing  others.5  But  the  charter  is  the  meas- 
ure of  the  powers  of  a  corporation,6  and  an  enumeration  of 
powers  in  the  charter  impliedly  excludes  all  others.7  "This 
enumeration  of  the  purposes  for  which  the  corporation  could 
acquire  title  to  real  estate  must  necessarily  be  held  exclusive 
of  all  other  purposes."8     But  such  grants  must  be  given  a 

1  Penniman's  Case,  103    U.S.  714;  N.  J.  Eq.  427;  Haggles  v.  Illinois,  108 

Hare's  Am.  Const.  Law.  I.  p.  697.  U.  S.  526;  Tennessee  v.  Whiteworth, 

•Turnpike  Co.  v.   Illinois,  96  U.S.  U7U.  S.  L39,  L48;  The  Railroad  Com- 

63;  Ricev.  Railroad  Co.,  I   Black    r.  mission  Cases.  1 16  I'.  S.  326. 

g.)  368,  380.  '•  Railway  Co.  v.  Philadelphia,  101  U. 

■Holyoke  Co.  v.    Lyman,  L5  Wall.  S.528:  Hare's  Am.  Const.  Law,  p.  666. 

511;  N.  W.  P.  Co.  v.  Hyde  Park,  97  BBank,   etc.,  v.    Earl,   13  Pet.  588; 

i     8.669;  Richmond  R.  Co.  v.  Louis-  Rochester,  etc.,  Co.v.  Martin,  18  Minn, 

land  R  Co  .  13  How.  71.  59,  Gil.  54. 

•  Omaha,  etc.,  R.  Co.  v.  Cable,  etc.,  'Thomasv.  Uailway  Co.  L01  U.S. 71. 

Co.,  30   Fed.    Rep    324 ;  Jersey  City,  •  Case  v.  Kelley,  183  U.  S.  21 ;  F.& 

ate.,  Co.  v.  Consumers',  etc.,  Co.,  40  M.  Hank  v.  Baldwin,  28  Minn.  198. 


§  112       THE  CORPORATION  AND  THE  STATE THE    CHARTER.        101 

reasonable  construction,  and  powers  fairly  incidental  to  the 
objects  of  the  corporation  are  implied.1 

§  112.  Taxation  of  corporations. — Corporations,  like  indi- 
viduals, are  subject  to  the  taxing  power  of  the  state.  In  tax- 
ing a  corporation,  the  state  must  observe  those  general  princi- 
ples by  which  all  exercise  of  the  sovereign  power  of  taxation  is 
to  be  tested.  The  contractual  relation  existing  between  the  cor- 
poration and  the  state  does  not,  in  the  absence  of  an  express  ex- 
emption from  taxation,  limit  the  taxing  power.  In  the  absence  of 
constitutional  limitations,  the  state  may  impose  what  amounts  to 
double  taxation  upon  corporations.2  In  order  to  determine 
whether  double  taxation  results,  it  is  necessary  to  analyze  the  ele- 
ments of  taxable  values  to  be  found  in  corporations.  These  are, 
ordinarily,  franchises,  capital  stock  in  the  hands  of  the  corpora- 
tion, corporate  property,  and  shares  of  the  capital  stock  in  the 
hands  of  individuals.  Each  is,  under  some  circumstances,  an 
appropriate  subject  for  taxation.  And  it  is  within  the  power  of 
the  state,  when  not  restrained  by  constitutional  limitations,  to 
assess  taxes  upon  them  in  a  way  to  subject  the  corporation 
or  the  stockholders  to  double  taxation.  The  intent  to  impose 
double  taxation  is,  however,  never  to  be  presumed.3 

The  capital  stock  is  thus  distinguished  from  shares  which 
represent  the  interest  of  individual  shareholders.4  "The  in- 
terest of  a  shareholder,"  says  Mr.  Justice  Nelson,5  "entitles 
him  to  participate  in  the  net  profits  earned  by  the  bank  in  the 
employment  of  its  capital  during  the  existence  of  its  charter, 

1Carothers  v.  Philadelphia  Co.,  118  called  to  an  article  on  the  Taxation  of 

Pa.   St.   468;  Wisconsin,  etc.,  Co.  v.  Corporations,   hy   F.   W.   Taussig,  in 

Oshkosh,  62  Wis.  32;  State  v.  Payne,  Pol.  Sci.  Quarterly  for  March,  1899. 

129  Mo.  468 ;  Ross-Meehan,  etc.,  Co.  v.  3  State  v.  Whitworth,  117  U.  S.  129 ; 

So.   M.,   etc.,  Co.,  72  Fed.  Rep.  957;  Salem,  etc.,  v.  Danvers,  10  Mass.  514. 

Parker  v.  Railway  Co.,  7  Man.  &  G.  See  note  4,  §  120,  infra.     See  Wilgus' 

288.  Cases. 

2  State  v.  Whitworth,  117  U.  S.  129 ;  4  Delaware  R.  Tax  Case,18  Wall, 206 

Fall  River,  v.  Cornes,  125  Mass.  567 ;  Mfgrs.,  etc.,  Co.  v.  Loud,  99  Mass.  146 

Railroad  Tax  Cases,  13  Fed.  Rep.  722 ;  Farrington  v.  Tennessee,  95  U.  S.  679 

Board  v.   Montgomery,   etc.,  Co.,   64  Com.v.Building,etc.,90  Va. 790;  Porter 

Ala.   269;  Pittsburgh,  etc.,  R.  Co.  v.  v.  Rockford,  etc.,  R.  Co.,  76111.  561. 

Com.,  66    Pa.   St.   77.     Attention   is  5^n  Allen  v.   Assessors,  3  Wall. 

(U.  S.)573. 


102  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   113 

in  proportion  to  the  number  of  his  shares  ;  and  upon  its  dissolu- 
tion or  termination,  to  his  proportion  of  that  which  ma)'  remain 
after  the  payment  of  its  debts.  This  is  a  distinct,  independent 
interest  or  property  held  by  the  shareholder  like  any  other 
property  that  may  belong  to  him."  A  tax  upon  the  property 
or  capital  of  a  corporation,  as  distinguished  from  its  franchises, 
is  not  double  taxation.1 

§  113.  Situs  of  taxable  property. — No  general  principle  of 
law  is  better  settled  than  that  the  legislative  power  of  a 
state  extends  to  all  the  property  within  its  borders,  and  that 
only  so  far  as  the  comity  of  that  state  allows,  can  such 
property  be  affected  by  the  law  of  any  other  state.  The 
old  rule  that  personal  property  was  subject  to  the  law  of 
the  owner's  domicile  has  in  modern  times  yielded  somewhat  to 
the  lex  situs,  the  law  of  the  place  where  the  property  is  kept 
and  used.  For  purposes  of  taxation  personal  property  may  be 
separated  from  its  owner,  and  he  may  be  taxed  on  its  account 
at  the  place  where  it  is  situated,  although  not  the  place  of  his 
own  domicile.  This  is  true  although  the  owner  is  not  a  citizen 
or  a  resident  of  the  state  which  imposes  the  tax.2  Thus,  the 
shares  of  stock  of  a  corporation  may  be  taxed  at  the  place  of 
the  domicile  of  the  corporation,  that  is,  the  place  of  business 
of  the  corporation,  without  reference  to  the  residence  of  the 
stockholder.8  And  at  the  same  time  the  state  in  which  the 
owner  of  the  stock  resides,  may  also  tax  the  shares  at  the  place 
of  his  residence.'  Tax  laws,  however,  have  no  extraterritorial 
operation,  and  the  power  of  taxation  by  the  state  is  limited  to 
the  jurisdiction  of  the  state.5     A  state  can  not,  therefore,  tax  the 

lFarrington  v.  Tenn.,  ,.»")  U.  S.  679,  Morrow,  87  Tenn.  406;  St.  Albans  v. 

and  cases  cited  above.  National,  etc.,  Co.,  57  Vt.  68;  N.  C. 

2  Lane  Co.  v.  Oregon,  7  Wall.  (TJ.  K.  Co.  v.  Comm.,  !)l  N.  0.  464. 

8.)  71;  Railroad  Co.  v.  Pa.,  15  Wall.  4  Sturgee  v.  Carter,    in    V.  8.521; 

(U.S.   300;  Railroad  Co.  v.  Peniston,  Bradley  v.    Bauder,  36  Ohio  St.  28. 

L8   Wall    (U.  80  5;  Tappan  \.  Mer-  See  Ogden  v.  St.  Joseph,  90  Mo.  522, 

chants'  Bank,  19   Wall.   190;    Mane  S  8.  W.  Rep.  25. 

v.  B.  &  0.   I:    Co  .  127  U.  8.  117.  M'omm.  v.   Stan. lard,  etc.,  Co.,  101 

"Tappan    v.    Merchants'    Bank,    19  Pa.  St.  119. 
Wall. 490;  South  Nashville,  etc.,  Co.v. 


§  114     THE  CORPORATION  AND  THE  STATE THE  CHARTER.         103 

entire  track  and  equipment  or  the  total  capital  stock  of  a  rail- 
road corporation  whose  track  lies  partly  in  another  state.  It 
can  tax  only  the  property  which  is  within  the  state  or  that 
proportion  of  the  capital  stock  which  is  represented  by  such 
property.1  There  is  nothing  in  the  constitution  or  laws  of  the 
United  States  which  prevents  a  state  from  taxing  personal 
property  which  is  within  its  territorial  limits,  although  it  is 
employed  in  interstate  or  foreign  commerce.2  The  state  may 
impose  a  tax  on  the  capital  stock  of  a  corporation  computed  on 
a  percentage  of  the  dividends  made  or  declared.  Thus,  in 
order  to  ascertain  the  proportion  of  the  Pullman  Palace  Car 
Co.'s  property  upon  which  it  should  pay  taxes  in  Pennsylvania, 
the  state  took  as  the  basis  of  assessment  such  proportion  of 
the  capital  stock  of  the  company  as  the  number  of  miles  over 
which  it  ran  cars  in  the  state  bore  to  the  whole  number  of 
miles  in  that  and  other  states  over  which  it  ran  in  that  and  in 
other  states.  "This,"  says  the  supreme  court,3  "was  a  just 
and  equitable  method  of  assessment;  and,  if  it  were  adopted 
by  all  the  states  through  which  these  cars  ran,  the  company 
would  be  assessed  on  the  whole  value  of  its  capital  stock, 
and  no  more." 

§  114.    Restrictions  imposed  by  the  federal  constitution. — 

The  taxing  power  of  the  United  States  is  derived  from  the  ex- 
press grants  contained  in  the  constitution,  while  the  power  of 
the  states  is  limited  only  by  the  restrictions  imposed  upon  it 
by  the  federal  or  state  constitutions.  The  federal  constitution 
provides  that  "No  state,  without  the  consent  of  congress,  shall 
lay  any  impost  or  duties  on  imports  or  exports,  except  what 
shall  be  absolutely  necessary  for  executing  its  inspection  laws." 
Other  restrictions  which  affect  the  power  of  taxation  are  found  in 

1  Pullman,  etc.,  Co.  v.  Penn.,    141  ble  property  is,  and   its  work   done. 

U.  S.  18;    Western,  etc.,  Co.  v.  Tag-  Adams  Ex.  Co.  v.  Ohio  State  Auditor, 

gart,  163  IT.  S.  1 ;    State  v.  Auditor-  166  U.  S.  185,  s.  c.  165  U.  S.  194  and 

Gen.,  46  Mich.  226.     But  the  supreme  255 ;  6  A.  &  E.  Corp.  Cas.  N.  S.  404. 

court   of  the  United  States  has  held  2  Delaware   R.  Tax,    18   Wall.  206; 

that  the  capital  stock  of  a  corporation  Telegraph  Co.  v.  Texas,  105  N.  S.  460; 

represents  both   its  tangible  and  in-  Western,  etc.,  Co.  v.  Att'y-Gen.,  125 

tangible  property,  such  as  franchises,  Mass.  530. 

contracts,  privileges   and  good    will;  3 Pullman,   etc.,    Co.  v.  Penn.,  141 

and    when  the   tangible   property   is  U.  S.  18.     As  a  basis  of  assessment, 

scattered  in  many  states,  as  in  case  of  this  was  approved  in  Mayre  v.  B.  &  O. 

express  companies,  the  situs  of  this  R.  Co.,  127  U.  S.  117;  Western,  etc., 

intangible  property  is  not  simply  at  Co.  v.  Mass.,  125  U.  S.  530;  State  R. 

its  home  office,  but  wherever  its  tangi-  Tax  Cases,  92  U.  S.  575. 


104  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   115 

the  provision  of  the  fourteenth  amendment  to  the  constitution 
which  forbid  any  state  to  deny  to  any  person  within  its  jurisdic- 
tion the  equal  protection  of  its  laws.  Corporations  are  within 
the  meaning  of  this  provision,  and  hence  all  domestic  corpora- 
tions must  be  treated  alike,  and  must  be  granted  all  privileges 
and  exemptions  which  are  granted  to  natural  persons  within 
the  state.1  The  state  may,  however,  discriminate  between 
domestic  and  foreign  corporations.2  The  provision  of  the  con- 
stitution which  reserves  to  congress  exclusive  control  over 
interstate  commerce,  prevents  the  state  from  imposing  any  tax 
which  amounts  to  an  interference  with  or  control  over  com- 
merce between  the  states.  Thus,  a  state  can  not  tax  a  foreign 
railroad  corporation  upon  its  business  within  the  state  which 
is  exclusively  interstate  commerce,3  and  a  tax  upon  gross  re- 
ceipts is  not  valid.4  So,  the  state  may  tax  the  vehicles  of  com- 
merce,5 but  a  tax  on  freight  carried  from  state  to  state  is  in- 
valid.6 

§  115.  Federal  agencies. — The  agencies  of  the  national  gov- 
ernment are  beyond  the  reach  of  the  taxing  power  of  the  state. 
The  power  to  tax  involves  the  power  to  trammel  and  destroy. 
This  principle,  established  by  McCulloch  v.  Maryland,7  is  no 
longer  controverted.  Thus,  the  state  can  not  tax  a  franchise 
granted  to  a  corporation  by  congress,8  and  it  is  held  that  this 
extends  to  the  capital  stock  of  a  corporation  which  was  issue. 1 
for  a  patent-right  granted  by  the  United  States.9  A  distinction 
is  made  between  a  tax  upon  the  operations  of  a  federal  agency 
and  a  tax  upon  the  property  which  belongs  to  the  agency,  when 
the  tax  in  no  way  impairs  its  efficiency.10 

1  Santa  Clara  Co.  v.  Southern,  etc.,  earnings  per  mile  for  the  whole  road, 

R.  Co.,  lis  r.  s.  :;'.it.  lias  been  held  i<>  be  valid,  and  not  to 

'Ducal  v.  Chicago,  48  111.  L72.  be  a  tax  on  gross  earnings.     .Maine  v. 

ople   v.  Wemple,  138   N.  V.   l.  R.  Co. ,142  U.  S.  217.    See,  however, 

etc.,  R.  Co.  v.  Pennsyl-  dissenting  opinion  of  Justices  Brad- 

vania.  145  U.S.  192.  ley,  Lamar  and  Brown. 

•Philadelphia  <v  8.  S.  Co.  v.  Penn-  B  Wiggins,  etc.,  Co.  v.  East  St.  Louis, 

Bylvania,   L22  tJ.  8.  •';:'<'•,  questioning,  L07  I'.  8.  365. 

<.i    overruling,   State  Tax    Cases,    L6  6  State  Freight  Tax,  16  Wall.  (U.S.) 

\\':.ll      i                  .    Railway  Co.   v.  '-':::;. 

Weber,  96  111.443.     But  an  excise  tax  Ti  Wheat.  (U.  S.)  316. 

on  .-i  foreign  corporation's  privilege  of  'California v.  Pac  R. Co.,  L27 U.S.I, 

exercising  its   franchises  in  a  Btate,  'Comw. v.Phila. Co.,157Pa. SI  527. 

graduated  in  proportion  to  the  gross  10  Railroad  C<>.  v.  Peniston,  is  Wall. 


§  116       THE  CORPORATION  AND  THE  STATE THE    CHARTER.       105 

§  116.  State  taxation  of  national  banks, — The  power  of  the 
states  to  tax  national  banks  is  conferred  by  the  act  of  congress 
of  July  3,  1864. '  This  act  subjects  the  shares  of  national 
banks  in  the  hands  of  shareholders  to  taxation  by  the  state 
under  the  limitation  contained  therein,  without  regard  to  the 
fact  that  a  part  or  the  whole  of  the  capital  of  the  bank  is  in- 
vested in  national  securities  declared  by  the  statute  to  be  ex- 
empt from  taxation  by  or  under  state  authority.  The  question 
arose  under  an  act  of  a  state  legislature  which  provided  that 
shares  in  any  national  bank  held  by  any  person  should  be  "in- 
cluded in  the  valuation  of  the  personal  property  of  such  per- 
son or  body  corporate  in  the  assessment  of  taxes  in  the  town 
or  ward  where  such  banking  association  is  located  and  not 
elsewhere,"  but  did  not  provide  that  the  tax  imposed  should 
not  exceed  the  rate  imposed  upon  any  of  the  banks  organized 
under  the  authority  of  the  state.  The  act  was  held  invalid,  it 
appearing  that  no  tax  whatever  had  been  laid  on  the  shares  of 
state  banks,  although  there  was  a  tax  on  their  capital.2  This 
decision  was  followed  in  a  subsequent  case,3  where  it  was  said 
that  if  the  rate  of  taxation  on  such  shares  is  the  same  as  or  not 
greater  than  upon  the  moneyed  capital  of  the  individual  citizen, 
which  is  subject  or  liable  to  taxation,  the  shares  are  taxed  in 
conformity  with  the  provisions  of  the  act  which  says  that  they 
may  be  assessed,  "but  not  at  a  greater  rate  than  is  assessed  upon 
other  moneyed  capital  in  the  hands  of  individual  citizens  of  the 
state."  As  in  the  former  case,  in  valuing  these  shares,  no  de- 
duction was  made  on  account  of  the  capital  of  the  bank  in- 
vested in  United  States  securities.  In  the  valuation  of  the  per- 
sonal estate  of  individuals,  however,  the  securities  held  and 
owned  by  them  were  deducted  and  the  tax  assessed  on  the  bal- 
ance, and  like  deductions  were  made  from  the  capital  of  insur- 
ance companies.  It  was  argued  that  the  assessment  upon  the 
shares  of  the  relator  was  at  a  greater  rate  than  upon  the   per- 

(U.  S.)  5;  Central,  etc.,  Co.  v.  Calif.,  2  VanAUen  v.  Assessor,  3  Wall.  (IT. 

162  TJ.  S.  91 ;  Adams,  etc.,  Co.  v.  Ohio,  S.)  573 ;  People  v.  Comrs.  94  U.  S.  415. 

165  U.  S.  194.  3 People  v.  Comrs.,  4  Wall.  (U.  S.) 

1  U.  S.  Rev.  St.,  §  5219.  See  Boyer  v.  244. 
Boyer,  113  U.  S.  689. 


106  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  117 

sonal  property  of  individual  citizens.  The  answer  is,  said  the 
court,  that  upon  a  true  construction  of  this  clause  of  the  act, 
the  meaning  and  intent  of  the  law  makers  were  that  the  rate  of 
taxation  of  the  shares  should  be  the  same  or  not  greater  than 
upon  the  moneyed  capital  of  the  individual  citizen  which  is  sub- 
ject or  liable  to  taxation.  That  is,  no  other  or  greater  percent- 
age of  tax  in  the  valuation  of  shares  should  be  levied  than  upon 
the  moneyed  taxable  capital  in  the  hands  of  the  citizen. 

The  act  of  congress  does  not  require  perfect  equality  between 
state  and  national  banks,  but  only  that  the  system  of  taxation 
in  a  state  shall  not  work  a  discrimination  favorable  to  its  own 
citizens  and  corporations  and  unfavorable  to  the  holders  of 
shares  in  national  banks.  If  the  state  statute  creating  a  sys- 
tem of  taxation  does  not  on  its  face  discriminate  against  a 
national  bank,  and  there  is  neither  evidence  of  a  legislative 
intent  to  make  such  discrimination,  nor  proof  that  the  statute 
makes  an  actual  and  material  discrimination,  the  act  will  not 
be  held  invalid.1 

§  117.  Meaning  of  "other  moneyed  capital/' — In  a  leading 
case2  the  court  said  that  "moneyed  capital  in  the  hands  of  indi- 
vidual citizens"  does  not  necessarily  embrace  shares  of  stock 
held  by  them  in  all  corporations  whose  capital  is  employed 
according  to  their  respective  corporate  powers  and  privileges 
in  business  carried  on  for  the  pecuniary  profit  of  shareholders, 
although  shares  in  some  corporations,  according  to  the  nature 
of  their  business,  may  be  such  moneyed  capital.  The  rule  and 
test  of  this  difference  is  not  to  be  found  in  that  quality  at- 
tached to  shares  of  stock  in  corporate  bodies  generally  whereby 
the  certificates  of  ownership  have  a  certain  appearance  of 
negotiability . ' ' 

After  a  discussion  of  the  object  of  the  law,  the  court  con- 
tinues: "Applying  this  rule  of  construction,  we  are  led  in  the 
first  place  to  consider  the  meaning  of  the  words,  'other  moneyed 

1  Davenport  Bank  v.  Board,  etc.,  128  ■Mercantile  Hank  v.  New  York,  121 
i  Hepburn  v.  School  l>i-    U.  B.  i:<i>.138. 

rectors,  '_'::  Wall.  I  U.  S.)  480;  A. lams 
v.  Nashville,  '•'•">  D\  B.  Rep.  L9. 


§  117       THE  CORPORATION  AND  THE  STATE THE    CHARTER.        107 

capital,'  as  used  in  the  statute.  Of  course,  it  includes  shares 
in  national  banks;  the  use  of  the  word  'other'  requires  that. 
*  *  *  But  'moneyed  capital'  does  not  mean  all  capital  the  value 
of  which  is  measured  in  terms  of  money.  *  *  *  Neither  does 
it  necessarily  include  all  forms  of  investment  in  which  the  in- 
terest of  the  owner  is  expressed  in  money.  Shares  of  stock  in 
railroad  companies,  mining  companies,  manufacturing  com- 
panies and  other  corporations  are  represented  by  certificates 
showing  that  the  owner  is  entitled  to  an  interest,  expressed  in 
money  value,  in  the  entire  capital  and  property  of  a  corpora- 
tion, but  the  property  of  a  corporation  which  constitutes  its 
invested  capital  may  consist  mainly  of  real  and  personal 
property,  which  in  the  hands  of  individuals  no  one  would 
think  of  calling  moneyed  capital;  and  its  business  may  not  con- 
sist of  any  kind  of  dealing  in  money  or  commercial  representa- 
tive of  money.  *  *  *  Credits,  money  loaned  at  interest, 
and  demands  against  persons  or  corporations,  are  more  purely 
representative  of  moneyed  capital  than  personal  property,  so 
far  as  they  can  be  said  to  differ." 

Deposits  in  savings  banks  are  moneyed  capital  in  the  hands 
of  individuals,  but  they  are  not  within  the  meaning  of  the  act 
of  congress  in  such  a  sense  as  to  require  that,  because  they  are 
exempt  from  taxation,  the  shares  of  stock  in  national  banks 
must  also  be  exempt.1  Shares  in  a  national  bank  held  by  an- 
other national  bank  are  subject  to  taxation.2  Money  invested 
in  corporation  or  in  individual  enterprises  that  carry  on  the 
business  of  railroads,  manufacturing,  mining  investments,  and 
investments  in  mortgages,  do  not  come  into  competition  with 
national  banks,  and  do  not  come  within  the  provisions  of  the 
statute.  So,  insurance  stocks  may  be  taxed  on  income  in- 
stead of  value,  and  deposits  in  savings  banks  and  money  be- 
longing to  charitable  institutions   may  be  exempted  without 

1  Mercantile  Bank.  v.  New  York,  121  lates  the  fourteenth  amendment,  see 

U.  S.  138;  Davenport  Bank  v.  B.  of  Prov.  Inst,  for    Sav.   v.    Boston,  101 

Eq.  123  U.  S.  83;  Hepburn  v.  School  Mass.  575. 

Directors,  23  Wall.  480;  Bank  of  Re-  2  Mercantile  Bank  v.  New  York,  121 

demption  v.  Boston,  125  U.  S.  60.    As  U.  S.  138. 
to  the  claim  that  a  state  statute  vio- 


108  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   118 

infringing  the  statute.1  Exemptions  from  taxation  granted  be- 
fore the  act  of  congress  was  passed  do  not  create  such  inequali- 
ties as  are  contemplated  by  the  law.  Congress  must  have  acted 
with  the  knowledge  that  the  states  might  in  certain  instances 
have  contracted  themselves  out  of  the  power  to  tax  certain  in- 
stitutions; hence,  the  fact  that  the  shares  of  national  banks  are 
taxed  two  per  cent.,  while  under  an  old  law  the  state  could, 
and  did,  tax  the  shares  in  a  certain  state  bank  at  one  per  cent., 
does  not  invalidate  the  tax  on  the  shares  of  the  national  bank.8 
Exemption  from  taxation  of  interest-bearing  municipal  bonds 
does  not  affect  the  validity  of  the    national   bank  stock  tax.3 

§  118.  Telegraph  companies. — In  respect  to  foreign  and 
interstate  business,  a  telegraph  company  is  an  instrument  of 
commerce,  and  subject  to  the  regulating  power  of  congress.4 
If  it  accepts  the  provisions  of  the  statute,5  it  becomes  an  agent 
of  the  government  so  far  as  the  business  of  the  government  is 
concerned,  and  a  state  statute  which  imposes  a  specific  tax  on 
each  message  which  is  transmitted  beyond  the  state,  or  which 
an  officer  of  the  United  States  sends  over  its  line,  on  public 
business,  is  unconstitutional.6  No  tax  can  be  imposed  by  the 
state  upon  messages  sent  by  such  a  company,  or  upon  the  re- 
ceipts derived  therefrom,  where  the  communication  is  carried 
either  into  the  state  from  without  or  from  within  the  state  to 
another  state.  A  tax  may,  however,  be  levied  upon  all  mes- 
sages carried  and  delivered  exclusively  within  the  state.  The 
foundation  of  this  principle  is  that  messages  of  the  former 
class  are  i  Lements  of  commerce  between  the  states  and  not  sub- 
ject to  legislative  control  of  the  states,  while  the  hitter  class 

'Aberdeen   Bank  v.  Chehalis  Co.,  "Telegraph   Co.  v.  Texas,  105  U.S. 

106TJ.S.  no.  460.   "As  i»  the  government  messages, 

'Lionberger  v.  Rouse,  9   Wall.  (U.  it  is  a  tax  by  the  state  on  the  humus 

sv  ins  employed   by  the  goverment    of  the 

•Adams  v.  Nashville,  95  U.  8.   L9;  United  States  to  execute  its  statutory 

Mercantile  Bank  v.  New  York,  121  TJ.  powers,  and  therefore  void.     It  was 

Qt  1  ao  decided    in    McCulloch    v.  Mary- 

ipensacola,  etc.,  Co.  v.   Western,  land,    I    Wheat.  316,  and  has  never 

,-te.,  ( '.,.,  96  r.  B.  l,  Wilgus'  <  lasee.  been  since  doubted." 
3t.  U.B.,     (5263  5268. 


§    119       THE  CORPORATION  AND  THE  STATE THE    CHARTER.       109 

are  elements  of  internal  commerce  solely  within  the  limits  and 
jurisdiction  of  the  state,  and  therefore  subject  to  its  taxing 
power.1  The  state  or  a  municipality  may  impose  a  license  fee 
under  certain  conditions,  as  this  is  an  ordinary  exercise  of  the 
police  power.2  A  city  ordinance  imposing  a  license  fee  upon  a 
telegraph  company,  which  had  accepted  the  provisions  of  the 
act  of  congress,  upon  business  done  exclusively  in  the  city,  and 
not  including  any  business  done  to  or  from  any  points  with- 
out the  state,  and  not  including  business  done  for  the  govern- 
ment of  the  United  States,  its  officers  or  agents,  is  an  exercise 
of  the  police  power,  and  not  an  interference  with  interstate 
commerce.3  A  municipal  charge  for  the  use  of  the  streets  by 
a  telegraph  company  erecting  its  poles  therein  is  not  a  privi- 
lege or  license  tax.  "The  amount  to  be  paid  is  not  graduated 
by  the  amount  of  the  business,  nor  is  it  a  sum  fixed  for  the 
privilege  of  doing  business.  It  is  more  in  the  nature  of  a 
charge  for  the  use  of  property  belonging  to  the  city,  that  which 
may  properly  be  called  rental.  'A  tax  is  a  demand  of  sover- 
eignty ;  a  toll  is  a  demand  of  proprietorship.'  "4 

§  119.  Other  agencies  of  commerce. — A  railroad  company 
which  is  a  link  in  a  through  line  of  road  by  which  passengers 
and  freight  are  carried  into  a  state  from  another  state,  and 
from  the  state  into  other  states,  is  engaged  in  the  business  of 
interstate  commerce,  and  a  tax  imposed  by  such  state  upon 
the  corporation  owning  the  road,  for  the  privilege  of  keeping 
an  office  in  the  state,  it  being  a  corporation  created  in  another 
state,  is  a  tax  upon  commerce,  and  invalid.  The  office  was 
maintained  because  of  the  necessities  of  the  interstate  busi- 
ness of  the  company,  and  for  no  other  purpose.     A  tax  upon 

1  Western,  etc.,  Co.  v.  Alabama,  132        'Postal,  etc.,  Co.  v.  Charleston,  153 
U.  S.  472;  Telegraph  Co.  v.  Texas,  105    U.  S.  692. 

U.  S.  460;   Telegraph  Co.  v.   Massa-  4  St.  Louis  v.  Western,  etc.,  Co.,  148 

chusetts,  125  U.S.  530;  Ratterman  v.  U.S.  96.  This  same  distinction  is  made 

Western,  etc.,  Co.,  127  U.  S.  411 ;  Le-  in  taxing  rentals  received  by  one  rail- 

loup  v.  Mobile,  127  U.  S.  640;  Fargo  road  company  from  another  engaged 

v.  Michigan,  121  U.S. 230;  Pacific,  etc.,  in  interstate  commerce.      See  N.  Y., 

Co.  v.  Seibert,  142  U.  S.  339 ;  Postal,  L.  E.  &  W.  R.  Co.  v.  Pennsylvania,  158 

etc.,  Co.  v.  Charleston,  153  U.  S.  692.  U.  S.  431 ;  State  Freight  Tax  Case,  15 

2  Wiggins,  etc.,  Co.  v.  E.  St.  Louis,  Wall.  (U.  S.)  232. 
107  U.  S.  365. 


110  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  119a 

it  was  therefore  a  tax  upon  one  of  the  means  or  instrumentali- 
ties of  the  company's  interstate  commerce,  and  as  such  was  in 
violation  of  the  commercial  clause  of  the  constitution.1  An 
act  requiring  a  license  from  the  agent  of  an  express  company 
is  invalid  as  a  regulation  of  interstate  commerce,  in  so  far  as 
it  applies  to  a  corporation  of  another  state  engaged  in  that 
business.2 

§  119a.  Exemption  from  taxation. — The  state  may  exempt 
certain  property  of  a  corporation  or  an  individual  from  the 
burden  of  taxation,  and  if  the  grant  of  the  privilege  is  sup- 
ported by  a  consideration  it  can  not  be  withdrawn  without  im- 
pairing the  obligation  of  the  contract  between  the  state  and  the 
beneficiary.3  The  property  used  by  railway  corporations  in 
their  business  is  often  exempted  from  general  taxation,  and  in 
lieu  thereof,  or  as  a  consideration  therefor,  the  corporation  pays 
a  tax  upon  its  .gross  receipts.1  Exemption  of  all  the  property 
of  a  railroad  corporation  includes  its  rolling  stock  and  fran- 
chises. The  exemption  of  the  capital  stock  of  a  corporation 
does  not  exempt  the  shares  in  the  hands  of  the  stockholders.5 
When  a  corporation  is  exempt  from  taxation,  a  statute  which 
purports  to  tax  the  shares  in  the  hands  of  the  stockholders,  but 
requires  the  corporations  to  pay  the  tax  and  collect  it  out  of 
money  which  may  become  due  the  stockholders,  without  refer- 
ence to  there  being  any  profits  out  of  which  to  pay  it,  is  in- 
valid.6    Exemption  from  taxation  is  never  presumed,  as  the 

'Norfolk,    etc.,  R.  Co.  v.  Pennsyl-  It  has  been  held  that  the  state  could 

v:ini:i,  L36  U.  8. 114,  citing  Gloucester,  not  grant  an   irrevocable  exemption 

<-t<-.,  Co.   v.  Pennsylvania,  114  U.  S.  from    taxation.    Skelly    v.    Hunk,    9 

196;  McCall  V.California,  136  U.S.  104.  Ohio  606  (overruled,  however,  by  Jef- 

•Crutcherv.  Kentucky,  141  IT.  S.  47.  ferson    Br.   Bank  v.  Skelly,   1    Black 

•Jefferson   Branch    Bank  v.  Skelly,  (U.S.)436);  Mott  v.  Railroad  Co.,  30 

l    Black    (U.   8.)   436;  Farrington  v.  Pa.  St.  9. 

Tenm             •  U.S.  679;  No.  Mo.  R.  •  St.  Paul  v.  St.  Paul,  etc.,  R.  Co., 

Co.  v.   Maguire,  20  Wall.  (U.  B.)    W;  23  Minn.  469. 

Memphis,  etc.,  Co.  v.  Shelby  Co.,  109  8Van  All.-n  v.  Assessors,  3   Wall. 

r    S.  398;  Asylum  v.   New  Orleans,  (U.  S.)  573;   Nat.   Bank  v.  Com.,  9 

LOfi  r  8.  862;  Nichols  v.  Northamp-  Wall.  (U.  s.i  363. 

ton   Co,,   12  Conn.   103;    Neustadt  v.  "Salt   Lake  City  v.   Hollister,    L18 

Railroad  Co.,  31  111.  484.  U.  S.  266. 


§  119a     THE  CORPORATION  AND  THE  STATE THE    CHARTER        111 

rule  is  imperative  that  the  relinquishment  of  the  taxing  power 
is  never  to  be  presumed.1  Such  grants  are  strictly  construed 
against  the  grantee.  Thus,  a  general  exemption  from  taxation 
will  not  be  so  construed  as  to  exempt  from  a  local  assessment.2 
So  it  is  held  that  when  capital  stock  is  exempt  the  property 
into  which  it  was  converted  is  not  exempt.3  Where  one  cor- 
poration succeeds  to  the  rights  and  powers  of  another,  an  ex- 
emption from  taxation  enjoyed  by  the  first  corporation  will  not 
pass  to  the  second  unless  such  was  clearly  the  intention  as  evi- 
denced by  the  acts  of  the  state.4  But  where  two  corporations 
unite  or  become  consolidated  under  the  authority  of  law,  the 
presumption  is,  until  the  contrary  appears,  that  the  consolidated 
company  has  all  the  powers  and  privileges  and  is  subject  to  all 
the  restrictions  and  liabilities  of  those  out  of  which  it  was  cre- 
ated.5 Hence,  where  two  railroad  companies  whose  shares  are 
by  a  state  statute  exempt  from  taxation  within  the  state,  and  a 
third  company,  created  under  the  laws  of  another  state,  and 
whose  road  is  in  the  latter  state,  become  merged  into  a  new 
company,  and  issue  shares  of  the  new  company  in  exchange 
for  shares  of  the  old  company,  the  right  of  exemption  from 
taxation  in  the  first  state  passes  into  the  new  shares,  and  each 
of  them,  unless  a  law  of  the  first  state  makes  provision  to  the 
contrary.6  In  order  that  the  consolidated  corporation  ma}'  suc- 
ceed to  the  privilege  of  exemption  from  taxation  it  must  be 

1  Vicksburg,  etc.,  R.  Co.  v.  Dennis,  Green  Co.  v.  Conness,  109  U.  S.  104; 
116  U.  S.  665;  Delaware  R.  Tax,  18  Phila.,  etc.,  R.  Co.  v.  Md.,  10  How. 
Wall.  (U.  S.)  206.  (TJ.  S.)  376.     But  compare  Pearsall  v. 

2  Elliott  Pub.  Co.,  §  119,  and  cases  Great  Northern  R.  Co.,  161  TJ.  S.  646. 
there  cited.  6  Tennessee  v.  Whitworth,  117  U.  S. 

3  Memphis,  etc.,  Co.  v.  Gaines,  97  139.  See,  however,  Keokuk  &  W.  R. 
TJ.  S.  697.  Co.  v.  Missouri,  152  TJ.  S.  301,  where 

4  Wilmington,  etc.,  Co.  v.  Alsbrook,  the  true  rule  is  said  to  depend  upon  the 
146  U.  S.  279;  Annapolis,- etc.,  R.  Co.  effect  of  the  consolidation— if  a  really 
v.  Comis,  103  U.S.  1.  Contra,  Nichols  new  company  (and  not  a  mere  merger 
v.  Railroad  Co.,  42  Conn.  193.  of  the  old)  comes  into  existence,  and 

5Tenn.  v.  Whitworth,  117  TJ.  S.  139,  the  old  companies  are  dissolved,  then 

per  C.  J.  White,  citing  Tomlinson  v.  the  exemptions  of  the  old  companies 

Branch,    15    Wall.    460;     Branch    v.  do  not  pass  to  the  new.     The  leading 

Charleston,  92  TJ.  S.  677;  County   of  case  on  this  point  is  Railroad  Co.  v. 

Scotland   v.   Thomas,   94   TJ.    S.  682;  Georgia,  98  TJ.  S.  359. 
Railroad  Co.  v.  Maine-,  96  TJ.  S.  499; 


112 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  119a 


clearly  made  to  appear  that  such  was  the  legislative  intent.1 
The  new  company  holds  the  immunities  of  the  old  companies 
distributively;  that  is,  whatever  privileges  and  immunities  the 
former  companies  possessed  inure  to  the  benefit  of  the  new  cor- 
poration to  the  extent  of  the  property  owned  by  each  of  the 
former  companies  at  the  time  of  the  consolidation.2  A  general 
exemption  clause  applies  only  to  property  which  is  reasonably 
necessary  to  carry  out  the  purposes  of  the  corporation.2  The 
legislature  may  reserve  the  power  to  revoke  a  grant  of  exemp- 
tion from  taxation.4  Under  such  a  reserve  power  the  rate  of 
taxation  may  be  increased.5 


1  Railroad  Co.  v.  Maryland,  10  How. 
(U.  S.)  376;  The  Delaware  R.  Tax,  18 
Wall.  (U.  S.)  200;  Railroad  Co.  v. 
Missouri,  152  U.  S.  301. 

"Where  corporations  are  consoli- 
dated, exemption  from  taxation  does 
not  pass  to  the  new  corporation,  un- 
less such  is  clearly  the  legislative  in- 
tention. See  Adams  v.  Yazoo,  etc., 
Co.  (Miss.),  24  So.  Rep.  317. 

2Tomlinson  v.  Branch,  15  Wall. 
(U.  S.)  460;  Tenn.  v.  Whitworth,  117 
U.  S.  139.  See,  particularly,  State  v. 
Maine,  etc.,  R.  Co.,  66  Me.  488,  514. 

3  Railroad  Co.  v.  Berks  Co.,  6  Pa. 
St.  70;  Lehigh,  etc.,  Co.  v.  Northamp- 
ton Co.,  8  Watts  &  S.  (Pa.)  334. 

'Tomlinson  v.  Jessup,  15  Wall. 
(U.  8.)  i:'t- 

Minion  Pac.  R.  Co.  v.  I'liila.,  101  XL 
B.  528.  For  purposes  of  taxation  the 
franchises  of  a  corporation  may  he 
distinguished  from  its  other  property. 

'I'll''    practical    difficulty    in    the    way 

of  th'-  taxation  of  franchises  lias 
been  to  find  an  equitable  method  of 
determining  the  value  of  tin'  fran- 
chise. A  proper  method  of  valual  inn 
is  to  take  the  market  or  actual  value 


of  all  the  indebtedness,  exclusive  of 
del  its  for  current  expenses,  and  the 
market  or  actual  value  of  all  the  stock 
of  every  kind  issued,  and  the  total 
will  be  the  value  of  all  the  assets  of 
the  corporation.  From  this  deduct  the 
actual  or  market  value  of  all  the  tan- 
gible property  in  its  possession,  and 
there  remains  the  value  of  the  intangi- 
ble property,  or  the  franchise.  This 
method  is  recognized  by  the  laws  of 
Connecticut,  New  Jersey,  Indiana, 
Illinois  and  other  states.  In  Talor  v. 
Secor,  99  TJ.  S.  575,  Mr.  Justice  Miller 
says:  "It  is  therefore  obvious  that 
when  you  have  ascertained  the  cur- 
rent cash  value  of  the  whole  funded 
debt,  and  the  current  cash  value  of 
the  entire  number  of  shares,  you  have, 
by  the  action  of  those  who  above  all 
others  can  best  estimate  it,  ascertained 
the  true  value  of  the  road,  all  its  prop- 
erty, its  capital  stock  and  its  fran- 
chises. For  these  are  all  represented 
by  the  value  of  its  bonded  debt,  and 
nf  the  shares  of  its  capital  stork." 
See  aTLarticle  on  "Taxation  of  Public 
Franchises,"  by  John  Ford,  in  North 
American  Review,  for  June,  1899. 


CHAPTER  5. 

FRANCHISES    AND    PRIVILEGES. 

§  120.  The  nature  of  a  franchise.  §  125.   The  sale  and  transfer  of  frar> 

121.  Illustrations     of     franchises —  chises. 

Conditions — Grant  of  right  to  126.   Corporations  charged  with  pub- 
use   street   for  railway  pur-  lie  duties, 

poses.  127.   Transfer  under  legislative  au- 

122.  Illustrations — Nature  of  rights  thority — Construction. 

acquired.  128.    Franchises  pertaining  to  use  of 

123.  The  franchise  of  being  a  cor-  particular  property. 

poration.  129.    Forfeiture  of  franchises. 

124.  In  whom  franchises  vests.  130.   Constitutional     protection     of 

franchises. 

§  120.  The  nature  of  a  franchise. — Some  confusion  exists  in 
the  decisions  as  to  the  meaning  of  the  word  franchise.  It  is 
sometimes  given  a  broad  significance  and  made  to  cover  all 
the  rights,  powers  and  privileges  of  corporations.  Properly, 
however,  a  distinction  must  be  made  between  a  franchise,  a 
power  and  a  mere  personal  privilege.  A  franchise  is  a  special 
privilege  conferred  by  the  sovereign  power  upon  a  natural  or 
artificial  person,  which  does  not  belong  to  a  person  as  of  com- 
mon right.1  As  defined  by  Chief  Justice  Taney:2  "Fran- 
chises are  special  privileges  conferred  by  government  upon  in- 
dividuals, and  which  do  not  belong  to  the  citizens  of  the  country, 
generally,  of  common  right.  It  is  essential  to  the  character  of 
a  franchise  that  it  should  be  a  grant  from  the  sovereign  author- 
ity, and  in  this  country  no  franchise  can  be  held  which  is  not 
derived  from  the  law  of  the  state."  Another  learned  judge 
said  : 3     "To  be  a  franchise,  the  right  possessed  must  be  such 

1  Green  v.  Knife,  etc.,  Co.,  35  Minn.,  2Bank,  etc.,  v.  Earl,  13 Peters  (U.  S.) 
155.  A  franchise  is  a  special  privilege  595.  See,  also,  Spring  Valley  W.  W. 
emanating  from  the  sovereign  power  v.  Schottler,  62  Cal.  73;  State  v.  Scotl- 
and owing  its  existence  to  a  grant  or  gal,  3  S.  D.  55,  15  L.  R.  A.  477,  51  N, 
to  a  prescription  pre-supposing  a  grant.  W.  Rep.  858. 

Wilmington,    etc.,   Co.  v.  Evans,  166  3  Mitchell,  J.,  in  State  v.  Minn.,  etc., 

111.  548,  46  N.  E.  Rep.  1083.     See  state-  Co.,  40  Minn.  213.   See,  also,  Memphis 

meat  of  Mr  Justice  Field  in  Morgan  R.  Co.  v.  Comrs.,  112  U.  S.  619. 
v.  Louisiana,  93  U.  S.  223. 

8 — Private  Corp.  (H^) 


114  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   121 

as  can  not  be  exercised  without  the  express  permission  of  the 
sovereign  power — a  privilege  or  immunity  of  a  public  nature 
which  can  not  be  legally  exercised  without  a  legislative  grant. 
It  follows  that  the  right,  whether  existing  in  a  natural  or  arti- 
ficial person,  to  carry  on  any  particular  business  is  not  neces- 
sarily or  usually  a  franchise."  In  an  important  case  in  the 
supreme  court,  Mr.  Justice  Bradley  said:1  "What  is  a  fran- 
chise? Under  the  English  law  Blackstone  defines  it  as  'a  royal 
privilege  or  branch  of  the  king's  prerogative  subsisting  in  the 
hands  of  a  subject.'  Generalized  and  divested  of  the  special 
form  which  it  assumed  under  a  monarchical  government, 
based  on  feudal  traditions,  a  franchise  is  a  right,  privilege  or 
power  of  public  concern,  which  ought  not  to  be  exercised  by 
private  individuals  at  their  mere  will  and  pleasure,  but  should 
be  reserved  for  public  control  and  administration,  either  by  the 
government  directly,  or  by  public  agents,  acting  under  such 
conditions  and  regulations  as  the  government  may  impose  in 
the  public  interest,  and  for  the  public  security.  Such 
rights  and  powers  must  exist  under  every  form  of  society. 
They  are  always  educed  by  the  laws  and  customs  of  the  com- 
munity. Under  our  system  their  existence  and  disposal  are 
under  the  control  of  the  legislative  department  of  the  govern- 
ment, and  they  can  not  be  assumed  or  exercised  without  legis- 
lative authority  No  private  person  can  establish  a  public 
highway,  or  a  public  ferry,  or  railroad,  or  charge  tolls  for  the 
use  of  the  same  without  authority  from  the  legislature  direct 
or  derived.  These  are  franchises.  No  private  person  can 
take  .-mother's  property,  even  for  public  use,  without  such 
authority  ;  which  is  the  same  as  to  say,  that  the  right  of  emi- 
nent domain  can  only  be  exercised  by  virtue  of  a  legislative 
grant.  This  is  a  franchise.  No  persons  can  make  themselves 
a  body  corporate  and  politic  without  legislative  authority. 
Corporate  capacity  is  a  franchise." 

§  121.   Illustrations  of  franchises  —  Conditions  —  Grant  of 

ritfht    to   use  sheet  for  railway  purposes. — rl  ne  illustrations  of 

'California  v.  Central,  etc.,  Co.,  L27    franchise  :m<l  a  mere  monopoly,  see 
r.  B.   i".     For  distinction  between  a    note,  i  l>.  R.  A.  616. 


§  121  FRANCHISES    AND    PRIVILEGES.  115 

franchises  which  are  granted  to  corporations  and  individuals 
in  modern  times  might  be  extended  indefinitely.  The  com- 
mon franchises,  the  right  to  be  a  corporation,  to  exercise  the 
power  of  eminent  domain,  to  establish  a  ferry  or  bridge  and 
charge  tolls,  are  referred  to  in  the  preceding  section.  The 
authorities  are  conflicting  on  the  question  whether  an  ordi- 
nance granting  the  consent  of  a  municipality  to  a  street  rail- 
way company  to  the  use  of  a  street  for  the  purpose  of  laying 
tracks  is  a  franchise  or  merely  a  license.  In  one  line  of  cases 
it  is  held  that  where  a  street  railway  company  is  incorporated 
under  an  act  of  the  legislature,  with  power  to  construct,  main- 
tain and  operate  a  railroad  in  a  city,  upon  obtaining  the  con- 
sent of  the  city  in  such  manner  and  under  such  conditions  as 
the  city  may  impose,  and  the  city  by  ordinance  grants  the 
privilege  of  constructing  and  operating  the  same  upon  a  cer- 
tain street,  the  grant  is  a  mere  license,  and  not  a  franchise.1 
Thus  an  ordinance  granted  to  a  railway  company  the  right 
and  privilege  of  laying  its  tracks  and  operating  its  road  along 
certain  streets  upon  certain  conditions,2  and  provided  that 
"upon  the  failure  of  the  company  to  comply  with  any  condi- 
tion herein  named,  the  said  council  shall  have  the  power, 
which  it  hereby  expressly  reserves,  to  repeal  the  ordinance 
and  revoke  the  consent  hereby  given."  The  company  failed 
to  perform  one  of  the  conditions,  and  the  council  passed  a  re- 
pealing ordinance.  It  was  held  that  the  company  had  a 
license,  and  not  a  franchise,  and  that  the  repealing  ordinance 
was  valid.3 

Upon  the  general  principle  that  the  council  can  not  deprive 
its  successor  of  legislative  power  by  the  enactment  of  an  irre- 
pealable  ordinance,  it  was  held  that  an  ordinance  giving  a  street 

1  Chicago,  etc.,  R.  Co.  v.  People,  73  633,  38  L.  R.  A.  460;  Grannan  v.  West- 
Ill.  "541;    Chicago  Board  of  Trade  v.  Chester,  etc.,  Assn.,  153  N.  Y.  449. 
People,  91  111.80;  Belleville  v.  Citi-  3  Belleville  v.  Citizens',  etc.,  Co.,  152 
zens\  etc.,  Co.,  152  111.  171,  26  L.  R.  111.  171,  26  L.  R.  A.  681.     But  a  later 
A.  681.  Illinois  case  holds  that  authority  to  so 

2  That  the  legislature  may  impose  use  the  streets  is  not  a  mere  license, 
conditions  when  granting  a  franchise,  or  private  contract,  but  is  something 
see  State  v.  Spartanburg,  etc.,  Co.  (S.  more,  a  franchise  that  carries  with  it 
C),  28  S.  E.  Rep.  145;  San  Diego,  etc.,  a  public  duty  enforceable  by  manda- 
Co.  v.  San  Diego  (Cal.),  50  Pac.  Rep.  mus.    The  People  v.  Suburban  R.  Co., 

178  111.  594. 


116 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§121 


railway  company  the  right  to  lay  a  double  track  in  a  street 
might  be  repealed  and  the  right  limited  to  a  single  track.  The 
com  pan  v  in  such  case  has  no  claim  against  the  city  for  the 
value  of  improvements  made  after  notice  of  the  intention  of 
the  city  to  repeal  the  ordinance.1 

The  privilege  to  use  the  streets  for  railway  purposes,  when 
granted  by  an  ordinance,  if  granted  on  an  adequate  considera- 
tion and  accepted  by  the  grantee,  may  be  a  valid  and  binding 
contract.  Although  the  ordinance  has  been  accepted  and 
acted  on,  the  resulting  contract  may  be  subject  to  rescis- 
sion, because  of  the  failure  of  the  corporation  to  observe  con- 
ditions which  were  attached  to  the  grant.  This  failure  does 
not,  however,  avoid  the  contract.  It  merely  puts  it  in  the 
power  of  the  city  to  rescind  it.2 


1  Lake  Roland,  etc.,  R.  Co.  v.  Balti- 
more, 77  Md.  352,  20  L.  R.  A.  126; 
Baltimore  v.  Baltimore,  etc.,  Co.,  166 
I'.  S.  67!).  The  change  from  a  doable 
to  a  single  track  was  a  reasonable  regu- 


a  contract,  and  that  by  breach.  When 
the  parties  have  agreed  that  one  of 
them  shall  have  an  option  to  dissolve 
the  contract,  if  certain  of  its  terms  are 
not  observed,  upon  the  non-fulfillment 


lation  concerning  the  use  of  the  street,  of  the  specified  terms,  the  party  may 
The  legislative  action  of  a  munici-  exercise  his  option;  and  if  he  elects 
pal  corporation  can  not  be  enjoined,  to  treat  the  contract  as  at  an  end  it 
Hence,  a  city  council  will  not  be  will  be  discharged.  But  when  a  term 
enjoined  from  passing  an  ordinance  of  a  contract  is  broken,  ami  there  is 
allowing  another  gas  company  to  noagreemenl  that  the  breach  of  that 
lay  pipe-  in  th<-  streets,  because  the  term  shall  operate  as  a  discharge,  it  is 
city  has  already  granted  an  exclusive  always  a  question  for  the  courts  to  de- 
franchise  to  lay  and  maintain  gas  pipes  t ermine  whether  or  not  the  default  is 
t.,  the  complainant.  Montgomery,  in  a  matter  which  is  vital  to  the  con- 
eta,  Co.  v.  City  Council  (Ala.),  1  I-  tract;  for  if  it  is  not,  the  contract  will 
I;  A. 616.  not  be  discharged.  3  Am.&Eng.Enc. 
2  In  Belleville  v.  Citizens',  etc.,  R.  of  Law,  p.  893,  note  5 ;  Head  v.  Tatter- 
Co.,  152  111.  171.  26  L.  R.  A..  681  685,  sail,  1..  R.  7  Exch.  7. 
the  courl  Baid :  "These  failures  on  Hie  "The  contracl  at  bar  was  of  the  kind 
part  of  the  appellee  did  not  of  them-  first   mentioned  above,     [t  contained 

selve-  avoid  the  contract,  l.nt  they  put  pr<  .visions  wh'ieh  made  it  (let  ern  li  liable 

it  in  the  power  of  the  city  to  rescind  under  certain    circumstances   at    the 

it.     ii  ,-  entirely  competenl  for  par-  election  of  the  city,  and  how  was  the 

ontract  to  introduce  into  it  a  city  to  indicate  its  election  to  avoid 

i,,,,  thai  if  one  of  them  fail- to  the  contract?     Manifestly,  by  passing 

fnllill  certain  specified  terms,  theother  an  ordinance  repealing  tie'  ordinance 

Bhall  be  entitled  to  treal   the  agree-  that  constituted  the  contract,  and  re- 

ment  as  at  an  end.    There  is  a  differ-  voking  all  the  rights  ami   privil 

me,-  between  this  n                 charging  granted  thereby,  and  by  notifying  ap 


§  122  FRANCHISES    AND    PRIVILEGES.  117 

§  122.  Illustrations — Nature  of  rights  acquired. — There  is 
high  authority  for  the  position  that  a  grant  to  a  railway  com- 
pany by  a  city  of  the  right  to  use  the  streets  for  its  tracks  con- 
stitutes an  easement,  and  that  the  right  granted  thereby  is  an 
interest  in  realty,  being  an  incorporeal  hereditament.1  In  New 
York  corporate  franchises  are  taxed  as  real  property.  A  recent 
writer  of  authority  says  :  "  The  right  granted  by  a  municipality 
to  use  its  streets  is  frequently  called  a  franchise,  but  it  is  a  fran- 
chise in  the  secondary  rather  than  the  primary  sense  of  the 
term.  Indeed,  it  seems  to  us  that  it  is  more  in  the  nature  of  a 
license,  which  may  be  revoked  at  any  time  prior  to  its  accept- 
ance, and  which  vests  no  right  in  the  licensee  until  it  is  'accept- 
ed and  used.'  2  A  valid  grant  of  such  right  by  ordinance,  how- 
ever, upon  an  adequate  consideration,  when  accepted  and  acted 
upon  by  the  grantee,  becomes  an  irrevocable  and  binding  con- 
tract.3 Unless  the  right  to  repeal  or  amend  is  reserved,  the  city 
can  not  revoke  the  ordinance  nor,  by  a  subsequent  ordinance, 
without  the  consent  of  the  company,  impose  upon  it  further  and 
additional  burdens.4    But  the  right  to  do  so  may  be  reserved."5 

In  Wisconsin  it  is  held  that  a  franchise  given  by  a  city  to  a 
street  railway  company  is  something  more  than  a  mere  ease- 
ment or  license  to  use  the  streets  for  the  time  and  in  the  man- 
ner specified  in  the  ordinance,  and  more  than  a  contract  between 
the  public  and  the  railway  company  when  the  ordinance  has 

pellee  to  remove  its  tracks,  switches  Galveston,  etc.,  R.  Co.  v.  Gulf  City, 

and  turnouts  from  the  streets  of  the  etc.,  R.  Co.,  63  Texas  529;  Detroit  v. 

city."  Detroit,  etc.,   R.   Co.,   37  Mich.  558; 

Detroit,  etc.,  R.  Co.  v.  City  of  De-  Booth  Street  Railways,  §  10. 

troit,  64  Fed.  Rep.  628,  26  L.  R.  A.  s  City  of  St.  Louis  v.  Western  Union, 

667;  People  v.  O'Brien,  111  N.  Y.  1,  2  etc.,  Co.,  63  Fed.  Rep.  68. 

L.  R.  A.  255,  7  Am.  St.  Rep.  684.    See  4  People  v.  Chicago,  etc.,  R.  Co.,  118 

New  Orleans,  etc.,  R.  Co.  v.  Delamore,  111.  113;  Electric  R.  Co.  v.  Common 

114  U.  S.  501,  where  it  was  held  that  Council,  S4  Mich.  257;  Western,  etc., 

a  right  of  way  for  railway  tracks  in  a  Co.  v.  Citizens',  etc.,  R.  Co.,  128  Ind. 

street  is  a  franchise    which  can  be  525. 

mortgaged  and  transferred.  5  Elliott  Railroads,  §  1079.    Medford, 

2  Atchison,  etc.,  R.  Co.  v.  Nave,  38  etc.,  R.  Co.  v.  Somerville,  111  Mass. 

Kan.  744,5  Am.  St.  Rep.  804,  Ann.;  232.     See    Lake    Roland    R.    Co.    v. 

People  v.  Mutual,  etc.,  Co.,  38  Mich.  Mayor,  77  Md.  352,  7  Lewis  Am.  R. 

154;   City  of  Belleville  v.   Cit.,   etc.,  &  Corp.  Cas.  619,  Ann. 
R.  Co.,  152  111.  171,  26  L.  R.  A.  681; 


118  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  123 

been  accepted  and  acted  upon.  It  is  also  a  grant  from  the 
state,  which,  when  accepted  by  the  grantee,  imposes  upon  it 
the  duty  of  serving  the  public  which  it  can  not  lay  down  at 
will,  or  escape  from,  by  merely  ceasing  to  operate  the  road. 
It  was  claimed  that  the  franchise  had  been  abandoned,  and 
the  court  said:  "A  mere  privilege  or  right  may,  perhaps,  be 
properly  said  to  be  abandoned  in  a  proper  case,  although  even 
in  that  case  there  must  be  something  more  than  mere  non- 
user  to  constitute  such  abandonment.  *  *  *  While  a  mere 
easement  or  right  may  be  abandoned,  the  word  is  plainly  in- 
applicable to  a  duty  owing  to  the  state." 

In  a  recent  Missouri  case,  the  court,  after  referring  to  the 
Illinois  and  Michigan  cases,  which  hold  that  the  right  to  use 
the  streets  for  railway  tracks  and  gas  pipes  is  not  a  state 
franchise,  but  a  local  easement  resting  on  a  contract,  or  a  li- 
cense, said:  "But  these  cases  we  think  not  in  line  with 
the  great  weight  of  authority.  *  *  *  This  court  has  rec- 
ognized the  rights  of  street  railways  in  the  streets  of  a  munici- 
pality as  franchises,  and  as  vested  rights  which  might  be 
mortgaged  by  the  company  to  whom  the  franchise  belonged."1 
It  was  held  that  the  privilege  was  a  franchise  and  not  a  mere 
license,  although  granted  by  the  municipality  under  legisla- 
tive authority,  and  that  quo  wa rr<tnt<>%  in  the  name  of  the  state, 
was  the  proper  remedy  to  obtain  a  forfeiture  for  non-perform- 
ance of  conditions.3 

§  123.  The  franchise  of  being  a  corporation. — The  right 
to  be  a  corporation  is  a  franchise  which  is  necessarily  granted 
by  every  charter  of  incorporation.  When  the  state  grants  to 
certain  persons  ami  their  successors  in  interest  the  privilege  of 
forming  a  corporation  and  acting  in  a  corporate  capacity  within 
certain  defined  limit-,  the  privilege  so  granted  is  called  the  cor- 

1  Wright  v.  Milwaukee,  etc.,  R.  Co.,       *Hovelmanv.  Kansas  City,  etc.,  R 
96  w  is  29,  80    \m.  St.  Rep.  74.    See    Co.,  79  Mo.  643. 

v.  Madison,  etc.,  R.  Co.,72  Wia.       •State  \.  East    Fifth  si.  R.  Co.,  140 

Mo.  689,  62  A  in.  st.  Rep.  748. 


§  124  FRANCHISES    AND    PRIVILEGES.  119 

porate  franchise.'  Under  modern  conditions  this  grant  is  lit- 
tle more  than  the  removal  of  the  common  law  prohibition,  and 
is  properly  called  a  franchise  onLy  in  the  most  general  sense 
of  the  word. 

§  124.  In  whom  franchises  vest, — Some  confusion  exists  on 
the  question  whether  franchises  vest  in  the  individuals  form- 
ing the  corporation  or  in  the  corporation.  The  true  rule  is 
that  the  primary  franchise  of  being  a  corporation  vests  in  the 
individuals  who  compose  the  corporation  and  not  in  the  corpo- 
ration itself,  while  the  secondary  franchises,  such  as  the  right 
of  a  railway  corporation  to  construct  and  operate  a  railway,  are 
vested  in  the  corporation.2  This  distinction  will  be  clearly  rec- 
ognized when  we  come  to  consider  the  vendibility  of  fran- 
chises. A  franchise  granted  by  a  city  to  an  electric  light  com- 
pany is  the  property  of  the  corporation  and  not  of  the  stock- 
holders.3 The  general  rule  is  that  the  primary  franchise  can 
not  be  sold  or  transferred  ;  but  the  owners  of  a  primary  franchise 
may  in  effect  transfer  it  at  will,  by  virtue  of  the  power  they 
possess  of  naming  their  successors  in  interest.  The  continuity 
of  corporate  life  is  thus  maintained,  but  the  result  is  identical 
with  that  of  a  formal  transfer  of  the  franchise.  In  one  in- 
stance, however,  the  rule  is  still  of  importance,  and  that  is  when 
the  property  and  franchises  of  a  corporation  are  sold  under 
mortgage  foreclosure.  The  purchaser  at  such  sale  may  acquire 
the  property  and  secondary  franchises  of  the  corporation,  but 
not  the  primary  franchise  of  being  a  corporation.  Unless 
there  is  legislative  authority  for  the  transfer  of  the  primary 
franchise,  the  purchasers  must  create  a  new  corporation  under 
the  existing  laws. 

§  125.  The  sale  and  transfer  of  franchises, — The  rule 
stated  in  general  terms  is  that  a  corporation  can  not,  without 
legislative  authority,  mortgage,  sell  or  transfer  its  franchises, 

1  Paul   v.  Virginia,  8  Wall.  (U.  S.)  8  Fietsam  v.  Hay,  122  111.  293,  3  Am. 

181.     See  State  v.  East,  etc.,  R.  Co.,  St.  Rep.  492. 

140  Mo.  53!),  02  Am.  St.  Rep.  743,  747;  *s  Payne  v.  Goldbach,  14  Ind.  App. 

N.  O.,  etc.,  Co.  v.  Delamore,  114  U.  S.  100,  42  N.  E.  Rep.  642. 
501. 


120  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  126 

and  that  any  attempt  to  do  so  is  invalid.1  This  doctrine  for- 
bids any  corporation  from  transferring  its  primary  franchise 
of  being  a  corporation,  but  under  modern  liberal  incorporation 
laws  it  has  little  if  any  practical  value.  There  no  longer  exists 
a  reason  for  transferring  this  privilege,  as  it  can  be  easily  ac- 
quired by  complying  with  the  simple  requirements  of  the  stat- 
utes regulating  incorporation.  Franchises  at  common  law  are 
property  rights,  and  subject  to  sale  and  transfer  like  any  other 
property,  and  this  restrictive  rule  is  a  limitation  upon  the 
power  of  the  corporation  and  not  due  to  the  nature  of  the  fran- 
chise. TsnTess  the  corporation  is  charged  with  some  public 
duty,  which  is  generally  the  case,  no  good  reason  exists  why 
it  should  not  be  permitted  to  sell  its  secondary  franchises.2 
The  rule  that  the  primary  franchises  can  not  be  transferred  is 
reduced  to  an  absurdity  by  the  simple  statement  that  the  entire 
personnel  of  the  corporation  may  be  changed  in  an  hour  by  a 
permissible  and  legal  transfer  of  all  the  shares  of  stock. 

§  126.  Corporations  charged  with  public  duties. — The  most 
important  modern  private  corporations  receive  their  fran- 
chises in  consideration  of  the  performance  of  some  public  duty. 
In  such  cases  the  state  is  supposed  to  impose  a  certain  degree 
of  confidence  in  the  grantee,  and  hence  insists  that  the  duties 
shall  be  performed  by  the  particular  grantee.  But  here,  as  in  all 
cases,  a  transfer  may,  as  far  as  the  personnel  is  concerned,  be 

1  Thomas  v.  Railway  Co.,  101  TT.  s.  and  transfer  <>f  all  franchisee  created 

73;  State  v.  Anderson,  90  Wis.  550;  by  or  under  its  authority,    state  v. 

Middlesex,  etc.,  R.  Oo.  v.  Boston,etc.,  Anderson,  97  Wis.  114,  72  N.  W.  Rep. 

R.  Co.,  116  Mass.  851;  Fietsam  v.  Hay,  386.   A.  corporation  which  permits  an- 

122  HI.  293,  8  Am.  St.  Rep.  124;  Chi-  other  company  which  acquires  all  its 

.  etc., Co.v. People's, etc., Co.,  121  business  to  carry  on  the  business  in 

111.  530,  2  Am.  St.  Rep,  124;  Atkinson  Its  uame  is  liable  forthe  arts  of  the 

7.  Marietta,  etc.,  R.  Co.,  15  Ohio  St.  21;  latter.     Davis,   etc.,  Co.  v.    Fowler 

•rthern  R.Co.v.  Eastern, etc.,  Bros.,  47  N.  Y.  Supp. 

i:  '  o.,21  L.J.  Chan.  837.   Noimplied  »8tate  v.  EaBt,  etc.,  R.  Co.v,  l  W  Mo. 

power  to  mortgage  franchises.    Coev.  589.    [n  N".  O.  R.  Co.  v.  Delamore,114 

Col.,  etc.,  Co.,  10  Ohio  SI   872;  Car-  D.  S.  501,  it  was  held  the  right  of  way 

penter  v.  B.  H.,  etc.,  Co.,  66  N.  Y. 48,  of  a  railway    company  through    the 

Kennebec,  etc.,  R.  Co.  v.  streets  of  a  city  is  a  franchise  which 

Portland,  etc.,  R.Oo.,69  Me.  28.    The  may  be  mortgaged  and  transferred, 
latore  may  provide  for  the  sale 


§  126  FRANCHISES    AND    PRIVILEGES.  121 

made  by  a  transfer  of  the  stock.  But  the  rule  is  settled  that 
the  corporation  can  sell  neither  the  primary  nor  secondary 
franchises,  which  are  necessary  to  the  due  and  proper  per- 
formance of  the  public  duties  imposed  upon  it  by  its 
charter.  As  stated  by  Mr.  Justice  Miller : '  "Where  a  cor- 
poration like  a  railroad  company  has  granted  to  it,  by  charter, 
a  franchise  intended  in  large  measure  to  be  exercised  for  the 
public  good,  the  due  performance  of  those  duties  being  the 
consideration  of  the  public  grant,,  any  contract  which  disables 
the  corporation  from  performing  those  functions,  which  under- 
takes without  the  consent  of  the  state  to  transfer  to  others  the 
rights  and  powers  conferred  by  the  charter,  and  to  relieve  the 
grantees  of  the  burdens  which  it  imposes,  is  a  violation  of  the 
contract  with  the  state  and  is  void  as  against  public  policy."2 
Hence,  a  railway  or  canal  company  can  not  lease  its  fran- 
chises to  another  company  or  person  without  express  legisla- 
tive authority,3  nor  can  a  railway  company  by  means  of  leases 
transfer  its  road  and  the  use  of  its  franchises  to  another  com- 
pany and  thus  exempt  itself  from  responsibility  for  the  man- 
agement of  the  road.4  In  a  ease  where  this  was  sought  to  be 
done,  the  court  said:5  "Important  franchises  were  conferred 
upon  the  corporation  to  enable  it  to  provide  the  facilities  for 
communication  and  intercourse  required  by  the  public  con- 
venience. Corporate  management  and  control  over  these  were 
prescribed,  and  corporate  responsibility  for  the  insufficiency 
provided  as  a  remuneration  to  the  community  for  their  grant. 
The  corporation  can  not  absolve  itself  from  the  performance  of 
its  obligations,  without  the  consent  of  the  legislature." 

Thomas  v.  Railway  Co.,  101  U.  S.  Mass.   347;    Brunswick,   etc.,  Co.   v. 

71,  Wilgus'  Cases.  United,  etc.,  Co.,  85  Me.  532;  Daniels 

8  Gulf,  etc.,  R.  Co.v.  Morris,  67  Tex.  v.  Hart,  118  Mass.  542. 

692;  Union   Pac.    R.    Co.  v.  Railway  4  Fisher  v.  W.  V.  &  P.  R.Co.,  39  W. 

Co.,  163  U.  S.  564;  Chicago,  etc.,  Co.  Va.  366,  23  L.  R.  A.  758;  Ricketts  v. 

v.   People's,   etc.,   Co.,   121   111.  531;  Ches.,  etc.,  R.  Co.,  33  W.  Va.  433,7 

Visalia,  etc.,  Co.  v.  Sims,  104  Cal.  326.  L.  R.  A.  354;  Naglee  v.  Alexandria, 

3 Oregon  R.    Co.   v.    Railway    Co.,  etc.,  R.  Co.,  83  Va.  707. 

130  U.  S.  1 ;  Van  Steuben  v.  Centr.  R.  5  York,  etc.,  Co.  v.  Winans,  17  How. 

Co.,  178  Pa.  St.  367;  Middlesex,  etc.,  (U.  S.)  39. 
R.   Co.  v.   Boston,   etc.,   R.  Co.,   115 


122  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  127 

The  same  principle  forbids  such  a  corporation  to  sell  or  dis- 
pose of  the  property  which  is  necessary  to  enable  it  to  perform 
its  duties.  It  will  not,  however,  prevent  a  railway  company 
from  alienating  its  personal  property,  such  as  its  locomotive 

engines.1 

§127.  Transfer  under  legislative  authority  —  Construc- 
tion.— The  legislature  may  authorize  a  corporation  to  transfer 
either  its  primary  or  its  secondary  franchises.2  A  law  authoriz- 
ing a  corporation  to  transfer  its  franchises  does  not  necessarily 
deprive  it  of  its  own  franchises.  The  transferee  may  merely 
acquire  a  new  franchise  by  appointment  of  the  legislature. 
It  is  for  the  legislature  to  say  whether  or  not  the  franchise  of 
the  old  company  is  extinct.3  Authority  to  transfer  a  "char- 
ter" or  "the  franchise  to  be  a  corporation, "  authorizes  the 
grantee  to  confer  the  right  to  form  a  corporation  upon  such 
persons  as  he  shall  indicate  by  deed,  or  as  shall  become  the 
purchasers  at  foreclosure  sale.  As  said  by  Chief  Justice  Welch,* 
"The  real  transaction  in  all  such  cases  of  transfer,  sale,  or  con- 
veyance, in  legal  effect  is  nothing  more  or  less,  and  nothing 
other,  than  a  surrender  or  abandonment  of  the  old  charter  by 
the  corporators,  and  a  grant  de  novo  of  a  similar  charter  to  the 
so-called  transferees  or  purchasers.  To  look  upon  it  in  any 
other  light,  and  to  regard  the  transaction  as  a  literal  transfer 
or  sale  of  the  charter,  is  to  be  deceived,  we  think,  by  a  mere 
figure  of  speech.  The  vital  part  of  the  transaction,  and  that 
without  which  it  would  be  a  nullity,  is  the  law  under  which 
the  transfer  is  made.  The  Btatute  authorizing  the  transfer  and 
declaring  its  effect ,  is  the  grant  of  a  new  charter,  couched  in  Eew 
word-,  and  I  Efecl  upon  condition  of  the  surrender  or  aban- 

donment of  the  old  charter;  and  t  lie  (Iced,  if  the  transfer  is  to  be 
arded  as  mere  evidence  of  the  surrender  or  abandonment." 

'c r.  Col.,  etc.,   R.  Co.,  10  Ohio       ■  See  Morawete  Priv.  Corp.,  §986. 

si  872,76  \m.  Dec.618,  *  State  v.  sin-mum,  22  Ohio  si.ii! 

'Chapman,  etc., Co.  y.  Oconto,  etc.,  Quoted  In  Memphis,  etc.,  R.  Co.  v. 
•  IV        •  i.  W  Am.  St.  Rep  880.     Railroad  Com'ra,  112  U.  S  809. 

Bee  monographic  oote  i"  Brunswick, 
etc  .  ( '".  v.  United,  etc.,  Co.,  86  Am. 
st.  Rep. 


§  128  FRANCHISES    AND    PRIVILEGES.  123 

Power  to  sell  or  mortgage  the  franchise  of  being  a  corpora- 
tion is  never  implied  from  authority  to  sell  or  mortgage  "the 
property  and  franchises  "  of  a  corporation.1  It  is  not  essential 
in  such  case  that  the  purchaser  should  be  a  corporation,  in 
order  to  acquire  the  property  and  secondary  franchises.  Where 
the  question  was  under  discussion,  Mr.  Justice  Matthews  said:2 
"The  franchise  of  being  a  corporation  need  not  be  implied  as 
necessary  to  secure  the  mortgage  bondholders,  or  the  purchasers 
at  a  foreclosure  sale,  the  substantial  rights  intended  to  be 
secured.  They  acquire  the  ownership  of  the  railroad  and  the 
property  incident  to  it,  and  the  franchise  of  maintaining  and 
operating  it  as  such,  and  the  corporate  existence  is  not  essen- 
tial to  its  use  and  enjoyment.  All  the  franchises  necessary  or 
important  to  the  beneficial  use  of  the  railroad  could  as  well  be 
exercised  by  natural  persons." 

A  provision  in  the  charter  to  the  effect  that  the  purchasers  at 
a  foreclosure  sale  may  organize  as  a  corporation  will  be  con- 
strued as  conferring  only  the  right  to  organize  according  to 
such  laws  as  are  in  force  at  the  time  when  the  organization 
takes  place.3  Authority  to  a  railroad  corporation  to  mortgage 
its  "road,  income  and  property,"  does  not  authorize  a  mort- 
gage of  its  franchises.4 

§  128.  Franchises  pertaining  to  use  of  particular  prop- 
erty.— Authority  to  sell  and  transfer  certain  particular  prop- 
erty authorizes  the  transfer  to  the  purchaser  of  all  franchises 
which   pertain   to   the  use  of  that  property.6     But  only  such 

*Coev.  Col.,  etc.,  R.  Co.,  lOOhio  St.  5New  Orleans,   etc.,   Co.   v.   Dela- 

372;   Eldridge  v.  Smith,  34   Vt.   484.  more,  114  U.  S.  501 ;  Branch  v.  Jessup, 

Compare  Pierce  v.  Emery,  32  N.   H.  106  U.  S.  468;  Pierce  v.  Milwaukee, 

484,  St.  P.,  etc.,  R.  Co.  v.  Parcher,  14  etc.,  R. Co.,  24  Wis.  551.  "It  is  immate- 

Minn.  297;  Cook  v.  Detroit,  etc.,  R.  rial  whether  the  right  of  using  and 

Co.,  43  Mich.  349.  operating  the  railroad  be  regarded  as 

2  Memphis,  etc.,  R.  Co.  v.  Railroad  a  statutory  right  called  a  franchise,  or 
Co.,  112  U.  S.  609.  as  a  license  conferred  by  a  municipal- 

3  Memphis,  etc.,  R.  Co.  v.  Railroad  ity,  or  as  a  mere  easement  or  property 
Co.,  112  U.  S.  609.  right   conferred    under  the    common 

i  Pullan  v.  Cincinnati,  etc.,  R.  Co.,  4    law ;  a  transfer  of  the  property  pursu- 
Bissell  35.  ant  to    authority    conferred    by  law 


124  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  12S 

franchises  as  are  necessary  to  the  enjoyment  of  the  property 
transferred  pass  with  it  to  the  grantee.  Hence,  a  lease  of  a 
railroad  company's  property  does  not  confer  upon  the  lessee 
the  right  to  exercise  the  power  of  eminent  domain,  although  it 
is  necessary  in  order  to  complete  the  line  and  the  power  was 
possessed  by  the  lessor.1  But  express  authority  to  transfer  the 
"property  and  franchises"  authorizes  the  company  to  sell  the 
franchises  which  are  incidental  as  well  as  those  which  are  neces- 
sary to  the  enjoyment  of  the  property.  Under  such  authority 
the  transferee  would  acquire  the  right  of  eminent  domain  when 
necessary  to  complete  the  construction  of  the  railway  line  pur- 
chased.2 The  distinction  between  franchises  which  are  neces- 
sary to  the  use  of  particular  property  and  those  which  are  not 
is  well  illustrated  by  the  case  of  an  exemption  from  taxation. 
Such  unusual  privileges  are  not  necessary  to  enable  the 
transferee  to  use  and  maintain  the  property,  and  hence  do 
not  pass  to  the  purchaser.  The  immunity  from  taxation  in 
such  cases  is  not  strictly  a  franchise  but  a  personal  privilege  of 
the  company,  and  is  not  transferable.  Hence  upon  a  sale  of 
the  property  and  franchises  of  a  railway  corporation  under  a 
decree  founded  upon  a  mortgage  which  in  terms  covers  the 
franchises,  or  under  a  process  upon  a  money  judgment  against 
tli»'  company,  immunity  from  taxation  upon  the  property  of 
the  company  provided  in  the  act  of  incorporation  does  not  ac- 
company the  property  in  its  transfer  to  the  purchaser.'  So 
where  the  law  provides  that  the  purchasers  under  a  foreclosure 

of  a  railroad  shall  "succeed  to  all  such  franchises,  rights 
and  privilej  '   as  would   have  been   had  *    ;   by  the  first 

company  hut  for  such  Bale  and  conveyance"  the  purchaser  does 
noi  acquire  exemption  from  taxation.     Such  exemption  is  per- 

1   to  the  company  and  does  not  inhere  in  the  property.1 

would  include  a  transfer  of  every  righl  'Morgan  v.  Louisiana,  93  (J.  S.  217j 

For  ita  continued  operation."  Memphis, etc. ,R.Co.v. Railway  Comrs., 

Morawetz  Priv.  Corp.,     982,  L12TJ.S.609.    Bee  g  L19o,  supra. 

1  Mayor,  etc  .  v.  Norwich,  etc.,  Co.,  4  Chesapeake,  etc.,  B.  Co.  v.  Miller, 

L09  Mass.  103.  1 1 4  U,  B.  170. 

*  North  <  larolina,  etc  ,  Co   • .  ( 'arc- 
Una,  etc.,  I:   I  I-'' 


§  129  FRANCHISES    AND    PRIVILEGES.  125 

Where  a  ferry  is  practically  an  extension  of  a  railroad,  the  ferry 
franchise  passes  with  the  sale  of  the  railroad  without  special 
mention.1 

§  129.  Forfeiture  of  franchises. — From  the  nature  of  a 
franchise  it  logically  follows  that  only  the  state  can  question 
the  right  to  its  enjoyment,  and  begin  proceedings  to  forfeit 
such  a  right  for  non-user  or  misuser.2  A  total  non-user  of  a 
franchise  may  exist  for  so  long  a  time  and  under  such  cir- 
cumstances that  a  surrender  of  the  franchise  by  the  corporation, 
and  acceptance  of  such  surrender  on  the  part  of  the  state,  will 
be  presumed.3  There  appears  to  be  but  one  exception  to  the 
rule  that  the  forfeiture  of  a  franchise  must  be  declared  in  a 
direct  proceeding  by  the  state.  When  the  franchise  is  granted 
upon  an  express  condition  which  is  to  be  performed  within  a 
certain  time,  as  the  construction  of  a  line  of  railway  to  a  cer- 
tain place  within  a  certain  specified  time,  the  forfeiture  takes 
place  ipso  facto  upon  failure  to  perform  the  condition;  and  the 
failure  may  be  ascertained  in  any  proper  collateral  proceed- 
ing.4 

§  130.     Constitutional  protection  of  franchises. — It  is  the 

settled  rule  of  American  constitutional  law  that  "whenever 
the  sovereign  power  for  the  time  being  within  its  legitimate 
sphere  of  action — whether  it  be  the  king  in  his  council,  as  in 
colonial  times,  or  the  congress  of  the  United  States,  or  the 
legislature  of  a  state,  or  the  council  of  a  municipal  corporation 
acting  under  the  authority  derived  from  the  constitution  or 
statute  law  of  the  state  within  which  it  exists — grants  to  a  body 
of  co-adventurers  the  franchise  of  being  a  corporation,  or  any 

1  Brownell  v.  Old  Colony  R.  Co.,  164  Wright  v.  Milwaukee,  etc.,  R.  Co.,  95 
Mass.  29,  29  L.  R.  A.  169.  Wis.  29.    That  a  corporation  may  for- 

2  Elizabeth,  etc.,  Co.  v.  Green,  46  N.  feit  its  franchise  by  non-user  or  mis- 
J.Eq.  118,  18  Atl.  Rep.  844;  Combes  v.  user,  see  note  to  Atchison,  etc.,  R.  Co. 
Keyes,  89  Wis.  297,  46  Am.  St.  Rep.  v.  Nave,  5  Am.  St.  Rep.  804. 

839;  Attorney-General  v.Superior, etc.,  4  Oakland  R.  Co.  v.  Oakland,  etc., 

R.  Co.,  93  Wis.  604.  ■  R.  Co.,  45  Cal.  365,  13  Am.  Rep.  181 ; 

3  Combes  v.  Keyes,  89  Wis.  297,  46  Belleville  v.  Cit.,  etc.,  R.  Co.  152  111., 
Am.   St.   Rep.  839,  and  cases  cited;  171,  26  L.  R.  A.  681.     Compare  Willa- 

met  &  Co.  v.  Kittridge,  5  Saw. ( U.S. )  44. 


126  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  130 

other  species  of  franchise,  privilege,  or  license  in  the  nature  of 
property,  and  the  grantees  accept  the  grant — such  franchise, 
privilege  or  license,  is  within  the  constitutional  protection  in 
such  a  sense  that  it  can  not  thereafter  be  revoked  or  repealed 
by  any  form  of  state  action  against  the  consent  of  the  corpora- 
tion, although  it  may  be  seized  by  the  state  for  misuser  or  non- 
user."1  This  general  rule  is  subject  to  the  qualifications  that 
the  state  may  reserve  to  itself  at  the  time  of  making  the  grant 
the  right  to  repeal  or  alter  the  grant,  to  a  reasonable  exercise 
of  the  police  power,  and  the  power  of  eminent  domain.  No 
rights,  however,  attach  until  after  acceptance  of  the  grant.8 

i Thompson  Pri v.  Corps.,  §§  5381-2.  83,  62   Am.   St.   Rep.  168,  and  cases 

This  doctrine  rests  on  the  famous  case  cited  in  note. 

of  Dartmouth  College  v.  Woodward,  z  In  Illinois,  etc.,  R.  Co.  v.  Illinois, 

4  Wheat,     r.    S.»  518,  and   the   long  146  U.  S.  387,  it  was  held  that  there 

line  of  authorities   with   which  that  can  be  no  irrepealable  contract  in  a 

case   has  been    followed.    That  cor-  conveyance  of  property  by  a  grantor 

porations  are  entitled  to  protection  in  in  disregard   of  a   public  trust  under 

their  rights  as  owners  of  property,  see  which  he  was  bound  to  hold  and  man- 

St.  Louis,  etc.,  R.  Co.  v.  Paul,  64  Ark.  age  it. 


CHAPTER  6.S 

POWERS. 

§  131.   General  statement.  §  137.   Grant  of  power— Not    limited 

t    m     rm  s  r,  .    -n  by  term  of  corporate  exist- 

/.    The  Theory  of  Corporate  Power.  r 

132.  The  theory  of  general  capacity. 

133.  The  theory  of  special  capaci-  77.    Classification  of  Powers. 

ties-  138.   Express  powers. 

134.  Principles  of  construction.  139<   powera  implied  from  express 

135.  Presumption  of  power  and  reg-  powers. 

ularity.  •       140.   Incidental  powers. 

136.  Place  where  powers  maybe  ex- 

ercised. 

§  131.  General  statement. — Power  in  a  legal  sense  signifies 
legal  competence,  capacity  or  right.1  A  corporation  created  by 
the  sovereign  power  for  particular  purposes  has  such  powers 
only  as  the  state  grants  to  it.  Unlike  a  natural  person,  it  does 
not  possess  those  general  powers  which  are  common  to  all. 
The  general  scope  of  corporate  power  is  ordinarily  determined 
by  a  consideration  of  the  purpose  for  which  the  corporation 
was  organized.  The  mere  fact  of  creation  implies  a  grant  of 
those  powers  which  are  essential  to  corporate  existence.  The 
state  may,  in  the  charter,  enumerate  specific  powers  granted,  or 
it  may  grant  authority  to  do  a  certain  thing,  in  general  terms. 
In  the  latter  case  the  power  to  do  all  things  proper  and  neces- 
sary in  order  to  carry  out  the  purpose  of  the  corporate  creation 
is  implied.  Thus  a  trading  or  manufacturing  corporation  has 
the  same  authority  as  an  individual  trader  or  manufacturer 
as  to  the  manner  of  selling  goods,  selecting  selling  agents,  and 
imposing  conditions  as  to  terms  of  sales.2  The  legislatures, 
and  courts  have  proceeded  upon  two   theories  in  determining 

1  See  Bissellv.  Michigan,  etc.,  R.  Co.,        2  Stockton   v.   American,   etc.,  Co., 
22  N.  Y.  258,  264.  N.  J.  Ch.,  36  Atl.  Rep.  971. 

(127) 


128  THE    LAW   OF    PRIVATE    0OBPORA.TIONS.  §  132 

corporate  powers;  viz.,  the  theory  of  general  corporate  capacity, 
and  the  theory  of  special  capacities. 


I.     The  Theory  of  Corporate  Power. 

§  132.  The  theory  of  general  capacity. — The  theory  of  the 
general  capacity  of  corporations  is  recognized  by  the  English 
authorities.  It  is  probable  that  this  is  the  theory  of  the  com- 
mon law,  and  that  the  theory  of  special  corporate  capacities 
which  is  now  the  established  rule  of  the  American  courts  is  a 
departure.  Accoirding  to  this  doctrine,  as  stated  by  Sir  Fred- 
erick Pollock,1  "a  corporation  once  duly  constituted  has  all 
such  powers  and  capacities  of  a  natural  person  as  in  the  nature 
of  things  can  be  exercised  by  an  artificial  person.  Transac- 
tions entered  into  with  apparent  authority  in  the  name  of  the 
corporation  are  presumably  valid  and  binding,  and  are  invalid 
only  if  it  can  be  shown  that  the  legislature  has  expressly  or  by 
necessary  implication  deprived  the  corporation  of  the  power  it 
naturally  would  have  had  of  entering  into  them.  The  ques- 
tion is,  therefore,  was  the  corporation  forbidden  to  bind  itself 
by  this  transaction."  This  rule,  however,  is  subject  to  the 
important  qualification  established  by  the  leading  case  of  Ash- 
bury  Railway  Company  v.  Riche,8  that  "where  there  is  an  act  of 
parliament  creating  a  corporation  for  a  particular  purpose,  and 
<_rivinur  it  powers  for  that  particular  purpose,  what  it  does  not 
expi  or  impliedly  authorize  ta  to  be  taken  as  prohibited." 

1  Pollock  -mi  Contracts,  page  1 19,  and  vidually  ;  and,  third,  thai  it  can  exer- 

^ppendix,  note  D,  "Iimitsof  Cor-  cise  '-very  power  no!  prohibited  by  its 

Power."  charter.    Coke  had  laid  tli"  founda- 

ie  English  have  been  unwilling  tions  of  this  doctrine  in  discussing  the 

mi  iii  terms  the  privilege  of  < i-  attributes  of  an  incorporated  hospital, 

plete  incorporations,  as  of  right,  to  all  and  it  1ms  been  Bilently  extended  in 

vsli,,  desire  it,  because  in  their  low  it  course  of  time  to  corporations  of  every 

.      •  led  a    an  essential  at-  class."     Baldwin  Modern  Pol.  [nit., 

tribute  of  a  full  corporation  ;  first,  thai  page  206. 

its  personality  is  wholly  distinct  from  'L.  R,  7   II.  L.  668. 

thai   of    itu  tnembei        econd,    thai  ■  Attorney-General  v.  Great  Eastern 

therefore  they  can  not,  in  fairness,  be  Et.  Co.,  ■>  A.pp.  Cms.  481. 
made  liable  for  its  obli               indi- 


§  133  powers.  129 

The  effect  of  this  exception  is  to  very  materially  modify  the 
general  rule.  "The  rule  of  law  is,"  says  Mr.  Justice  Black- 
burn, "that  a  corporation  at  common  law  has,  as  an  incident 
given  by  law,  the  same  power  to  contract  and  is  subject  to  the 
same  restrictions  as  a  natural  person.  And  this  is  important 
when  we  come  to  construe  the  statutes  creating  a  corporation, 
for,  if  it  were  true  that  a  corporation  at  common  law  has  a 
capacity  to  contract  to  the  extent  given  it  by  the  instrument 
creating  it,  and  no  further,  the  question  would  be,  does  the 
statute  creating  the  corporation,  by  express  provision  or  neces- 
sary implication,  show  an  intention  in  the  legislature  to  confer 
upon  the  corporation  capacity  to  make  the  contract?  But  if  a 
body  corporate  has,  as  incident  to  it,  a  general  capacity  to  con- 
tract, the  question  is,  does  the  statute  creating  the  corporation, 
by  express  provision  or  necessary  implication,  show  an  inten- 
tion in  the  legislature  to  prohibit  and  so  avoid  the  making  of 
the  contract  of  this  particular  kind?" 

§  133.  The  theory  of  special  capacities. — The  American 
courts  have  adopted  what  is  known  as  the  "  Doctrine  of  Special 
Capacities"  in  dealing  with  questions  of  corporate  power.  This 
was  also  the  doctrine  of  the  earlier  English  cases  which  adopted 
it  from  the  equity  decisions  where  for  particular  reasons  it  was 
long  maintained.  It  is  also  apparent  that  the  draughtsmen  of 
the  English  statutes  proceeded  upon  this  theory,  as  they  at- 
tempted to  enumerate  the  specific  powers  granted  instead  of 
enumerating  restrictions.  Taken,  however,  in  connection  with 
the  limitations  imposed  upon  the  general  rule  as  stated  in  the  pre- 
ceding section,  there  is  very  little  practical  difference  between  the 
two  doctrines.  It  matters  little  which  we  adopt  for  the  pur- 
pose of  determining  whether  a  given  act  of  a  particular  corpo- 
ration is  ultra  vires.  It  is  very  important,  however,  when  we 
are  to  determine  the  effect  to  be  given  an  unauthorized  con- 
tract of  a  corporation.  Under  one  theory  the  act  rests  upon 
a  want  of  capacity,  and  under  the  other  it  is  an  act  expressly 
forbidden.  The  rule  of  general  capacity  was  strenuously  con- 
9 — Private  Corp. 


130 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§134 


tended  for  in  the  well-known  case  of  Thomas  v.  Railroad,1  but 
the  court  gave  its  adherence  to  the  doctrine  of  special  capacity 
and  stated  the  rule  in  the  following  language:  "We  take  the 
general  doctrine  to  be,  in  this  country,  although  there  may  be 
exceptional  cases  and  some  authorities  to  the  contrary,  that  the 
powers  of  corporations  organized  under  legislative  statutes  are 
such,  and  such  only,  as  those  statutes  confer.  Conceding  the 
rule  applicable  to  all  statutes,  that  what  is  fairly  implied  is  as 
much  granted  as  what  is  expressed,  it  remains  that  the  char- 
ter of  a  corporation  is  the  measure  of  its  powers,  and  tha. 
the  enumeration  of  these  powers  implies  the  exclusion  01  all 
others." 

§  134.  Principles  of  construction. — The  controlling  rule 
for  the  construction  of  corporate  charters  is  stated  by  Mr.  Jus- 
tice Miller,  in  the  language  quoted  in  the  preceding  section. 
The  charter  of  the  corporation,  read  in  connection  with  the 


1  Thomas  v.  Railway  Co.,  101  U.  S. 
82;  State  v.  Lincoln,  etc.,  Co.  (Mo.), 
46  S.  W.  Rep.  593.  The  rule  is  thus 
stated  in  a  recent  case:  A  corporation 
is  a  mere  creation  of  law,  and  has 
only  such  powers  as  are  expressly 
granted  by  the  state  as  are  necessary  to 
cany  into  effect  the  powers  expressly 
granted.  Wyeth,  etc.,  Co.  v.  James- 
Spencer  Bateman,etc.,  Co.  (Utah),  47 
Pac,  Rep.  804.  The  cases  supporting 
this  statement  are  bo  numerous  as  to 
make  citation  almost  unnecessary. 
gee  Valley  !;.  Co.  v.  Lake  Erie,  etc., 
Co.,  46  Ohio  st.  .r,<>;    Humbolt,  etc., 

..  American,  etc.,  Co.,  62   Fed. 

Rep.  381  :   Straus  v.   Ensun «•  Co., 

Ohio  st.  (io.  This  doctrine  is 
criticised  in  a  recent  magazine  arti- 
cle, in  which  the  position  of  the 
supreme  court  of  the  United  Stati 

mined.    It  is  said:  "it  is  obviously 
logical  to  refuse  to  enforce  an  e 
ni. ait  if  one  or  both  of  the  parties 
.  ontractual    ca- 

i  v,  t .ut  does  no1  the  Inconvenience 


of  the  conclusion  call  for  a  re-examin- 
ation of  the  premise?  It  is  submitted 
that  we  shall  never  see  our  commer- 
cial law  in  a  satisfactory  state  until 
the  courts  re-establish  the  common 
law  doctrine  of  general  capacities, 
treating  contracts  made  beyond  the 
limits  of  chartered  activity  as  con- 
tracts prohibited  but  not  void,  and 
leaving  the  state  to  punish  the  disre- 
gard of  the  prohibition  while  enforc- 
ing the  contract  between  the  parties. 
The  enforcement  of  corporate  eon- 
tracts,  in  Bpite  of  objections  to  the  cor- 
porate power,  represents  the  over- 
whelming tendency  Of  American  oV- 
cisions.  The  supreme  court  has  given 
the  contrary  doctrine  a  fair  trial  and 
the  result  is,  from  a  practical  point  of 

view, a  failure."  Unauthorized  Corpo- 
rate Contracts,  a  commenl  on  I'ull- 
uian  Palace  Car  Co,  v.  Central  Trans- 
portation Co.,  171  rj.  s.  188,  by 
George  Wharton  Pepper,  Yale  Law 
Journal,  vol.  8,  1898. 


§  134  powers.  131 

general  laws  applicable  to  it,  is  the  measure  of  the  powers  of 
the  corporation,  and  any  contract  in  excess  of  such  powers 
will  not  be  sustained.  But  it  is  equally  true  that  whatever, 
under  this  charter  and  general  laws,  reasonably  construed, 
may  be  regarded  as  incidental  to  the  objects  for  which  the  cor- 
poration was  created,  is  not  to  be  taken  as  prohibited.  It  is 
often  said  that  corporate  charters  should  be  strictly  construed 
against  the  corporation,  but  this  should  be  treated  as  an  ex- 
ception to  the  general  rule.1  While  nothing  is  to  be  taken  as 
granted  which  is  not  fairly  expressed  or  implied  in  the  char- 
ter, the  language  of  the  charter  should  be  given  a  fair  con- 
struction. From  the  language  of  some  of  the  decisions  it 
might  be  thought  that  it  is  the  duty  of  courts  to  make  every 
effort  to  find  a  means  to  defeat  the  apparent  language  of  the 
charter.  The  intent  of  the  legislature  must  govern,  and  if  it 
appears  by  a  fair  and  reasonable  construction  of  the  language 
of  the  charter  that  that  intent  was  to  grant  the  power,  it  must 
be  given  effect.  Certain  general  principles  of  construction  are 
applicable  to  grants  to  corporations  as  well  as  to  natural  per- 
sons. Thus,  grants  of  exclusive  privileges,2  or  of  powers  in 
derogation  of  public  right,3  or  whereby  the  state  restricts  its 
own  action,4  are  to  be  construed  strictly  against  the  grantee 
and  in  favor  of  the  public.  Nothing  passes  by  implication. 
But,  as  said  by  Chief  Justice  Bigelow:5  "We  know  of  no 
rule  or  principle  by  which  an  act  creating  a  corporation  for 
certain  specific  objects,  or  to  carry  on  a  particular  trade  or 
business,   is   to    be    strictly    construed    as    prohibitory    of    all 

lPearsall  v.  Great  Northern  R.  Co.,  Co.  v.  Citizens',  etc.,  Co.,  127  Ind.  369. 

161  U.  S.  646;  Parker  v.  Railway  Co.,  3 Downing  v.  Mt.  Wash.  R.  Co.,  40 

7  Man.  &  G.  288;  State  v.  Payne,  129  N.  H.    230;   Fertilizing  Co.  v.  Hyde 

Mo.  468;  Black  v.  Canal  Co.,  24  N.  J.  Park,  97  U.  S.  659;  Providence  Bank 

Eq.  474;  Fertilizer  Co.  v.  Hyde  Park,  v.  Billings,  4  Pet.  (U.  S.)  514. 

97  U.  S.  659;   First  M.  E.  Church  v.  4As  an   exemption  from  taxation, 

Dixon  (111.),  52  N.  E.  Rep.  891 ;  Peo-  Wilmington,  etc.,  R.  Co.  v.  Alsbrook, 

pie  v.  Pullman,  etc.,  Co.,  175  111.  125.  146  U.  S.  279;  Railroad  Co.  v.  Gaines^ 

2  Richmond,   etc.,   R.  Co.,  v.   Rail-  97  U.  S.  697. 

road  Co.,  13  How.  (U.  S.)  71;  Charles  5  Brown    v.    Winnisimmet  Co.,   11 

River,  etc.,  Co.  v.  Warren  Bridge,  11  Allen  (Mass.)  326. 
Pet.   (V.  S.)  420;  Indianapolis,  etc., 


132  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  135 

other  dealings  or  transactions  not  coming  within  the  exact 
scope  of  those  designated.  Undoubtedly  the  main  business  of 
a  corporation  is  to  be  confined  to  that  class  of  operations 
which  properly  appertain  to  the  general  purposes  for  which 
its  charter  was  granted.  But  it  may  also  enter  into  contracts 
and  engage  in  transactions  which  are  incidental  or  auxiliary 
to  its  main  business,  or  which  may  become  necessary,  expe- 
dient, or  profitable  in  the  care  and  management  of  the  prop- 
erty which  it  is  authorized  to  hold  under  the  act  by  which  it 
was  created."  An  enumeration  of  powers  as  granted  by  im- 
plication excludes  all  others  not  necessary  or  proper  to  carry 
those  enumerations  into  effect.1 

§  135.  Presumption  of  power  and  regularity. — Persons  deal- 
ing with  a  corporation  are  entitled  to  assume  that  it  is  acting 
within  the  scope  of  its  powers  and  is  observing  all  the  require- 
ments with  reference  to  the  manner  of  exercising  its  power. 
If  the  act  appears  to  be  within  the  charter  powers,  the  public, 
in  the  absence  of  notice  to  the  contrary,  has  the  conclusive 
right  to  presume  that  the  act  is  valid.2  Thus,  a  mortgagee 
dealing  in  good  faith  with  a  corporation  may  assume  that  pro- 
visions or  regulations  contained  in  the  by-laws  have  been 
complied  with.3 

§  130.  Place  where  powers  may  be  exercised. — A  corpora- 
tion has  implied  authority  to  exercise  its  powers  beyond  the 
jurisdiction  of  the  state  by  which  it  is  created,  subject,  how- 
ever, to  limitations  Imposed  by  the  foreign  state.  In  order  to 
comply  with  conditions  so  imposed,  a  corporation  may  deposit 
irity  with  an  officer  of  the  foreign  state,  as  required  by  its 
statute.1  If  the  charter  requires  the  business  to  be  carried  on 
in  ;,  certain  place,  the  corporation  can  not  locate  at  a  different 
place,  bui  when  no  place  is  designated  it  may  be  at  any  place 
in  the 

'Case  ..  Kdly,  188  (J.  -    21;  Far-       "Ashley,  etc.,  <'<>■  v.  Illinois,  etc., 
men', etc  .  Bank  v.  Baldwin,  23  Minn.    Co.,  164  HI    I  W,  ••'  x    E   Rep.  410. 
198;  Life,  etc.,  Co    .    tfech.,  etc.,  Co.,       'Lewis    \.    American,    etc.,    Assn. 
\.  y  i  81.  (Wis    .  78  N.   w.  Rep.  798,89  l..  R. 

'Louisville,  etc.,  Co.  v.  Louisville,     A.  669. 
etc.,  i:  Co.,  76  Fed.  Hep. 488, 48 U.8.       'Stickle  v  Liberty, etc.,  Co.  (N.  J.) , 

82  \H.  Rep.  708. 


§  137  powers.  133 

137.  Grant  of  power — Not  limited  by  term  of  corporate  ex- 
istence.— A  limitation  on  the  term  of  the  corporate  existence 
common  under  modern  statutes  does  not  prevent  the  corpora- 
tion from  taking  a  grant  of  power  or  a  franchise  to  itself  and 
assigns,  absolute  in  terms  and  without  limitation  as  to  time  of 
enjoyment.  Thus  a  street  railway  company,  having  a  corpor- 
ate existence  of  thirty  years,  may  take  a  grant  of  the  privilege 
of  operating  its  road  for  a  longer  period.1  On  the  same  prin- 
ciple, a  corporation  may  take  a  fee-simple  estate  in  real  estate 
and  may  transfer  the  same  absolutely,  and  its  title  is  not  af- 
fected by  the  subsequent  dissolution  of  the  corporation  .2  ' '  The 
fact  that  it  can  not  personally  enjoy  the  interest  thus  granted 
after  the  expiration  of  its  substantial  and  corporate  franchises, 
would  not  cut  down  the  estate  granted.  Its  power  of  alienation 
was  unaffected,  and  its  assignee,  if  otherwise  endowed  with  the 
franchises  essential  to  the  operation  of  street  railways,  might 
enjoy  the  rights  and  privileges  derived  by  assignment."3 

A  right  of  way  obtained  by  condemnation  is  not  limited  to 
the  period  of  the  charter  of  the  original  corporation  ;  it  passes 
to  its  successor  under  a  consolidation  act,  and,  having  been 
taken  for  railroad  uses,  remains  for  such  during  the  extended 
period.4 

II.    Classification  of  Poivers. 

§  138.  Express  powers. — Where  corporations  are  organized 
under  special  charters,  there  can  be  but  little  difficulty  in  de- 
termining what  powers  are  expressly  granted.  Under  general 
incorporation  laws,  the  articles  of  incorporation  are  in  effect 
special  charters  which  must  be  read  and  construed  in  connec- 
tion with  the  general  laws  of  the  state.  When  the  statute  or 
charter  specifically  enumerates  the  powers  which  corporations 

1  Detroit,  etc.,  Ry.  Co.  v.  Detroit,  64  3  Detroit,  etc.,  R.  Co.  v.  Detroit,  64 
Fed.  Rep.  628,  26  L.  R.  A.  667 ;  Omaha  Fed.  Rep.  628,  26  L.  R.  A.  667. 
Bridge  Cases,  51  Fed.  Rep.  309,  2d  C.  4  Davis  v.  Memphis,  etc.,  R.  Co.,  87 
C.  A.  174;  People  v.  O'Brien,  111  N.  Ala.  633.     Same  principle,  see  Bass  v. 
Y.  1,  2  L.  R.  A.  255.  R.  N.,  etc.,  Co.,  Ill  N.  C.  439,  16  S.  E. 

2  2  Kent's  Com.  281.  See  cases  cited  Rep.  402. 
in  §  167,  infra. 


134  THE    LAW   OF    PRIVATE    CORPORATIONS.  §  139 

organized  thereunder  shall  possess,  it  impliedly  limits  the 
powers  to  such  as  are  thus  enumerated.  A  general  statute 
of  this  character  authorizing  the  organization  of  corporations 
with  certain  powers  only,  the  mere  claim  of  other  powers 
made  in  the  articles  of  incorporation  is  of  no  effect.1 

§  139.  Powers  implied  from  express  powers. — A  power 
specifically  granted  carries  with  it  by  implication  such  other 
powers  as  are  reasonably  necessary  to  carry  the  powers  ex- 
pressly granted  into  execution.  "  An  incidental  power  is  one 
that  is  directly  and  immediately  appropriate  to  the  execution 
of  the  specific  power  granted,  and  not  one  which  has  a 
slight  or  remote  relation  to  it."2  In  order  to  derive  a  power 
by  implication,  it  must  appear  that  such  power  is  necessary  to 
the  enjoyment  of  the  specially  granted  right,  without  which  the 
latter  would  fail.3  Necessary,  in  this  sense,  does  not  mean  in- 
dispensable; it  means  suitable  and  proper  to  accomplish  the 
end  which  the  legislature  had  in  view  at  the  time  of  the  grant 
of  the  charter.4  A  very  liberal  construction  will  be  given  to 
charters  of  corporations  formed  for  the  purpose  of  promoting 
public  improvements.6  The  courts  will  not  investigate  the  ex- 
pedience of  their  action  or  inquire  whether  or  not  other  and 
better  means  might  have  been  adopted  for  the  purpose  of  ac- 
complishing the  desired  objects.6     Within  the  scope  of  their 

'Oregon,  etc.,  B.  Co.  v.  Oregonian  "Oglesby  v.  Attrill.  in.")  r.  s.  605. 
]:  Co.,  L30  U.S.  L;  Thomas  v.  Kail-  [n  Curtis  v.  Leavitt,  15  N.  Y.  9,  Corn- 
way  Co.,  101  U.  S.  71;  Wyeth,  etc.,  stock,  J.,  said:  "It  is  plain  that  cor- 
Co.  v.  James-8pencer  Bateman  ('".  porations  executing  their  expressed 
((  tab),  47  Pac.  Rep.  607  powers  are  no1  confined  to  means  of 

■People  v.  Chicago,  etc.,  Co.,  130  Buch     indispensable     necessity    that 

Dl.  268;  Franklin   County  v.    Lewis-  without  them  there  could  l>e  noexe- 

ton,  etc.,  68  Me.   18.  CUtion  at  all.     The  <-<mti  iry  doctrine 

» Downing  v.  Mt.  Washington  R.  Co.,  would  lead  at  once  to  a  very  great  ab- 

40  \,    ii  surdity;    tor,    if    there   are    Beveral 

■  State  '•    Hancock,  86  N.  J.  L.  587.    i les   ol    accomplishing    the    end, 

3tate  v.  Pullman,  etc.,  Co.,  L75  neither  one  is  indispensable,  and  each 

111.  125,  and  authorities  cited  In  dis-  would  exclude  all  the  others.     An. I 

tenting  opinion,  p   167.  thus,  by  inevitable  logic, an  expressed 

•  Xa              Newport,  etc.,  B.  Co.,  16  grant  of  power  would  be  foreverdor- 

K.  [.1368,  L9   \ 1 1   Rep  826.  mant,  because  there  are  more  modej 


§  139  powers.  135 

authority  corporations  have  all  the  powers  of  natural  persons, 
and  having  the  power  to  engage  in  a  certain  business,  they  may 
adopt  such  means  and  carry  on  the  business  in  the  manner  in 
which  that  kind  of  business  is  usually  carried  on.1  The 
charter  of  a  corporation  need  not  be  consulted  for  authority  to 
make  contracts  and  to  sell  and  mortgage  its  property.  It  may 
exercise  its  common  law  right  in  these  matters  like  an  indi- 
vidual.2 

But  a  small  proportion  of  the  powers  actually  exercised  by 
private  corporations  are  granted  to  them  in  express  terms  by 
the  general  law  or  by  their  charter.  When  so  granted,  the 
question  of  authority  can  not  arise,  and  as  a  consequence 
questions  of  corporate  power  ordinarily  arise  when  it  is  sought 
to  exercise  a  power  as  implied  from  an  express  power. 

A  corporation  can  not  engage  in  a  business  different  from 
that  authorized  by  its  charter,3  but  this  rule  does  not  prevent 
it  from  carrying  on  a  business  which  is  incidental  to  the 
principal  business.  Thus  a  manufacturing  corporation  may, 
under  certain  conditions,  run  a  supply  store;4  a  railway  com- 
pany a  restaurant,5  or  a  mining  company  a  transportation 
company,  when  necessary  for  carrying  its  products  to  market.6 
But  a  manufacturing  corporation  has  no  implied  power,  un- 
der a  charter    provision  giving  it  authority    to  acquire  and 

than  one  of  carrying  it  into  execu-  4Seabright  v.  Payne,  6  Lea  (Tenn.) 

tion."     See  Ellerman  v.  Chicago,  etc.,  283;  Dauchy  v.  Brown,  24  Vt.  197.    A 

R.Co.,49NT.  J.  Eq.  217,23  Atl.  Rep.  287.  brewing  company  may  run  a  saloon. 

1Deringer  v.  Deringer,  5   Houston  Welsh  v.   Heiin  Brew.   Co.,  47   Mo. 

(Del.)  416,  1  Am.  St.  Rep    150.  App.  608.     A  gas  company  may  deal 

2  White  Valley,  etc.,  Co.  v.  Vallette,  in  patent  appliances  and  conven- 
21  Howard  (U.  S.)  414;  Wright  v.  iences  which  have  a  tendency  to  in- 
Hughes,  119  Ind.  324;  Commissioners  crease  sales  of  gas.  Malone  v.  Lancas- 
v.  Atlantic,  etc.,  R.  Co.,  77  N.  C.  289;  ter  Gas  Co.,  182  Pa.  St.  309. 

Lehigh  Valley,  etc.,  Co.  v.  West,  63  5  Jacksonville,  etc., R.  Co.  v.  Hooper, 

Wis.  45.  160  U.  S.  514 ;  Flanagan  v.  Great  Wesfc- 

3  People  v.  Campbell,  144  N.  Y.  166;  em  R.  Co.,  L.  R.  7  Eq.  116;  Texas, 
Chewacla  Lime  Works  v.  Dismukes,  etc.,  R.  Co.  v.  Robards,  60  Tex.  545 
87  Ala.  344;  Weckler  v.  Hagerstown  (hotel). 

Nat'l  Bank,  42  Md.  581,  20  Am.  Rep.        6Moss  v.  Averell,  10  N.  Y.  449;  Cal- 
95;  Rochester  Ins.  Co.  v.  Martin,  13    laway,  etc.,  Co.  v.  Clark,  32  Mo.  305. 
Minn.  59;  Miller  v.  Insurance  Co.,  92 
Tenn.  167. 


136  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   140 

hold  such  real  estate  as  may  be  deemed  necessary  for  the  success- 
ful prosecution  of  its  business,  to  purchase  near  a  populous 
city  several  hundred  acres  of  open  prairie  as  a  site  for  its 
plant  and  subdivide  the  land  not  occupied  by  the  plant  into 
lots  and  blocks,  with  streets,  alleys  and  parks,  erect  houses, 
churches,  school  buildings,  stores,  and  rent  them  to  em- 
ployes, religious  denominations,  school  boards  and  busi- 
ness men;  nor  can  such  action  be  sustained  on  the  ground  of 
expediency,  or  of  necessity  in  providing  its  employes  with 
shelter,  educational  advantages,  markets,  and  places  of  wor- 
ship and  amusement.  These  enterprises  were  not  necessary 
to  the  successful  carrying  out  of  the  purposes  of  the  corpora- 
tion, and  should  have  been  left  to  private  capital  and  enter- 
prise.1 

§  140.  Incidental  powers. — The  old  books  enumerate  five 
powers  which  are  said  to  be  necessarily  and  inseparably  inci- 
dent to  every  corporation.  As  soon  as  a  corporation  is  duly 
created,  it  has  as  incidental  to  its  existence  the  right: 

( 1 )  To  have  perpetual  succession. 

(2)  To  sue  or  be  sued,  to  implead  or  be  impleaded,  grant  or 
receive  by  its  corporate  name,  and  do  all  other  acts  that  nat- 
ural persons  may. 

(3)  To  purchase  lands  and  hold  them  for  the  benefit  of 
themselves  and  their  successors. 

(1 )    To  have  a  common  seal. 

(.")  To  make  by-laws  or  private  statutes  for  the  better  gov- 
ernment of  the  corporation.' 

"These  indicia,"  said  Chief  Justice  Nelson,8 "  were  given  by 
judges  and  elementary  writers  at  a  very  early  day;  since  which 
time  the  institutions  have  greatly  multiplied,  their  practical 
operation  and  use  have  been  very  thoroughly  tested,  and  their  pe- 
culiar and  essentia]  properties  much  Wetter  understood.  Any 
comprehending  the  scope  and  purpose  of  them  al  this  day, 

■People  v.  Pullman,  etc.,  Co.,   178  zi  Black.  Com.,  p.  H6 ;  Case  of  Sat- 

III.  125,  three  judges  dissenting.    The  ten's  Hospital,  10  Rep.  80. 

enting  opinion  contains  an  elabo-  'Thomas  v.    Dakin,   22  Wend.    V 

discussion  ol  the  authorities  on  Y.)  9,Wilgus'  Cases, 
the  doctrine  ol  implied  pow<  i 


§  140  powers.  137 

will  not  fail  to  perceive  that  some  of  the  powers  above  speci- 
fied are  of  trifling  importance  while  others  are  wholly  unessen- 
tial. For  instance,  the  power  to  purchase  and  hold  real  estate 
is  not  otherwise  essential  than  to  afford  a  place  of  business, 
and  the  right  to  use  a  common  seal  or  to  make  by-laws  may 
be  dispensed  with  altogether.  For,  as  to  the  one,  it  is  now 
well  settled  that  corporations  may  contract  by  resolution  or 
through  agents  without  seal;  and  as  to  the  other,  the  power  is 
unnecessary  in  all  cases  where  the  charter  sufficiently  provides 
for  the  government  of  the  body.  The  distinguishing  feature 
far  above  all  others  is  in  the  capacity  conferred,  by  which  a  per- 
petual succession  of  different  persons  shall  be  regarded  in  the 
law  as  one  and  the  same  body,  and  may  at  all  times  act  in  ful- 
fillment of  the  objects  of  the  association  as  a  single  individual. 
In  this  way  a  legal  existence,  a  body  corporate,  an  artificial  be- 
ing is  constituted,  the  creation  of  which  enables  any  number 
of  persons  to  be  concerned  in  accomplishing  a  particular  ob- 
ject as  one  man.  While  the  aggregate  means  and  influence  of 
all  are  wielded  in  effecting  it,  the  operation  is  conducted  with 
the  simplicity  and  individuality  of  a  natural  person.  In  this 
consists  the  essence  and  great  value  of  these  institutions. 
Hence  it  is  apparent  that  the  only  properties  that  can  be  re- 
garded strictly  as  essential  are  those  which  are  indispensable  to 
mould  the  different  persons  into  this  artificial  being  and  thereby 
enable  it  to  act  in  the  way  above  stated.  When  once  consti- 
tuted, this  legal  being  created,  the  powers  and  faculties  that 
may  be  conferred  are  various — limited  or  enlarged  at  the  dis- 
cretion of  the  legislature,  and  will  depend  upon  the  nature  and 
object  of  the  institution,  which  is  as  competent  as  a  natural 
person  to  receive  and  enjoy  them.  We  may,  in  short,  con- 
clude by  saying  with  the  most  approved  authorities  at  this  day, 
that  the  essence  of  corporation  consists  in  a  capacity: 

"(1)  To  have  a  perpetual  succession  under  a  special  name 
and  in  an  artificial  form. 

"(2)  To  take  and  grant  property,  contract  obligations,  sue 
and  be  sued  by  its  corporate  name  as  an  individual,  and 

"(3)  To  receive  and  enjoy  in  common  grants  of  privileges 
and  immunities." 


CHAPTER  7. 


POWERS    INCIDENTAL   TO    CORPORATE    EXISTENCE. 


154 
15o 


§  15(5.   Rules    and    regulations    pub- 
lished by  corporations. 

157.  By-laws  imposing  forfeiture. 

158.  Expulsion  of  members. 

159.  Amendment, repeal  and  waiver. 

II.   Power  to  Take  and  Hold  Land. 

160.  The  common  law  rule. 

161.  Statutory  restrictions. 
1*12.   Distinction  between  power  to 

take  and  to  hold. 

163.  Manner  of  acquiring  title. 

164.  Power  to  take  by  devise. 

165.  Devise   to    corporation — Statu- 
tory limit. 

166.  The  doctrine  of  equitable  con- 
version. 

1  (>7.   The  estate  which  may  be  taken. 
168.   Who  can  question  the  right  of 
the  corporation. 


141.  In  general. 

142.  Perpetual  succession. 

143.  To  have  a  seal. 

I.   By-Laws. 

144.  Definition. 

145.  Power  to  make  by-laws. 

146.  In  whom  vested. 

147.  Manner  of  adoption. 

148.  General   requirements  —  Must 

conform  to  charter. 

149.  Must  not  be  repugnant  to  law 

of  the  laud. 

150.  Public  policy. 

151.  Must  be  reasonable. 
162.   Must  be  general. 
153.   Effect  of  by-laws— As  to  mem- 
bers and  officers. 

Effect  upon  third  persons. 
By-laws     limiting    powers    of 
agents. 

§  141.  In  general, — As  stated  in  the  preceding  section,  cer- 
tain powers  are  possessed  by  every  corporation  as  incidental  to 
it-  existence  as  a  corporation.  They  are  implied  from  the  fact 
of  the  existence  of  the  corporation.  In  many  cases  the  same 
powers  are  specifically  granted  in  the  charter  or  general  incor- 
poration Btatute. 

5  L42.    Perpetual  succession, — It  is  said   to  be  of  the  very 
Qce  of  a  common   law  corporation  thai  it  have  perpetual 
[on,  and,  therefore,  us  Blackstone  says,  "all  corpora- 
tions have  a  power  necessarily  implied  of  electing  members  in 
the   m   of  BUCh   as   go  off."1      In   modem   times,    however, 

1  i  Black.  Oom.,  i>.  474. 
(138) 


§  143         POWERS    INCIDENTAL    TO    CORPORATE    EXISTENCE.  139 

perpetual  succession  means  nothing  more  than  the  continuity 
of  the  corporate  life  during  the  period  prescribed  for  the  cor- 
porate existence.  Although  the  personnel  may  change,  the 
corporation  retains  its  identity.  The  words  "perpetual  suc- 
cession "  in  the  charter  of  a  corporation  formed  by  purchasers 
under  a  deed  of  trust  of  the  property  of  a  prior  corporation 
whose  term  of  life  was  thirty  years,  mean  nothing  more  than 
a  continuous  succession  during  the  existence  of  the  corporation 
for  the  limited  period.1  After  the  decision  in  the  Dartmouth 
College  case,  it  became  the  practice  to  limit  the  life  of  a  cor- 
poration to  a  certain  period  in  order  that  the  state  might  retain 
proper  control  over  it.2 

§  143.  To  have  a  seal, — Whether  corporation  seals  originated 
like  private  seals,  in  general  ignorance,  or  in  the  peculiar  na- 
ture of  corporations  aggregate,3  it  became  in  the  course  of  time 
a  power  incidental  to  every  corporation  aggregate  to  have  a 
common  seal.  The  common  law  rule  was  that  a  corporation 
spoke  through  its  seal.4  The  modern  rule  is  that  in  the  ab- 
sence of  a  statute  requiring  a  seal,  a  corporation  may  make  a 
binding  contract  without  a  seal  when  an  individual  may  do  so.5 

I.    By-Laws. 

§  144.  Definition. — A  by-law  is  a  rule  of  permanent  char- 
acter adopted  by  a  corporation  for  the  regulation  of  its  internal 

1  State  v.  Hannibal,  etc.,  R.  Co.,  138  4Case  of  Sutton's  Hospital,  10  Rep. 

Mo.  332;    39   S.   W.  Rep.    910.     But  30  b,    7   Eng.    Rul.    Cas.    233,    note, 

the  existence  of  a  corporation  is  not  The  corporate  seal  is  prima  facie  evi- 

limited  to  the  unexpired  term  of  its  dence  of  the  fact  that  it  was  fixed  by 

predecessor,  which  was  organized  un-  proper  authority.     Morris  v.  Keil,  20 

der  a  law  limiting  its  existence  to  thirty  Minn.   531;    Indianapolis   R.    Co.   v. 

years,  when  the  new  charter  confers  Morganstern,  103  111.  149. 

all  the  rights  and  privileges  that  would  5  Crawford  v.  Longstreet,  43  N.  J.  L. 

have  been   had  if  the  company  had  325;  Muscatine,    etc.,    Co.   v.  Musca- 

been  organized  under  such  statute.  tine,  etc.,  Co.,  85  Iowa  112;  Thomas  v. 

8  See  note  to  Tussaud  v.  Tuasaud,  L.  Dakin,  22  Wend.  (N.  Y.)  9.    A  seal  is 

R.  44  Ch.  Div.  678,  in  32  Am.  and  not  necessary  on  a  stock  certificate. 

Eng.  C.  C.  11.  Halstead  v.  Dodge,  19  J.  &  S.  (N.  Y.) 

81  Black.  Com.,  p.  475.  169. 


140  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   145 

government.     The  office  of  a  by-law  is  to  regulate  the  conduct 
and  define  the  duties  of   the  members  toward   the  corporation 

and  between  themselves.1 

§  145.  Power  to  make  by-laws. — This  is  one  of  the  powers 
implied  in  the  grant  of  the  franchise  of  being  a  corporation. 
"It  is  implied  in  the  charter  of  every  private  corporation 
formed  for  the  pecuniary  profit  of  its  members,  that  the  ma- 
jority shall  have  power  to  make  reasonable  rules  and  regula- 
tions, or  by-laws,  for  the  better  government  of  the  company."2 
But  the  right  is  now  generally  granted  in  express  terms.  Thus, 
the  statute  of  Minnesota  provides  that  all  corporations  shall 
have  power  "to  make  by-laws  and  regulations  consistent  with 
the  laws  of  the  state,  for  their  own  government,  and  for  the 
due  and  orderly  conduct  of  their  affairs,  and  the  management 
of  their  property.'"     In  certain  kinds  of  corporations,  such  as 

1  Flint  v.  Pierce,  99  Mass.  68.     I  Ms-  Lodge  v.  Weller  (Ya.),  25  S.  E.  Rep. 

tihction   between   a  resolution  anil  a  891. 

by-law,  see  Drake  v.  Hudson,  etc.,  R.  8Gen.  Stat.  Minn.,  1878,  vol.  2,  p. 

7  Barb.  508.    A  court  will  not  take  392.    A  corporation  may  usually,  by 

judicial  notice  of  a  by-law.     Haven  v.  its  by-laws,  where  no  other  provision 

Asylum,  13  X.  H.  532.  is  specially  made,  providefor:  1.  The 

1  Engelhardt  v.  Fifth  Ward,  etc.,  time,  place  and  manner  of  calling  and 
Assn.,  l  is  N.  Y.  281,  :;■">  F.  R.  A.  289;  conducting  itsmeetings.  2.  The  num- 
Case of  Sutton's  Hospital,  10  Rep.  23a ;  ber  of  stockholders  or  members  con- 
Martin  v.  Nashville,  etc.,  Assn.,  2  stituting  a  quorum.  .'!.  The  mode  of 
Coldw.  (Tenn.)  118;  People  v.  Cross-  voting  by  proxy.  I.  The  time  of  the 
ley,  69  111.  195;  Kearney  v.  Andrews,  annual  election  for  directors  and  the 
10  N.  J.  Eq.  70;  Juker  v.  Com w.,  20  mode  and  manner  of  giving  notice 
'.  !-!.  "Thai  every  by-law  by  thereof.  5.  The  compensation  ami 
which  the  he  in  lit  of  |  he  c.  ,i  ]  h  >ra1  ii  »i  is  duties  of  olli  <  •(•!>'.     <>.     The  manner  of 

need  i-  a  g I  by-law,  for  thai  election  and  the  tenure  of  office  of  all 

•i.  thai  being  the  true  touch-  officers  other  than  the  directors;  ami 

stone  of  all  by-laws."    Carth.  I sl',  /<<  /•  7.    Suitable  penalties  for  violation  of 

Lord  Holt.    A  provisi f  the  charter  by-laws,    fixed    at     any    reasonable 

of  a  new  benevolent  association  hind-  amount,  in  no  case  to  exceed  the  stat- 

ition  to  pay  all  the  utory  minimum,    in  an  early 

liabilities  of  the  old  association,  which  Norris  v.   stops,   Hobart,  211a  (1614 

the  expiration  1625),   it  was  said:    "Now.   I  am  of 

of  the  period  of  limitation  fixed  by  its  opinion  that,  though  power  to  make 

chattel  tself  revive  the  laws  is  given  by  special  clause  in  all 

old  corporation,  or  give  any    life  to  incorporations, yel  it  ii  needless;  for  I 

by-laws  attempted  to  he  adopted  by  it  hold  it  to  be  included,  by  law,  in  the 

olution.    Supreme  very  act  of  incorporating,  as  is  also  the 


§  14G         POWERS    INCIDENTAL   TO    CORPORATE    EXISTENCE.  141 

clubs,  and  chambers  of  commerce,  and  boards  of  trade,  exten- 
sive power  is  given  to  make  rules  to  govern  the  conduct  of  the 
members.  Such  a  corporation,  if  authorized  by  statute  or 
charter,  may  by  by-law  provide  for  the  expulsion  of  a  member 
for  a  dishonorable  act,  and  may  provide  that  his  membership 
can  not  be  sold  or  transferred  so  long  as  he  is  indebted  to  any 
other  member.1 

§  14G.  In  whom  vested. — In  the  absence  of  a  charter  pro- 
vision to  the  contrary  the  power  to  make  by-laws  is  vested 
in  the  members  at  large, 8  but  it  may  be  granted  to  the  board 
of  directors  by  the  charter  or  general  law,  or  delegated  to  it  by 
the  stockholders,3  in  which  case  the  right  is  impliedly  taken 
away  from  the  body  at  large.4  But  under  general  authority  to 
pass  by-laws  the  board  of  directors  can  not  alter  a  by-law  which 
was  adopted  by  the  stockholders  as  a  limitation  upon  the 
power  of  the  directors.5 

§  147.  Manner  of  adoption. — By-laws  may  be  adopted  with- 
out the  use  of  the  corporate  seal,  and  no  writing  is  necessary. 
Their  existence  may  be  established  by  custom  or  by  the  ac-; 
quiescence  of  those  authorized  to  make  them.6  But  statutory 
formalities,  modes  and  limitations  with  reference  to  the  adop- 
tion of  by-laws  must  be  strictly  observed.7 

§  148.    General  requirements — Must  conform  to  charter. — 

There  are  certain  general  principles  which  must  govern  in  the 

power  to  sue,   to  purchase,  and  the  ance  Co.,  2  Doug.  (Mich.)  123;  Rex  v. 

like."  Spencer,  3  Burr  1827. 

1  Green  v.  Board  of  Trade,  174  111.  4King  v.  Westwood,  4  Barn.  &  C. 
585,  51  N.  E.  Rep.  599;  In  re  Haebler  798.  See  People  v.  Sterling,  etc.,  Co., 
(N.  Y.),  44  N.  E.  Rep.  87;  Comw.  v.  82  111.457;  Calder,  etc.,  Co.  v.  Pilling, 
Union  League,  135  Pa.  St.  301 ;  Hyde  14  M.  &  W.  81. 

v.  Woods,  94  U.  S.  523.     See  §  158.  5  Stevens  v.  Davidson,  18  Gratt.(Va.) 

2  Morton,  etc.,  Co.   v.   Wysong,  51    819.  . 

Ind.   4;  People  v.    Crossley,   69    111.  6  State  v.  Curtis,  9  Nev.  335;  Henry  v. 

195;  Carroll  v.  Mullanphy,etc.,8  Mo.  Jackson,  37  Vt.  431 ;  Morrison  v.  Dor- 

App.  249;    Rexv.  Westwood,  2  Dow  sey,  48  Md.  462;  Union  Bank  v.  Ridge- 

&  C.  21.  ly,  1    Har.  &  G.   (Md.)  324;  Rex  v. 

sHeintzelman  v.  Druids,  etc.,  Assn.,  Head,  4  Burr.  2515  (1770). 

38  Minn.    138;  Stevens  v.  Davidson,  7Lockwood    v.     Mechanics'    Nat'l 

18  Gratt.  (Va.)  819;  Cahill  v.  Insur-  Bank,  9  R.  I.  308;  Dunston  v.  Impe- 
rial, etc.,  Co.,  3  B.  &  Ad  125. 


142 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  149 


making  of  all  by-laws.  Thus,  a  by-law  must  not  be  repugnant 
to  the  charter,1  nor  should  it  be  a  mere  repetition  or  restate- 
ment of  the  provisions  of  the  charter. 

§  149.  Must  not  be  repugnant  to  law  of  the  land. — By-laws 
which  are  contrary  to  the  law  of  the  land  are  void.  "Not 
only  does  a  general  and  express  legislative  authority  to  make 
by-laws  not  authorize  the  passage  of  such  as  are  in  contraven- 
tion of  the  law  of  the  land,2  but  the  legislature  can  not  in  any 
instance  so  far  delegate  its  powers  as  to  confer  upon  a  corpora- 
tion authority  to  enact  by-laws  which  within  the  sphere  of 
their  operation  would  be  practically  a  repeal  of  the  statutes  of 
the  state  or  an  abrogation  of  the  common  law."3 

§  150.  Public  policy. — A  by-law  which  is  against  public 
policy,  as  one  in  general  restraint  of  trade,  is  void.4  But  re- 
straints particular  as  to  time  and  place,  if  founded  upon  suf- 
ficient consideration,  are  valid.5 


§  151.  Must  be  reasonable. — A  valid  by-law  must  be  reason- 
able, and  the  question  of  reasonableness  is  one  of  law  and  not 
of  fact.6     The  unreasonableness  of  a  by-law  should  be  demon- 


1  Bergman  v.  St.  Paul,  etc.,  Assn.,  29 
Minn.  l'7-">  ;  Diligent,  etc.,  Co.  V.  Com., 
,..  I  a.  Bt.  293  ;  Brewster  v.  Hartley, 37 
Oal.  15,  99  Am.  Dec.  237;  Kolfl  v.  St. 
Paul,  etc.,  Exchange,  48  Minn.  215; 
President,  etc.,  Assn.  v.  Mien,  106 
Iii.l.  593 ;  Supreme  Council  v.  Perry, 

1  10  Mass.  680;  Kin-  v.  Int., etc.,  Assn., 
17m  III.  136.  A  by-law  may  lie  valid  in 
pari  ami  Invalid  in  part.  Amesbury 
v.  Bowditch,  etc.,  <'<>.,  8  <  rray  I  Mass.) 

2  Kennebec  v.  Kendall,  :;i  Me.  170. 

■Beach,  l  Priv.  Corp.,  5312;  Kent  v. 
Quicksilver,  etc.,  I 

Seneca  County  Bans  v.  Lamb,  26 
B  .ri,  66  ■.  in  re  Lighthall  Mfg  I  to.,  17 
Hun   268.     A    bj  la^  ag  a 

rule  in  regard  to  sale    different  from 


the  common  law  rale  was  held  valid. 
Goddard  v.  Merchants'  Exchange,  t> 
Mo.  App.  290. 

4  Matthews  v  Associated  Press,  L36 
N.  Y.  333,  and  cases  cited  in  note 
1,  p.   hi'.);   Mitchell   v.    Reynolds,   l 

P.  Wm.  181.  A  by-law  may  limit 
the  time  within    which   a  su it    may    he 

brought,  but  can  not  absolutely  for- 
bid the  bringing  of  an  action.     Nute 
v.  Hamilton,  etc  .  ( !o.,  6  Gray  171. 
■Gunmakers,  etc.,Co.v.  Fell.Willes, 

884  ;  People  v.  Board  of  Underwriters, 
..i  How.  Pr.  '-'lit.     Must  not  he  in  re- 
train*, "f  personal  liberty.    Taylors 
of  [pswich,  1 1  <  Soke's  Rep.  53. 

'i  '..in.  v.  Worcester,  3  i  ick.  !<','.'; 
( tartan  \ ,  lather  Mather  ,  etc.,  Soci- 
ety, :;  Daly  20;  Hibernia,  etc.,  Co.  v. 


§152 


POWERS    INCIDENTAL    TO    CORPORATE    EXISTENCE. 


143 


strably  shown.  Courts  in  construing  by-laws  will  hold  them 
to  be  reasonable,  if  possible,  not  scrutinizing  their  terms 
for  the  purpose  of  making  them  void,  nor  holding  them  invalid 
if  every  particular  reason  for  them  does  not  appear. 

§  152.  Must  be  general. — By-laws  must  be  general — "di- 
rected to  all  within  the  sphere  of  their  operation,  and  must 
operate  equally."1 

§  153.     Effect  of  by-laws — As  to  members  and  officers, — A 

member  of  a  corporation  is  presumed  to  know  of,  and  is  bound 
by,  all  valid  by-laws,  rules  or  regulations  to  which  he  has  as- 
sented, and  his  assent  is  presumed  from  his  becoming  a  mem- 
ber of  the  corporation.2     A   stockholder  is  bound  by  all  the 


Harrison,  93  Pa.  St.  26-4.  In  Kent  v. 
Quicksilver,  etc.,  Co.,  78  N.  Y.  159, 
Folger,  J.,  said:  "All  by-laws  must  be 
reasonable,  and  consistent  with  the 
general  principles  of  the  law  of  the 
land,  which  are  to  be  determined  by 
the  courts  where  a  case  is  properly  be- 
fore them.  A  by-law  may  regulate  or 
modify  the  constitution  of  a  corpora- 
tion, but  can  not  alter  it.  The  alter- 
ation of  a  by-law  is  but  the  making 
of  another  upon  the  same  matter.  If 
the  first  must  be  reasonable  and  in  ac- 
cord with  the  principles  of  law,  so 
must  that  which  alters  it.  If,  then,  the 
power  is  reserved  to  alter,  amend,  or 
repeal,  and  that  reservation  enters 
into  a  contract,  the  power  reserved  is 
to  pass  reasonable  by-laws  agreeable 
to  law.  But  a  by-law  that  will  disturb 
a  vested  right  is  not  such  ;  and  it  dif- 
fers not  when  the  power  to  make  and 
alter  by-laws  is  expressly  given  to  a 
majority  of  the  stockholders,  and  that 
the  obnoxious  ordinance  is  passed  in 
due  form."  A  by-law  to  the  effect 
that  one  who  is  an  attorney  in  an  ac- 
tion against  the  corporation  is  not  eli- 
gible to  the  office  of  director  is  reason- 
able.   Cross  v.  West  Va.,  etc.,  R.  Co., 


37  W.  Va.  342,  16  S.  E.  Rep.  587.  In 
Bergman  v.  St.  Paul,  etc.,  Assn.,  29 
Minn.  275,  the  court  said:  "The  au- 
thority to  pass  by-laws  is,  as  a  matter 
of  course,  authority  to  pass  such  as  are 
consistent  with  the  articles  of  incorpo- 
ration, and  not  a  power  to  subvert  the 
law  of  corporate  existence.  The  by- 
laws of  a  corporation  are  only  rules 
and  regulations  as  to  the  manner  in 
which  the  corporate  powers  shall  be 
exercised  Any  attempt  on  the  part 
of  defendant,  by  by-laws  or  otherwise, 
to  deprive  an  unconsenting  stock- 
holder of  a  right  secured  to  him  by 
the  corporate  articles,  is  in  excess  of 
defendant's  authority,  or,  in  legal  par- 
lance, ultra  vires  "  Sargent  v.  Frank- 
lin, etc.,  Co.,  8  Pick.  90;  Hibernia, 
etc.,  Co.  v.  Harrison,  93  Pa.  St.  2(54. 
In  Lynn  v.  Freemansburg,  etc.,  Assn., 
117  Pa.  St.  1,  a  by-law  providing  for 
cumulative  fines  was  held  void  as  "op- 
pressive, extortionate  and  unreason- 
able." 

1  Goddard  v.  Mer.  Exch.,  9  Mo. 
App.  290;  Budd  v.  Multnomah,  etc., 
R.  Co.,  15  Ore.  413. 

2  Frank  v.  Morrison,  58  Md.  423; 
Douglass  v.  Merchants',  etc.,  Co.,  118 


144 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  153 


by-laws  in  force  when  he  became  a  member,  although  he  had 
no  actual  knowledge  of  their  existence.1  A  by-law  which  re- 
serves a  lien  on  the  stock  in  favor  of  the  corporation  is  bind- 
ing on  the  stockholders  if  authorized  by  statute,  or  consented 
to  by  the  stockholders.2  Mere  failure  to  object  to  the  pas- 
sage of  an  illegal  by-law  does  not  estop  a  stockholder  from 
objecting  when  it  is  sought  to  enforce  it  against  him.3  The 
Lsideration  of  such  assent  is  found  in  the  privilege  of 
becoming  a  member  of  the  corporation.4  Thus,  a  person  who 
becomes  insured  in  a  mutual  insurance  company  is  a  member 
of  the  company  and  bound  by  the  by-laws,  and  chargeable 
with  notice  of  them.5  The  general  rule  undoubtedly  is,  that 
where  a  policy  is  issued  by  a  mutual  insurance  or  benefit  so- 
ciety, the  assured,  by  virtue  of  his  insurance,  becomes  a  mem- 
ber of  the  society,  and  must  take  notice  of  and  is  bound  by 
its  articles  of  association  and  by-laws,  although  not  recited  in 
the  policy,  or  expressly  made  a  part  of  it.  All  the  provisions 
of  the  by-laws  not  inconsistent  with  the  provisions  of  the  pol- 
icy itself  will  be  binding  as  a  part  of  the  contract.  But  when 
a  by-law  and  the  policy  issued  are  in  conflict,  the  company 
must  be  deemed  to  have  waived  the  provisions  of  the  by- 
law in   favor  of  the  insured,  and  the  provisions  of  the  policy 


N.  Y.  i-l,  7  L.  R.  A.  822;  McFadden 
tgelee  ('".,  7  1  Cal.  -r>7i  ;  Aus- 
tin v.  Bearing,  L6  N.  V.  L12,  69  km. 
Dec.  866.  Members  oJ  mutual  in- 
surance and  benefit  societies  are 
Im.mh. I  !••  take  notice  ol  tli«'  by-laws. 
Pfister  v.  Gerwig,  122  tnd.  ■>>'•';  Su- 
preme Lodge  K.  ol  I'.  v.  Knight,  1 17 
[ml.  189,  :;  L.  I:.  \.  K»;  Supreme 
I  etc.,  v.   Una  worth,  71    \  la.  136, 

16    \m.  l:.  832;  Walsh  v.  ffitna,  etc., 
6  \m.  R.664  ;  'I'm  ad- 
I  [amilton,  etc.,<  !o.,29<  !onn.  68  ; 
.    Dubuque,  etc.,  < '"..  18  Iowa 
Bui  it  has  been  held  thai  only 
guch  by  la  n   referred  to  in  the 

cy  are  binding  on  the  policy-holder. 
Kingsley  v.  New   England,  etc., 

Miller  v.  Hills- 
bon  '         1 1  V  •' 

i  v.  Bank  ol  W  a  h.(  10  Pet. 


1  Matthews  v.  Associated  Press,  L36 
N.Y.333;  Treadway  v.  Hamilton,  etc., 
Co.,  29  Conn.  68;  Green  v.  Board  oi 
Trade,  174  111.  ">s">.  51  V  E.  Rep.  599; 
Board  of  Trade  v.  Nelson  (HI.),  44  N. 
E.  Rep.  7ii  ;  In  re  Haebler  (N.  Y.  ,  n 
N.  E.  Rep.  87. 

2  Airliisi.ii  Co.  Bank  v.  Durfee,  I L8 
Mo  431.  Bui  see  Brinkerhoff-Farris 
Trust  &  B.  Co.  v.  Home  L.  Co.,  L18 
Mo.  1 17,  Wilgua'  Oases. 

i  Kolflv.St.  Paul  Fuel  Ex.,  18  Minn. 

215. 
«  Palmetto  Lodge  v.Hubbell,  2  Strob. 

I  -    c 

Pflater  v.  Gerwig,  L22  [nd.  567; 
Mitchell  v.  Lycoming,  i  tc.,  Co.,  51 
r      3<     io2;  Treadway  \ ,  Hamilton, 

etc#i  i  ,,..  29  C i.  68;  Coles  v.  [owa, 

is  towa  425. 


§  153         POWERS    INCIDENTAL    TO    CORPORATE    EXISTENCE.  1  1  ■"> 

will  govern  the  rights  of  the  parties.1  There  is  a  conflict  in 
the  authorities  as  to  the  power  of  a  mutual  insurance  com- 
pany to  change  its  by-laws  in  such  a  manner  as  to  affect  an  exist- 
ing contract  of  insurance.2  "  Where  by-laws  are  for  any  reason 
illegal,  it  will  not  be  presumed  that  the  stockholders  have 
assented  to  them,  and  even  if  they  expressly  assent  they  are 
not  bound  by  such  by-laws."3  Thus,  a  stockholder  can  not  be 
deprived  of  his  membership  by  reason  of  an  illegal  by-law, 
although  he  assented  to  it.4  A  stockholder  who  signed  a  by- 
law which  pledged  the  members  to  be  liable  "  in  their  indi- 
vidual as  well  as  their  collective  capacities,"  for  money  lent 
to  the  corporation,  was  held  not  personally  liable  for  money 
subsequently  loaned  to  the  corporation  where  there  was  no 
evidence  that  the  money  was  advanced  on  the  credit  of  the 
by-law,  other  than  the  fact  that  the  preamble  of  the  by-law 
stated  that  the  object  of  the  corporation  was  to  afford  persons 
desirous  of  saving  their  money  means  of  employing  it  to  ad- 
vantage.5 By-laws  which  are  adopted  by  stockholders  are 
binding  upon  the  directors  with  a  force  equal  to  that  of  the 
charter  of  the  corporation  and  the  statutes  of  the  state.  They 
have  no  power  to  modify  or  waive  them;  but  a  by-law  made 
by  the  directors  under  proper  authority  may  be  waived  or 
modified  by  them.6  By-laws  are  binding  upon  the  officers  of 
a  corporation,  although  they  may  not  be  stockholders  in  the 
corporation.  They  are  presumed,  by  reason  of  their  relation 
to  the  corporation,  to  have  knowledge  of  the  by-laws,  and  to 

1  Davidson  v.  Old  People's,  etc.,  Soc,        3  In  re  Klaus,  67  Wis.  401 ;  Thomas 

39  Minn.  303,  1  L.  R.  A.  482,  anno-  v.  Mat.,  etc.,  Union,  17  N.  Y.  St.  Rep. 

tated;    Clark   v.    Mutual,  etc.,  Assn.  51,  49  Hun  (N.  Y.)  171.    But  see,  con- 

(D.  C),  43  L.  R.  A.  390.  tra,   Skelly  v.  Private,  etc.,   Soc,  13 

2 That    the    contract    is    subject  to  Daly  (N.  Y.)  2;  Great  Falls,  etc.,  Co. 

change,  see  Dwenger  v. Geary,  113  Ind.  v.  Harvey,  45  N.  H.  292;  Hibernia, 

106;  Supreme  Lodge  v.  Knight,  117  etc.,  Co.  v.  Harrison,  93  Pa.  St.  269. 
Ind.  489;  Stohr  v.  San  Francisco,  82        4  People  v.  St.  Franciscus,  etc.,  Soc., 

Cal.    557;    Supreme   Commandery  v.  24  Howard's  Pr.  (X.  Y.)  216. 
Ainsworth,  71  Ala.  436.   Contra:  Mut.        5  Flint  v.  Pierce,  99  Mass.  68. 
Ben.  Assn.  v. Warner,  24  111.  App.  357  ;        6  Campbell  v.  Merchants',  etc.,  Co., 

Mut.    Endow.   Soc.    v.  Essenden,   59  37  N.  H.  41. 
Md.  463. 

10 — Private  Cor. 


146  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  154 

accept  their  offices  with  relation  thereto.1  A  shareholder  is  not 
chargeable  with  constructive  notice  of  resolutions  adopted  by 
the  board  of  directors,  "or  by  provisions  in  the  by-laws  reg- 
ulating the  mode  in  which  its  business  shall  be  transacted 
with  its  customers."8 

§  154.  Effect  upou  third  persons. — A  person  who  is  not  a 
member  or  an  officer  of  a  corporation  is  not  bound  by  its  by- 
laws, of  which  he  has  no  notice,  nor  can  he  claim  rights  based 
upon  such  as  are  mere  rules  for  the  government  of  the  officers 
and  members  in  the  management  of  the  affairs  of  the  corpora- 
tion.3 "Strangers  to  the  compan}T  can  not  be  bound  by  the 
rules  adopted  for  the  government  of  the  company."1  A  by-law 
can  not  impose  obligations  upon  persons  who  contract  with  a 
corporation  without  reference  to  or  knowledge  of  it.  Thus,  one 
who  purchases  in  good  faith  the  stock  of  a  corporation  is  not 
affected  by  a  lien  on  the  stock  in  favor  of  the  corporation 
which  was  created  by  a  by-law  of  which  he  had  no  notice.5  So 
one  dealing  with  the  agent  of  a  corporation  is  not  bound  by  a 
by-law  creating  a  limitation  upon  the  apparent  authority  of  the 
agent,  of  which  he  had  no  notice.6  But  one  who  has  knowl- 
edge of  a  by-law  deals  with  reference  to  it;7  and,  unless  such 
a  by-law  is  expressly  excluded,  it  enters  into  a  contract.8  Thus, 
one  who  contracts  to  serve  a  corporation  at  a  yearly  salary,  with 

1  Bank  of  Wilmington  v.  Wollaston,  factoring  ( '<>.,  59  N.  Y.  96 :   \  nglo,  He, 

BHarr(DeL)  90;    Hunter  v.  New  Or-  v.  Grangers,  etc.,  68  Cal.  359.     A  per- 

leane,  etc.,  Co.,  26  La.  Ann.  18;  Doug-  son  holding  stock  is  bound  by  notice 

lass  v.  Merchants',  ete»,  Co.,  118  N.Y.  of  such  a  by-law,  printed  on  the  cer- 

l^i.  tificate.      State,   etc,    Assn.    v.    Nixon- 

reall  v.  Western,  etc.,  (V,  124  Jones,  etc.,  <'".,  25  Mo.  App.  642. 
:-'•".<;.  6  Rathbun  v.  Snow,  123  N.  V.,  348; 

1  McFadden   v.    Los     Imgeles    <'".,  Hallenbeck     v.     Powers,     etc.,    Co. 

71  Cal.  571;  Cummings  v.   Webster,  (Mich.),  76  N.  W.  Rep.    119;  Moyer 

13  Maine  192;   Austin  v.  8earing,  16  N.  v.  EastShore,  etc.,  Co.,   n  s.  c.  300, 

V.  Hi',  69  Am.   Dec.  665,  annotated;  25  I..   R.  A.  is.  an. I   n«>te  ..n  effect  of 

Rathbun  v.  Snow,  123   N.  Y.  343,   10  bj  laws  as  notice. 
I.   R                note;  lay  v.  Noble,  12       'Hallenbeck   v.    Powers,  etc,  Co. 

I.  (Mich.  >.  76  \.  W.  Rep.  1 19. 
1  Smith  ▼.  Smith,  62  111.  496.  'Barbol    \.     Mutual,     etc.,     Assn. 

1  Bank,  etc.,  v.  Pinson,  58  Miss.  121,  LOO  Ga.  681,  28  8.  E.  Rep.  498. 

'.:u.     Rep.  ■  Oil    v.    Maim- 


§   155         POWERS    INCIDENTAL    TO    CORPORATE    EXISTENCE.  147 

knowledge  of  a  by-law  which  provides  that  his  office  should  be 
held  at  the  pleasure  of  the  board  of  directors,  is  bound  thereby.1 
If  the  effect  of  such  by-law  is  to  be  excluded,  it  must  be  by 
special  contract,  made  with  competent  authority.2  "The  office 
of  a  by-law  is  to  regulate  the  conduct  and  define  the  duties  of 
the  members  towards  a  corporation  and  between  themselves; 
so  far  as  its  provisions  are  in  the  nature  of  contract,  the  parties 
thereto  are  the  members  of  the  association  between  themselves; 
or  the  corporation  on  the  one  side  and  its  individual  members 
on  the  other.  The  right  of  any  third  party,  stranger  to  the 
association,  to  establish  a  legal  claim  through  such  a  by-law, 
must  depend  upon  the  general  principles  applicable  to  express 
contracts." 

§  155.  By-laws  limiting  powers  of  agents. — The  authorities 
are  conflicting  upon  the  question  of  the  effect  of  a  by-law 
which  limits  the  apparent  powers  of  an  officer  of  a  corporation. 
The  rule  most  consistent  with  reason  and  supported  by  the 
weight  of  authority  seems  to  be  that  the  powers  of  officers  of 
manufacturing  and  trading  corporations  can  not  be  limited  to 
those  enumerated  in  the  by-laws  as  against  persons  dealing  with 
them  without  notice  of  the  limitations.  Such  persons  are  justi- 
fied in  assuming  that  the  officers  have  the  authority  implied  in 
their  designations.3  The  contrary  rule  was  adopted  in  a  line 
of  New  York  cases,4  but  these  were  in  effect  reversed  by  the 
court  of  appeals,  which  in  a  recent  case5  held  that  the  by-laws 

1  Douglas  v.  Insurance  Co.,  118  N.  Y.  4  Adriance  v.  Roome,  52  Barb.  (N. 
484.  Y.)   399;    De  Bost  v.  Albert  Palmer 

2  Flint  v.  Pierce,  99  Mass.  68;  Trus-  Co.,  35  Hun  (N.  Y.)  386;  Dabney  v. 
tees  v.  Shaffer,  63  111.  243.  Stevens,  10  Abb.  Pr.  N.  S.  39;  Smith 

8  Fay  v.  Noble,  12  Cush.  1;  Smith  v.  v.   Co-Op.,  etc.,    Assn.,  12  Daly  304; 

Smith,   62  111.   496;    Moyer    v.   East  Westerfield  v.   Radde,   7    Daly  326; 

Shore,  etc.,  Co.,  41  S.  C.  300, 25  L.  R.  A.  Bohm  v.  Loewer's,  etc.,  Co.,  30  N.  Y. 

48;  Wait  v.  Smith,  92  111.  385;  Union,  S.  R.  424;  Rathbun  v.  Snow,  22  N.  Y. 

etc.,  Co.v.  White,  106  111.  67;  Walker  S.  R.  227.     See,  also,  Bocock  v.  Alle- 

v.Wilmington,  etc.,  R.  Co.,  26  S.  C.  80;  gheny,  etc.,  Co.,  82  Va.  913 ;  Haden  v. 

Arapahoe,  etc.,  Co.v.  Stevens,  13  Colo.  Farmers',  etc.,  Co.,  80  Va.  691. 

534;  Ten  Broek  v.  Winn  Boiler,  etc.,  5  Rathbun  v.  Snow,  123  N.  Y.  343, 

Co.,  20  Mo.  App.  19 ;  Donovan  v.  Hal-  10  L.  R.  A.  355. 
sey,  etc.,  Co.,  58  Mich.  38. 


148  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  156 

of  a  business  corporation  are  binding  only  upon  such  persons 
as  <leal  with  the  corporation  with  knowledge  of  their  existence. 
Third  persons  may  act  upon  the  apparent  authority  conferred 
by  the  principal  upon  the  agent,  and  are  not  bound  by  secret 
limitations  or  instructions  qualifying  the  terms  of  the  written 
or  verbal  appointment.  Hence,  said  the  court:  "The  defense 
based  upon  the  limitation  in  the  by-laws  of  the  company,  of 
which  the  plaintiff  had  no  knowledge,  can  not  be  sustained. 
By-laws  of  business  corporations  are,  as  to  third  persons,  pri- 
vate regulations,  binding  as  between  the  corporation  and  its 
members,  or  third  persons  having  knowledge  of  them,  but  of 
no  force  as  limitations  per  se  as  to  third  persons,  of  an  author- 
ity, which,  except  for  the  by-law,  would  be  construed  as  within 
the  apparent  scope  of  the  agency." 

§  156.  Rules  and  regulations  published  by  corporations. — 
The  by-lawa  of  a  private  corporation  "bind  the  members  only 
by  virtue  of  their  assent,  and  do  not  affect  third  persons.  All 
regulations  of  a  company  affecting  its  business,  which  do  not 
operate  upon  third  persons,  are  properly  denominated  by-laws 
of  the  company,  and  may  come  within  the  operation  of  the 
principle.  Within  this  limit  it  is  the  peculiar  and  exclusive 
office  of  the  court  to  decide  upon  the  validity  of  the  regula- 
tion. But  there  is  another  class  of  regulations,  made  by  cor- 
porationa  as  well  as  individuals  who  are  common  carriers  of 
is,  which  operate  on  and  affect  the  rights  of  others, 
which  are  not,  properly  Bpeaking,  by-laws  of  the  corporation, 
and  which  do  not  full  within  the  operation  of  this  principle. 
Of  this  character  are  .-'II  regulations  touching  the  comfort  and 
convenience  of  travelers,  or  prescribing  rules  for  their  conduct 
ecure  the  just  rights  of  the  company." '  To  this  class  be- 
adopti  '1  by  savings  hanks  prescribing  the  rights 
of  depositors  and  the  methods  of  withdrawing  funds.  Depos- 
tned  to  assenl  to  these  rules,  and  are  bound  by 
them.  The  fad  that  the  depositor  is  unable  to  read  the  rules 
printed  in  the  pass-book  does  not  defeal  its  effect  as  uotice. 

»S1  »verton,  24  N.  J.  L.   136,       »Burrill  v.  Dollar, etc., Bank,  92Pa. 

St.   134,  87  Am.  Rep.  669 ;    People's, 


§  157         TOWERS    INCIDENTAL   TO    CORPORATE    EXISTENCE.  149 

§  157.  By-laws  imposing  forfeiture. — A  forfeiture  of  stock 
for  non-payment  of  calls  and  assessments  was  unknown  to  the 
common  law  *  and  can  only  be  exercised  by  virtue  of  statutory 
authority.  In  the  absence  of  a  grant  in  the  charter  of  power 
of  forfeiture,  a  by-law  authorizing  a  forfeiture  is  invalid,2  but 
a  stockholder  may  consent  that  his  stock  may  be  forfeited  for 
non-payment  of  calls  or  assessment,  and  when  the  contract  is 
indorsed  upon  his  certificate  of  stock  it  is  binding.3  When  the 
power  of  forfeiture  is  conferred  by  the  charter  and  the  manner 
of  exercising  such  power  is  prescribed  by  a  by-law,  a  sale  madt 
in  any  other  manner  than  as  so  provided  is  unlawful.  "A 
by-law  of  defendant's  association,  also  made  one  of  the  terms 
and  conditions  of  the  stock  certificates,  as  the  same  were 
printed  and  issued,  requiring  and  providing  for  a  sale  at  pub- 
lic auction,  in  case  of  a  failure  to  meet  the  prescribed  monthly 
payments  for  a  period  of  six  months,  was  ignored  and  disre- 
garded, to  the  extent  that  the  sale  was  in  the  directors'  room 
in  the  offices  of  the  corporation,  and  no  open,  public,  or  general 
notice  of  the  same  was  ever  given.  By  the  same  by-law  it  was 
also  provided  that,  whenever  any  stock  wras  to  be  sold  for  ar- 
rearages in  the  monthly  payments,  a  notice  should  be  mailed 
to  the  owner  of  the  stock  ten  days,  at  least,  before  the  day  of 
sale,  stating  the  time  and  place  of  such  sale.  This  express 
and  important  provision  was  also  ignored  and  disregarded, 
and  the  sales  made  without  any  attempt  to  notify  stockholders 
in  default,  by  mail  or  in  any  other  manner.  Hence  the  sales 
were  irregular  and  unlawful."4 

§  158.  Expulsion  of  members. — A  corporation  may  adopt 
reasonable  rules  for  the  regulation  of  the  conduct  of  its  mem- 
bers in  carrying  out  their  agreements,  and  may  provide  for 

etc.,   Bank  v.  Cupps,  91  Pa.  St.  315;  2  In  re  Long  Island  R.  Co.,  19  Wend. '( 

Supreme  Comrnandery  v.  Ainsworth,  37.     But  see  Elizabeth   City   Cotton  | 

71  Ala.  436.  Mills   v.    Dunstan,    121    N.  C.  12,   61 

1  §  387,  infra.  Minnehaha,  etc.,  Assn.  Am.  St.  R.  654. 

v.  Legg,  50   Minn.    333;  Westcott  v.  s  Weeks  v.  Silver,  etc.,  Co.,  23  J.  & 

Minn.,  etc.,  Co.,  23  Mich.  145;  Buddv.  S.  (N.  Y.)  1. 

Multnomah,  etc.,  R.  Co.,  15  Ore.  404,  4  Allen  v.  Am.,  etc.,  Assn.,  49  Minn. 

15  Pac.  Rep.  659.  544. 


150 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  159 


the  expulsion  of  a  member  for  non-compliance  with  a  con- 
tract entered  into  with  another  member,  although  the  contract 
was  void  under  the  statute  of  frauds.1 

Such  organizations  as  clubs,  benevolent  societies,  stock  and 
commercial  associations,  may  make  by-laws  providing  for  the 
expulsion  of  members  who  have  violated  obligations  imposed 
upon  them  by  virtue  of  their  membership.2  But  in  corpora- 
tions owning  property  there  is  no  power  to  expel  a  member 
unless  expressly  conferred  by  the  charter.0  Such  authority 
can  not  be  conferred  by  a  by-law.1  The  remedy  for  unlawful 
expulsion  is  by  mandamus  to  compel  restoration  to  member- 
ship.6 

§  159.  Amendment,  repeal  and  waiver. — The  same  author- 
ity which  makes  a  by-law  may  amend  or  repeal  it,6  and  mem- 
bers are  bound  by  amendments  made  in  accordance  with  ex- 
isting rules  to  the  same  extent  as  by  the  original  by-law.7 
Where  articles  of  incorporation  are  void  they  can  not  be  made 
good  by  amendment,  although  the  amended  articles  are  prop- 
erly filed.8  An  amendment  can  not  be  affected  by  a  usage 
contrary  to  a  by-law.9  A  corporation  may  by  a  course  of  deal- 
ing waive  a  by-law,  and  be  unable  to  assert  it  against  those 
with   whom  it  deals.10     But  the  officers  can  not  waive  by-laws 


Ch.XII.  Dickenson  v.  Cham- 
ber of  Com.,  29  Wis.  45;  State  v.  Cham- 
bei  "i  '  '"in  .  17  Wis.  670;  <  toddard  v. 
9  Mo.  \|>|>.  '-'!»<>, 
7s  Mo.  809;  I  In  gg  v.  Mass.  Med. 
Society,  ill  Mass.  185;  Southern, etc., 
I  Hi  -.mii.  :.  Iml.  Hi"). 

■People  v.  Board  ol  Trade,  80  III. 

i:;i  ;  Hassey  v.  Gallagher,  61  Ga.  86; 

Dawkins  v.   Antrobus,   L.   R.  17  Ch. 

Div.  815.  Compare  State  v.  Williams, 

c   184. 

1  Brans  v.  Phila.  Clab,  50  Pa.  St. 
n>7 ;  State  v.  <  Ihamber  <>f  Com  .  17 
Wii  870;  Dickenson  v.  Chamber  ol 
Com  ,  29  Wia.  i  i 

■Peo]  l'.  Ben.  Society,  24 


Bow.   IV.  216   (N.   Y.);    Roehler  v. 
Mech.  Aid  Society,  22  Mich.  8(5. 

5  People  v.  Musical,  etc.,  Union,  l  is 
N.  V.  mi  ;  State  v.  Carterel  Club,  40 
N.  J.  L.  295. 

6  Heintzelman  v.  Druid,  <'tr  ,  Assn., 

88  Minn.   L88. 

7Poultney  v.  Bachman,81  Hun  19; 
McDowell  \.  Ackley,  98  Pa,  Bt.  277. 

•State  v.  Critchett,  87  Minn.  18; 
State  v.  Truby,  87  Minn.  97. 

'•sMis  v.  Brown,  9  Carrd  P.  604. 

in(  Hark  v.  Insurance  <  '<>.,<>  <  !ush.  S 12 ; 
Susquehanna,  <•<<•.,  <  !o.  v.  ESlkins,  124 
Pa.  Si  184 ;  Cumberland,  etc.,  Co.  v. 
Bchell,  29  Pa.  St.  81  ;  Splawn  v.  Obew, 
60 Tex.  582;  Manning  v.  Ancient,  etc., 
86  Kj    186,  6  s.  \v.  Rep.  885. 


§   160         POWERS    INCIDENTAL    TO    CORPORATE    EXISTENCE.  151 


which  were  adopted  by  the  stockholders  for  the  protection  of 
the  corporation.1 

II.    Power  to  Take  and  Hold  Land. 

§  160.  The  common  law  rule. — Blackstone  names  as  one  of 
the  incidental  powers  of  every  private  corporation  the  power 
to  acquire  and  hold  real  estate.  At  common  law  every  private 
corporation  had  implied  power  to  take  and  hold  such  lands  only 
as  were  reasonably  necessary  for  the  purposes  of  its  creation.2 
This  limitation,  it  has  been  said,  was  imposed  by  the  common 
law  independent  of  statute,8  but  probably  was  not  so,  if  the 
king's  license  in  mortmain  was  obtained.4 

§  161.  Statutory  restrictions. — By  the  English  statutes  of 
mortmain,  beginning  with  Magna  Charta  and  ending  with 
9  George  II,  all  corporations  were  forbidden  to  take  and  hold 


1  Mulrey  v.  Insurance  Co.,  4  Allen 
(Mass.)  116. 

2 1  Blk.  Com.,  p.  478 ;  2  Kent  Com., 
pp.227, 281 ;  Nicoll  v. Railway  Co.,12  N. 
Y.  121 ;  Thompson  v.  Waters,  25  Mich. 
214;  Blanchard  v.  Warner,  1  Blatchf. 
U.  S.  258;  Page  v.  Heineberg,  40  Vt. 
8i,  94  Am.  Dec.  378;  McCartee  v.  Or- 
pnans'  Asylum  Soc,  9  Cow.  (N.Y.)  437, 
18  Am.  Dec.  516;  Rivanna,  etc.,  Co. 
v.  Dawson,  3  Grat.  (Va.)  19,  46  Am. 
Dec.  183 ;  Mallett  v.  Simpson,  94  N. 
C.  37,  55  Am.  Rep.  594.  1  Kyd'.  Corp., 
79,  citing  19  Henry  VI,  44,  says  that  at 
common  law  corporations  had  the 
same  capacity  to  take  and  hold  lands 
as  a  private  person  prior  to  Magna 
Charta  (1215).  A  corporation  has  no 
power  to  purchase  or  take  either  real 
or  personal  property  by  gift,  devise 
or  bequest  for  an  unauthorized  pur- 
pose. Hence,  under  authority,  to  take 
lands  for  a  right  of  way  and  certain 
enumerated  purposes,  a  railway  cor- 
poration can  not  take  lands  by  dona- 
tion for  purposes  in  no  way  connected 
with  the  road.  Case  v.  Kelly,  133  U. 
S.  21.     The  presumption  is  in  favor  of 


the  right  of  the  corporation  to  hold 
real  estate.  People  v.  Larue,  67  Cal. 
526;  Stockton  Bank  v.  Staples,  98  Cal. 
189.  A  corporation  with  legal  capa- 
city to  take  and  hold  property  may 
take  and  hold  it  in  trust,  when  au- 
thorized by  law,  to  the  same  extent 
as  a  private  person.  White  v.  Rice 
(Mich.),  70  N.  W.  Rep.  1024. 

8  State  v.  Com'rs,  23  X.  J.  L.  510,  57 
Am.  Dec.  409.  The  real  estate  must 
be  held  for  a  purpose  which  tends  to 
carry  out  the  object  for  which  the  cor- 
poration was  created.  Thus,  in  the 
absence  of  a  prohibitory  law,  a  corpo- 
ration formed  for  religious  purposes 
may  hold  land  as  a  trustee  for  such 
uses.  Phillips  Academy  v.  King,  12 
Mass.  564.  A  corporation  formed 
for  educational  purposes  may  hold 
lands  in  aid  thereof.  Phillips  Acade- 
my v.  King,  12  Mass.  564.  See  Re- 
gents v.  Detroit,  etc.,  Soc,  12  Mich. 
138;  Leggett  v.  Ladd,  23  Ore.  26.  As 
to  power  of  alienation  at  common  law, 
see  note,  7  Eng.  Rul.  Cas.  377,  and 
cases  cited. 

*  Angell  &  Ames  Corp.,  8th  ed.,  §  145 


152 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  161 


land  without  a  license  from  the  crown.1  These  statutes  were 
never  re-enacted  in  the  United  States,2  and  were  not  in  force 
in  any  state,  except  under  certain  restrictions,  in  Pennsylvania.3 
The  various  states  have,  however,  generally  adopted  constitu- 
tional or  statutory  restrictions  which  limit  the  power  of  corpo- 
rations in  this  respect.4  These  statutes  ordinarily  grant  to  cor- 
porations power  to  "acquire,  hold  and  transfer  all  such  real 
and  personal  estate  as  is  necessary  or  convenient  for  the  pur- 
pose of  conducting,  carrying  on  or  disposing  of  the  business  of 
such  corporation . " 5     The  acquisition  of  real  estate  for  purposes 

1 2  Kent  Com.,  p.  282;  1  Washburn  subsequently  enacted,  all  for  the  pur- 

Eeal  Property,  4th  ed.,  p.  76.  pose  of  preventing  the  great  accumu- 

2  Moore  v.  .Moure,  4  Dana  (Ky.)  354,  lation  of  real  property  in  the  hands  of 

29   Am.    Dee.  417;  Rivanna  Nav.  Co.  corporations,  and    they   all    provided 

v.  Dawson,  3  Grat.  (Va.)  19,46  Am.  substantially  for  a  re-entry  on  the  part 

Dec.    183;  Mallett  v.  Simpson,  94  N.  of  the  next  superior  lord   whenever 

C.  37,  55  Am.  Rep.  594.  lands  had  been  aliened  in  mortmain; 

"Leazurev.Hillegas,7Serg.&R.(PaO  and,  nntil  such  entoy  enforcing  the  for- 

313.     In  In  re  McGraw's  Estate,   111  feiture,  the  corporation  held  the  lands. 

N.  Y.  67,  the  cases  are  reviewed.  The  There  was  one  law,  directed  against 

court  said:  "As  at  common  law  a  cor-  superstitious  uses  (23  Henry  VIII,  c. 

poration  could  take  real  propertyinthe  10),  which  provided  that  the  grant  to 

way  as  ail  individual;  thecon8e-  such  uses  for  more  than  twenty  years 

quence    was    that,   in    England,    laiv  was    absolutely  void,  and    the    estates 

landed  possessions  \\<iv  held  by   re-  thus  aliened  would  have  gone  to  the 

ligious corporations,  and,  byreason  of  grantor  or  his  heirs,  excepting  for  a 

alienations  of  real  estate  to  them,  the  provision  subsequently  made,  giving 

services  due  by  the  vassal  to  the  lord  such  estates  to  the  king.  Wilm.,  notes, 

partially  if  not  totally  paralyzed,  9,  K).  in  Attorney-General  v.  Downing, 

a,,.l  the  chief  lords  losl  their  escheats,  variously  reported  :    Amb.  550,  571  ;  l 

Thie              constantly  growing   and  Dick.414;3Ves. 714;5Ves.300;8Ves. 

alarming  evil.    To  remedy  the  evil,  256.  The  mortmain  statute  9Geo.IL, 

the  flrsl   Mortmain  act  was  placed  in  c.  86)  renders  all  devise-  to  charita- 

\\,{-      i            which  declared  all  such  ble  uses  void.  Shelf.  Mortm.  118  L20." 

alienation               rporations   entirely  '  Gilbert  v.  Hole,  2  S.  Dak.  164 ;  Leg- 


void,  and  i  hat  the  lands  should  revert 
to  the  lord  of  the  fee.  it  was  held,  bow- 
'  ion  must  be  ac- 
companied b<,  an  entry,  and  then,  and 
from  that  time,  there  was  a  foi  feiture, 
ition  having  taken  the  tiil< 


getl  v.  N.  J.,  etc., Co.,  I  N.  J.  Eq.  541, 
23  Am.  Dec.  720.  It  is  against  public 
policy  for  a  coi  poration  to  om  n  more 

real   estate  than    is   necessary    for  the 

transaction  of  ite  corporate  business  or 
is  required  in  the  collection  of  debts. 


and  held  the  property  until  such  for-  People  v.  Pullman,  etc.,  Co.,  175  111. 

feiture   byte-entry.      Shelf.   Mortm.  8,  125. 

;;|  ,i                                G    ml  Corp.  106.  •Gen.  Stat.    Minn.,  chap.  84,  ,  I  18. 

•me-  upon  the  subject  wi  t  First  M.  B.Ohurcb  v.  Dixon  (111.), 


§  162         POWERS    INCIDENTAL    TO    CORPORATE    EXISTENCE.  153 

foreign  to  the  general  objects  of  the  corporation  is,  under  such 
statutes,  an  ultra  vires  act.  Thus,  a  corporation  organized  for 
manufacturing  purposes  may  acquire  real  estate  upon  which  to 
locate  its  buildings  or  plant,  but  it  can  not  purchase  lots  for 
speculative  purposes.1  A  corporation  authorized  by  its  charter 
to  hold  real  property,  may  lease  it  to  be  used  for  a  business 
which  the  corporation  itself  could  not  lawfully  carry  on.2  The 
quantity  of  real  estate  which  a  foreign  corporation  may  hold  is 
generally  restricted  by  statute.3  Under  such  a  statute  it  can 
not  indirectly  own  the  land  by  holding  the  majority  of  the 
stock  of  a  domestic  corporation.* 

§  162.     Distinction  between  the  power  to  take  and  to  hold. — 

Although  the  authorities  are  not  uniform,  the  preponderance 
is  in  favor  of  the  proposition  that  a  prohibition  on  the  power 
to  hold  real  estate  does  not  exclude  the  power  to  take  the  title 
to  real  estate  subject  to  the  risk  of  being  ousted  by  the  state.5 
This  appears  to  have  been  the  English  rule,6  and  under  it  the 
corporation  may  at  any  time  previous  to  a  judgment  of  ouster, 
convey  a  good  and  valid  title.  There  are  many  cases,  how- 
ever, which  hold  that  a  corporation  which  is  forbidden  to  hold 
real  estate  can  not  take  the  title,  and  that  a  conveyance  or  a 

52  N.  E.  Rep.  887.    For  construction  of  which  a  corporation  may  hold  is  lim- 

such  statutes,  see  Crawford  v.  Long-  ited,  the  title  is  not  divested  by  an  in- 

street,  43  N.  J.  L.  325;   Belcher  v.  St.  crease  in  the  value  beyond  the  pre- 

Louis,  etc.,  Co.,  101  Mo.  192,  13  S.  W.  scribed  amount.     Bogardus  v.  Trinity 

Rep.  822.  Church,  4  Sandf.  Ch.   633;    Harvard 

1  Case  v.  Kelly,  133  U.  S.  21 ;  Com-  College  v.  Boston,  104  Mass.  470; 
monwealth  v.  Railway  Co.,  132  Pa.  St.  Comw.  v.  N.  Y.,  etc.,  Co.,  114  Pa.  St. 
591 ;  Matthews  v.  Skinker,  62  Mo.  329 ;  340.  See  generally  :  Tarpey  v.  Desert, 
Commonwealth  v.  Railway  Co.,  139  etc.,  Co.,  5 Utah  494, 17  Pac.  Rep.  631; 
Pa.  St.  457;  Freeman  v.  Sea  View,  Boyce  v.  St.  Louis,  29  Barb.  650;  Stark- 
etc,  Co.,  N.  J.  Eq.  40  Atl.  Rep.  218.  weather  v.  Am.,  etc.,  Soc,  72  111.  50; 

2  Nye  v.  Storer,  168  Mass.  53,  46  N.  Am.,  etc.,  Soc.  v.  Marshall,  15  Ohio 
E.  Rep.  402.  St.  537. 

3  American,  etc.,  Co.  v.  Tennille,  87  A  devise  of  land  to  the  government 
Ga.  2S;  Koenigv.  Chicago,  etc.,  R.  Co.,  of  the  United  States  is  void.  United 
27  Neb.  699.  States  v.  Fox,  94  U.  S.  315. 

4  The  reasons  for  such  restriction  are  5  Thompson  Priv.  Corp.,  §5775. 
well    stated    by    Christiancy,    J.,    in  6  See  Leazure  v.  Hillegas,  7  Serg.  & 
Thompson  v.  Waters,  25  Mich.  214.  Raw.  (Pa.)  313,  Wilgus'  Cases. 

Where  the  value  of  the  real  estate 


154  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  163 

devise  to  it  is  of  no  effect.1  In  accordance  with  this  rule,  it 
was  held  that  a  devise  of  real  estate  to  a  corporation  which,  by 
reason  of  this  limitation  upon  its  power,  was  unable  to  hold  it, 
was  of  no  effect,  and  that  the  title  vested  in  the  heirs.2 

§  163.  Manner  of  acquiring  title. — By  the  common  law  a 
corporation  could  acquire  title  to  real  estate  the  same  as  an  in- 
dividual.3 So  under  the  modern  law  it  may  acquire  title  in 
any  way  that  a  natural  person  can,  as  by  adverse  possession,4 
devise,5  prescription,  or  by  the  exercise  of  the  power  of  emi- 
nent domain.6  When  a  corporation  has  power  to  become  a 
creditor,  it  may,  unless  expressly  prohibited,  take  a  mortgage 
upon  real  estate  as  security,  and  in  case  of  default  acquire  title 
by  foreclosure.7  Thus,  a  railway  corporation  may  take  a  mort- 
gage upon  real  estate  to  secure  the  payment  of  subscriptions  to 
its  stock. 

§  164.  Power  to  take  by  devise. — It  is  probable  that  the 
power  to  devise  land  was  frequently  exercised  in  Anglo-Saxon 
times,  but  after  the  Norman  conquest,  or  at  least  after  the 
feudal  system  was  fully  established,  this  method  of  alienating 
lands  was  not  allowed  to  any  one  (except  in  a  few  places  by 
local  custom)  until  the  Statute  of  Wills  in  the  time  of  Henry 
VIII.  But  long  before  this  time  the  devise  of  uses  or  trusts  in 
land  was  recognized,  so  corporations  could  take  an  use  in  real 
estate  by  devise  at  common  law;8  but  they  were  forbidden  to 
hold  the  land  itself,  and  after  15  Richard  II,  to  hold  the  use 
(except  by  special  license  of  the  king),  by  a  series  of  statutes 
extending  from  Maijna  Charta  to  32  Henry  VI II.  The  latter 
act,  known  as  the  statute  of  wills,  provided  that  the  sole  owner 
i't  a  Eee  Bimple  could  devise  it  to  any  one  "except  to  bodies 
politic  and  corporate."9  In  the  absence  of  such  a  statute  of 
wills,  or  a  restrictive  statute  of  some  kind,  and  subject  t<»  the 
rule  that  it  musl  be  reasonably  necessary. and  convenient  for 
carrying  out  the  objects  of  the  corporation,  the  old  common 
law  rule,  thai  tleic  is  no  inherent  incapacity  in  a  corpora- 
tion  to  take  by  devise,   prevails  in  the   United  States  at  the 

'Wood  v.  Hammond,   16  R.  I.  98;  •Porter's  C:i*>\  I    Co.  Rep.  22,  24. 

[n  re  McGraw'a  Estate,  111   N.  Y.  66,  Bee  1  Thomas's 4  '<>.  Liu.,  p.  L88,  ei  .-<-/., 

2  I.    R    \  note  fir;  McCartee  v.  Orphan  Asy.  Soc, 

Mi,  re  McGraw,  ill  N.Y   66.  9  Cow.  184,18  ^m.  D.616;  Downing  v. 

•See    Predyman   v.    Wodry,   Orok.  Marshall,  23  N.  Y. 866,  80  Am. D.  290. 

109.  'This  incapacity  was  removed  by  the 

•Rehoboth   v.   Rehoboth,  28  Pick.  Btatute of  charitabl               I  Eliz.  C.  4 

(Ma  A..  D.  1601),  as  regards  gifts  for  various 

lie  McG              tate,  111  N.Y.66.  pu               erein  denominated  chari- 

'  i  iomp  on  I'm-.  Corp  table. 

7  Blunt  v.  Walker,  li   Wi     884,  78 
Am.  !>•  •    709. 


§  165       POWERS    INCIDENTAL    TO    CORPORATE    EXISTENCE.  155 

present  time.1  A  conveyance  by  a  citizen  of  a  state  of  property 
located  in  the  state  to  a  foreign  corporation  for  benevolent  pur- 
poses, when  the  state  permits  its  own  corporations  to  take  real 
estate  for  like  purposes,  is  valid.  "In  harmony  with  the  gen- 
eral law  of  comity  among  the  states  composing  the  Union,  the 
presumption  should  be  indulged,  that  a  corporation  of  one 
state  not  forbidden  by  the  law  of  its  being  may  exercise  within 
any  other  state  the  powers  therein  granted,  including  the  power 
of  acquiring  lands,  unless  prohibited  therefrom,  either  in  the 
indirect  enactments,  or  by  public  policy  deduced  from  the  gen- 
eral course  of  legislation,  or  the  settled  adjudication  of  their 
highest  courts."2  When  a  statute  of  wills  forbids  a  devise  to 
a  corporation,  a  devise  of  land  in  the  state  to  a  foreign  corpora- 
tion is  void.3  Judge  Thompson  says  that  the  better  rule  is  that 
the  disability  created  by  a  statute  of  wills  does  not  follow  the 
corporation  into  another  state,  while  a  disability  created  by  the 
charter  or  general  corporation  law  follows  the  corporation 
everywhere.4 

§  165.  Devise  to  corporation — Statutory  limit. — The  better 
rule  is  that  the  state  only  can  raise  the  question  that  the  cor- 
poration is  holding  more  real  estate  than  it  is  permitted  to  hold 
under  the  law.5  We  have  already  seen  that  the  authorities 
are  not  uniform  on  the  question  of  the  power  of  a  corporation 
which  is  forbidden  to  hold  real  estate  to  take  title  to  the  same.6 
It  was  recently  held  by  the  supreme  court  of  Maine  that  a  be- 
quest to  an  incorporated  charitable  institution  of  property  in 
excess  of  the  amount  which  such  corporations  are  allowed  by 
general  statutes  to  take  and  hold,  there  being  no  prohibition 
by  the  statute  of  wills,  or  the  charter  of  the  corporation,  and 
no  penalty  for  taking  in  excess  of  the  limitation,  is  not  void 
but  merely  voidable  at  the  instance  of  the  state.7  But  the  New 
York  Court  of  Appeals,  in  recent  important  cases,  has  held  that 
a  devise  of  an  amount  of  land  which,  together  with  the  amount 
already  held,  exceeding  the  statutory  limit,  is  void  as  to  the  ex- 
cess only.  The  title  to  the  excess  was  held  to  vest  in  the  heirs 
of  the  devisor,  and  they  were  permitted  to  raise  the  question  of 

"In  re    McGraw,    111    N.   Y.    66;  weather  v.  Am.  Bible  Soc,  72  111.  50, 

Downing  v.  Marshall,  23  N.  Y.  366,  22  Am.  Rep.  133. 

80  Am.  Dec.  290.  5  American,  etc.,  Foe.  v.  Marshall, 

2  Christian  Union  v.  Yount,  101  15  Ohio  St.  537;  Christian,  etc.,  v. 
U.  S.  352.  Yount,  101  IT.  S.  352. 

3  Draper  v.  Harvard  College,  57  6  §§  162,  supra,  168,  infra.  De  Camp 
Howard  Pr.  N.  Y.  269.  v.  Dobbins,  25)  N.  J.  Eq.  36. 

4  Corps.,    §5785.      But    see    Stark-  7  Farrington  v.  Putnam,  90  Me.  40o, 

37  Ail.  Rep.  652. 


156  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   1GG 

the  right  of  the  corporation  to  take  the  title.1  A  devise  to  a 
trustee  to  collect  the  rents  and  profits  for  the  benefit  of  a  cor- 
poration, which  is  forbidden  to  hold  real  estate,  is  a  mere  eva- 
sion of  the  statute  and  void.2 

§  166.  The  doctrine  of  equitable  conversion. — When  a  cor- 
poration is  incapable  of  taking  a  devise  of  real  estate,  the 
will  may  direct  the  executors  to  convert  the  real  estate  into 
money,  and  pay  the  proceeds  over  to  the  corporation.  On 
well  established  principles,  this  is  considered  a  bequest  of 
money.3 

§  167.  The  estate  which  may  be  taken. — A  corporation 
may  take  a  title  in  fee-simple,  although  the  period  of  the  cor- 
porate existence  is  limited.  Chancellor  Kent  said  that  a  cor- 
poration has  a  fee-simple  for  the  purpose  of  alienation,  but 
only  a  determinable  fee  for  the  purpose  of  enjoyment,  and 
that  on  the  dissolution  of  the  corporation,  the  reversion  is  to 
the  original  grantor  or  his  heirs;  that  the  grantor  will  be  ex- 
cluded by  the  alienation  of  the  fee,  and  in  that  way  the  cor- 
poration may  defeat  the  possibility  of  a  reversion.4  In  modern 
times,  upon  the  dissolution  of  a  joint  stock  corporation,  the 
title  to  its  real  estate  passes  into  administration  for  the  benefit 
of  its  creditors  first  and  its  stockholders  afterwards.6 

'In  re  McGraw's  Estate,  111  N.  Y.  '  Kent's  Ctom.,  283  ;Nicoll  v.  Railway 
'    l.    ::.    L  887.      A.nd  see  Cor-  Co.,  12 N.  Y.  121 ;  People  v.  Mauran, 
nell,  etc.,   v.    Fiske,    136   U.  S.    L52;  5  Denio  (N.  Y.)S89;  Page  v.  Heine- 
Wood  v.  Hammond,  16  R.  1.98.  berg,    10  N't.  81;    People  v.  O'Brien, 
■McCarteev. Society, 9 Cow.    N.Y.J  111  N.  Y.  1,7  Am.  St.  Rep.  684;  De- 
437.    Bee  Downing  v.  Marshall,  23  N.  troil  Bt.R.Co.v.  Detroit,  L10  Mich.384. 
Y.  866;  Coleman  v.  San.,  etc,  Co.,  49  A.  corporation  may  hold  title  t<>  real 
Cal.  517  estate  as  tenanl  in  common  \\  ith  an- 
•Sherwood  v.  American  Bible  Soc.,  other  corporation  or  natural  person. 
•Y.  661 ;  Orrick  v.  Boehm,  New  York,  ejc.,  Co.  v.  Pulton  Bank, 
49Md.72.  ka  to  the  doctrine  of  equita-  ~  Wend.  (N.   \>    U2;    I    Washburn 
ble  conversion  generally,  see  Given  v.  Real  Property,  Ith  ed.,643.     Bui  not 
Hilton,  95  U.  8.  591      If  the  real  i  (oinl    tenant.     Telfair   v.   Howe, 
tate                  I  i"  the  corporation,  a  8  Rich,   Eq.  (8.  ('.)  236,55  im,  Dec. 
n.iirt  of  equity  can  not  convert  it  into  687, 

money  and    direct   the  money   paid  'Heath  v.  Barmore,  SON.  Y.  802. 

ther 
•      72  III.  50. 


§  1G8         POWERS    INCIDENTAL    TO    CORPORATE    EXISTENCE.  157 

§  168.    Who  can  question  the  right  of  the  corporation,— On 

grounds  of  public  policy  it  is  generally  held  that  the  state 
only  can  raise  the  question  that  a  corporation  which  has  power 
to  hold  land  for  any  purpose,  or  under  any  circumstances,  is 
holding  real  estate  which  it  has  no  authority  to  hold.1  The 
general  rule  is  that  the  title  of  the  corporation  to  real  property 
can  not  be  questioned  by  a  private  person,  upon  the  ground 
that  the  law  gives  the  corporation  no  right  to  take  or  hold 
such  a  title.  Hence,  a  corporation  which  has  received  a  grant 
of  land  may  convey  a  good  title  to  a  grantee,2  or  maintain  an 
action  against  trespassers,3  although  it  has  no  legal  right  to 
hold  real  estate.  This  rule  does  not  apply,  however,  when  the 
corporation  is  seeking  to  acquire  lands  contrary  to  its  charter.4 
The  right  of  a  corporation  to  take  or  hold  land  in  violation  of 
its  charter  will  not  be  inquired  into  collaterally.5 

1  Congregational,  etc.,  Soc.  v.  Ever-  etc.,  Co.  v.  Tennile,  87  Ga.  28;  Tid- 

itt,  85  Md.  79,  36  Atl.  Rep.  654,  35  L.  well  v.  Chiricahua,  etc.,  Co.,  53  Pac. 

R.  A.  693;  Water,  etc.,  Co.  v.  Tenney,  Rep. (Ariz,)  192.   The  property  is  held 

24  Colo.  344,  51  Pac.  Rep.  505;  State  subject  to  the  state  right  of  escheat, 

v.  Elizabeth  (N.  J.),  39  Atl.  Rep.  683,  Hickory,  etc.,  Co.  v.  Buffalo,  etc.,  R. 

903;  Lauder  v.  Peoria,  etc.,  Soc,  71  Co.,  32  Fed.  Rep.  22. 

111.    App.    475;  Cooney  v.  A.  Booth,  2Blunt  v.  Walker,  11  Wis.  334,  78 

etc.,  Co.,  169  111.  370, 48  N.E.  Rep.  406;  Am.  Dec.  709;  Farmers',  etc.,  Co.  v. 

National  Bank  v.  Whitney,  103  U.  S.  Curtis,  7  N.  Y.  466. 

99;  Fritts   v.   Palmer,  132  U.  S.  282;  Southern,  etc.,  R.  Co.  v.  Orton,  6 

Hough  v.  Cook  Co.,  etc.,  Co.,  73  111.  Sawy.  (C.  C.)  157. 

23,  24  Am.  Rep.  230 ;  Hamsher  v.  Ham-  4  Case  v.  Kelly,  133  TJ.  S.  21 ;  Pacific 

sher,  132  111.  273,  8  L.  R.  A.  556;  Al-  R.  Co.  v.  Seeley,  45  Mo.  212,  100  Am. 

exander  v.  Tolleston  Club,  110  111.  65;  Dec.  369. 

Gilbert  v.  Hole,  2  S.  Dak.  164,  49  N.  5She\valter  v.  Pirner,  55  Mo.  218; 

W.  Rep.  1  ;  Mallett  v.  Simpson,  94  N.  People  v.  Mauran,  5  Denio  (N.Y.)389; 

C.  37,  55  Am.  Rep.  594;  Ragan  v.  Mc-  Ehrman  v.  Union,  etc.,  Co.,  35  Ohio 

Elroy,  98  Mo.  349 ;  Blunt  v.  Walker,  1 1  St.  324  ;  Cooney  v.  A.  Booth,  etc.,  Co. 

Wis.  334,  78  Am.  Dec.  709;  Hayward  169  111.  370. 
v.  Davidson,  41  Ind.  212;  American, 


CHAPTER  8. 


PARTICULAR    POWERS. 


§169.   Power  to  contract. 

170.  Manner  of  acting — Necessity 

for  a  seal. 

171.  Formalities  to  be  observed  in 

contracting. 

172.  Contracts    which    are    against 

public  policy. 

173.  Traffic  agreements. 

174.  Pooling    arrangements  —  Con- 

tracts  to  prevent  competition. 

175.  Contracts  granting  special  priv- 

ileges. 
17*"..    Trust  agreements. 

177.  Illustrations     of    trust    agree- 

ments. 

178.  Statutes  forbidding  trust  agree- 

ments. 

17'.t.    Contracts  by  trusts. 

1SI).    Power  to  indorse  and  guaran- 
tee paper. 

181.  To  enter  into  a  partnership. 

182.  To    borrow    money    and    make 

negotiable  paper. 

183.  Limitations  upon  amount  of  in- 

debtedness. 


§  184.    Liability  to  holder  of  overissued 
negotiable  paper. 

185.  Power  to  acquire  personal  prop- 

erty. 

186.  Power  of  alienation. 

187.  Limitations  on  right  of  aliena- 

tion—  Corporations    charged 
with  public  duties. 

188.  Power  to  give  a  mortgage. 

189.  Assignment  for  benefit  of  cred- 

itors— Preferences. 

190.  Power  to  hold  stock  in  another 

corporation. 

191.  Exceptions  to  general  rule. 

192.  Purchase  of  its  own  shares. 

193.  When  a  corporation  may  hold 

its  own  shares. 

194.  Powers  of  national  banks. 
L95.    Consolidation. 

196.  The  effect  of  consolidation. 

197.  Powers  of  the  new  corporation. 

198.  Liabilities  of  die  new  corpora- 

tion . 

199.  The  loaning  <>f  money. 
199«.  Power  to  act  as  a  trustee. 


§  1 »;'.».  Power  1o  Contract.  —  For  the  purpose  of  advancing 
the  objects  of  its  creation  ;i  corporation  maw  subjeel  to  the  lim- 
itations imposed  by  its  charter,  <1<>  whatever  a  natural  person 
could  do.1  The  power  to  make  Buch  contracts  as  are  reason- 
ably ueci  ssa ry  in  order  to  carry  out,  its  Legitimate  purposes  in- 
heres in  every  corporation,  and  is  co-extensive  with  its  corpo- 

1  Kelly  v  Board,  etc.,  7:,  Va.263;  anycontract  which  the  lain  authorizes 
Blnnt  v.Walker,  11  Wis.  849;  New  En-  a  corporation  to  make.  McTighe  v. 
gland,  etc.,  Co.  v.  Robinson,  '_'■">  Ind.     Macon,  etc.,  Co.,  id  Ga.  806,  82  P.  K. 

.\  corporation  ,(,  facto  may  make     k.  208. 

(158) 


§  170  PARTICULAR    POWERS.  159 

rate  powers.1  But  a  corporation  has  no  implied  power  to  enter 
into  contracts  in  aid  of  purposes  other  than  those  for  which  it 
was  chartered,2  and  the  general  proposition  is  that  it  can  enter 
into  such  contracts  only  as  are  expressly  or  impliedly  author- 
ized.3 The  fact  that  a  particular  contract  may  be  advantageous 
to  the  corporation  is  immaterial.  Where  a  railway  company 
agreed  to  give  a  sum  of  money  to  aid  in  defraying  the  expenses 
of  a  musical  festival,  the  agreement  was  held  ultra  vires  and 
non-enforcible.  The  court  said:4  "Such  a  contract  can  not  be 
held  to  bind  the  corporation  by  reason  of  any  supposed  benefit 
which  it  may  derive  from  an  increase  of  passengers  over  its 
road  upon  any  grounds  that  would  not  hold  it  equally  bound 
by  a  contract  to  partake  in  or  to  guarantee  the  success  of  any 
enterprise  that  might  attract  population  or  travel  to  any  city 
or  town  upon  its  line."  But  a  subscription  by  a  hotel  com- 
pany to  aid  in  bringing  a  military  encampment  to  a  town  has 
been  held  valid.5  A  business  corporation  may  make  a  valid 
contract  to  pay  money  to  secure  the  location  of  a  postofnce 
near  its  place  of  business.6  A  street  railway  company  may 
bind  itself  by  a  note  to  aid  in  establishing  a  base-ball  park 
where  it  will  increase  the  traffic  on  the  road.7  These  and  many 
other  cases  which  might  be  cited  illustrate  the  general  propo- 
sition that  a  corporate  contract  to  be  valid  must  be  within  the 
express  or  implied  charter  powers  of  the  corporation. 

§  170.  Maimer  of  acting, — Necessity  for  a  seal. — A  corpora- 
tion necessarily  acts  through  its  agents.  The  powers  of  the  va- 
rious corporate  agents  are  discussed  in  another  chapter,  and  it 

Portland,  etc.,  Co. v.  East  Portland,  v.  Railway  Co.,  10  Beav.  1 ;  East  Ang- 

18  Ore.  21,  6  L.  R.  A.  290;  McKiernan  lian  R.  Co.  v.  Eastern,  etc.,  R.  Co.,  11 

v.  Lenzer,  56  Cal.  61.  C.  B.  775;  Downing  v.  Mt.  Washing- 

2Chewacla,    etc.,    Works    v.    Dis-  ton,  etc.,  Co.,  40  N.  H.  230. 

mukes,  87  Ala.  344,  5  L.  R.  A.    100;  i  Davis   v.   Old  Colony  R.  Co.,  131 

Germantown,  etc.,    Co.  v.  Dhein,  43  Mass.  258;    Colman  v.  Railroad  Co., 

Wis.  420.  10  Beav.  1. 

3 Thomas  v.  Railroad  Co.,  101  U.  S.  5  Richelieu,  etc.,  Co.v.  Int.,  etc.,  Co., 

71 ;  Davis  v.  Old  Colony  R.  Co.,  131  140  111.  249. 

Mass.  258;  Pearce  v.  Railroad  Co.,  21  6 Green  Co.  v.  Blodgett,  159  111.  169. 

How.    (U.   S.)   441;  Franklin  Co.  v.  "Temple,  etc.,  R.  Co.  v.  Hellnian, 

Lewiston   Inst.,  68   Me.  43;   Cohnan  103  Cal.  634. 


160  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   170 

is  only  necessary  at  this  time  to  state  that  the  corporation  may, 
by  rules  or  regulations  in  the  form  of  by-laws,  provide 
the  manner  in  which  its  agents  shall  transact  its  business. 
These  limitations  are  binding  upon  all  who  deal  with  the 
agents,  with  knowledge  of  the  limitation,  but  in  the  absence 
of  such  knowledge  the  agent  is  conclusively  presumed  to  have 
the  power  ordinarily  appertaining  to  agents  with  such  appar- 
ent authority.  It  may  be  taken  as  the  rule  that  all  persons 
are  bound  by  knowledge  of  limitations  which  are  contained  in 
the  charter  or  articles  of  incorporation,  although  it  is  difficult 
to  see  why  an  ordinary  person  is  bound  to  know  what  is  in  a 
charter,  granted  by  a  special  law,  of  which  even  a  court  will 
not  take  judicial  notice.1 

At  common  law  a  corporation  could  only  enter  into  a  con- 
tract by  the  use  of  its  seal,2  except  in  cases  of  comparatively 
little  importance,  such  as  the  hiring  of  a  servant,  cook  or 
butler.3  But  this  rule  was  gradually  relaxed.  Trading  com- 
panies were  allowed  to  accept  bills  of  exchange  or  execute  a 
promissory  note  without  affixing  the  corporate  seal.4  It  was 
finally  held  that  although  the  corporation  could  only  contract 
under  seal,  it  could,  by  a  resolution  not  under  seal,  appoint  an 
agent  who  could  bind  the  corporation  by  his  acts. 

The  question  arose  in  Bank  of  Columbia  v.  Patterson,6  and 
Mr.  Justice  Story,  after  stating  the  common  law  rule,  said: 
"The  technical  doctrine  that  a  corporation  could  not  contract, 
except  under  its  seal,  or  in  other  words,  could  not  make  a 
promise,  if  it  had  ever  been  fully  settled,  must  have  been  pro- 
ductive of  great  mischiefs.  Indeed,  as  soon  as  the  doctrine  was 
blished  that  its  regularly  appointed  agent  could  contract  in 

their    name,  without  seal,  it    was    impossible  to   support   it,  for 

otherwise  the  party  who  trusted  such  contract   would  be  with- 
out remedy  against    (lie  corporation.     Accordingly,  it  would 
a  to  be  a  sound  rule  of  Law  that  wherever  a  corporation  is 

1  Ti               ed  on  the  maxim  of  pub-  Taniere,  12  <^.  B.  (Ad.  and  El.  N.  S.) 

lie  policy  thai  >               of  the  lata  <  ■-  998,  in  7  Eng.  Rul.  Caa.  866. 

the  charter  of  a  corpora-  'Black.  Com.,  Bk.  [,  ch.  18,475. 

tion  whether  under  :i  general   or  u  *Hornv.  I\y,  l   Modern  18,  Plow, 

special  act  being              red  a  tow.  91  b;  Church  v.  Coke  Co.,  6  Ad.  and 

:  8( .  •          cited  in  note  to  1  >oe  v.  El.  -s  16. 

»7Cranch  (XT.  s.)  298. 


§  170  PARTICULAR    POWERS.  101 

acting  within  the  scope  of  the  legitimate  purposes  of  its  in- 
stitution, all  parol  contracts  made  by  its  authorized  agents  are 
express  promises  of  the  corporation  ;  and  all  duties  imposed 
on  them  by  law,  and  all  benefits  conferred  at  their  request, 
raise  implied  promises,  for  the  enforcement  of  which  an  action 
will  lie."1 

In  modern  times  a  corporation  is  required  to  use  a  seal  only 
when  an  individual  must  use  one.2  It  is  not  necessary  to  the 
valid  appointment  of  an  agent.3  A  power  of  attorney  to  confess 
judgment4  need  not  be  under  seal,  nor  it  seems  even  for  the 
purpose  of  conveying  or  mortgaging  real  estate  of  the  corpora- 
tion.5 A  corporation  may  be  bound  by  the  contracts  of  an  agent 
which  are  neither  authorized  nor  executed  under  the  corporate 
seal.6  As  stated  by  Mr.  Justice  Story  above:  A  corporation  may 
be  bound  by  an  implied  contract  arising  out  of  the  acts  of  its 
agent,  or  from  the  acceptance  of  benefits,  or  from  duties  imposed 
by  law.7  The  corporation  may  become  liable  by  acquiescence. 
"Authority  in  the  agent  of  a  corporation  may  be  inferred  from 
the  conduct  of  its  officers,  or  from  their  knowledge  and  neglect 
to  make  objections,  as  well  as  in  the  case  of  individuals."8  A 
provision  in  a  statute  that  every  contract  of  every  corporation, 
by  which  a  liability  may  be  incurred  by  the  company  exceed- 
ing one  hundred  dollars,  shall  be  in  writing  and  under  the  seal 
of  the  corporation,  or  signed  by  some  officer  of  the  corporation 
authorized  thereto,  applies  only  to  executory  contracts.    It  has 

1  Bank  of  England  v.  Moffat,  3  Bro.  s  Dispatch  Line  v.  Bellamy  Mfg.  Co., 
Ch.  262;  Rex  v.  Bank  of  England,  12  N.  H.  205;  Fitch  v.  Steam  Mill  Co., 
Dong.  524  and  note;  Gray  v.  Portland  80  Maine  34;  Cook  v.  Kuhn,  1  Neb. 
Bank,  3  Mass.  364;  Worcester,  etc.,  472.  But  see  Garrett  v.  Belmont  Land 
Co.  v.  Willard,  5  Mass.  80.  Co.,  94  Tenn.  459,  Wilgus'  Cases. 

2  Crawford  v.  Longstreet,  43  N.  J.  6  Fletcher  v.  U.  S.  Bank,  8  Wheat. 
L.  325.  358;  Hoag  v.  Lamont,  60  N.  Y.  96. 

3  Bank  v.  Patterson,  supra;  Leekins  7Bank  of  Columbia  v.  Patterson, 
v.  Nordyke,  etc.,  Co.,  66  Iowa  471 ;  supra;  Pixley  v.  West  Pac.  R.  Co.,  33 
Randall  v.  Van  Vechten,  19  John.  60;  Cal.183;  Tyler  v.  Trustees,  14  Ore.  485; 
Goodwin  v.  Screw  Co.,  34  N.  H.  378;  Hayden  v.  Middlesex  T.  Co.,  10  Mass. 
Hand  v.  Coal  Co.,  143  Pa.  St.  408.  397;  Gowen,  etc.,  Co.  v.  Tarrant,  73 

4  Ford  v.  Hill,  92  Wis.  188, 66  N.  W.  111.  608 ;  Jones  v.  Nat.,  etc.,  Assn.,  94 
Rep.  115.  Pa.  St.  215. 

11— Private  Corp.  8  Sherman  v.  Fitch,  98  Mass.  59. 


162  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  171 

no  application  when  the  company  has  received  and  retains 
the  property.1 

When  a  seal  is  attached  it  will  be  presumed  to  have  been  at- 
tached by  competent  authority.  It  has  been  said  that  a  seal 
conclusively  imports  a  consideration,2  but  the  correct  rule,  as 
stated  by  Lord  Campbell,  is  that  "although  the  agreement  be 
under  seal  we  may  examine  to  see  whether  there  was  any,  and 
what  consideration  for  the  contract  to  pay  money,  when  we 
are  to  determine  whether  the  contract  was  or  was  not  ultra 
vires."3 

A  bond,  although  for  the  payment  of  money,  may  be  a  nego- 
tiable instrument  although  under  seal.4 

§171.  Formalities  to  be  observed  in  contracting.  Provis- 
ions prescribing  the  manner  in  which  corporations  shall  do 
ein  act  may  be  either  directory  or  mandatory,  depending 
apon  the  language  of  the  statute  and  nature  of  the  require- 
ment. Mandatory  directions  as  to  the  mode  or  form  of  enter- 
ing into  contracts  must  be  followed.5  But  after  a  contract 
made  in  a  different  way  is  executed,  and  the  corporation  has 
received  benefits  under  it,  it  may  be  compelled  to  pay  for  what 
it  received.6 

If  a  person  dealing  with  a  corporation  has  knowledge  or 
is  charged  with  notice  that  certain  formalities  are  necessary 
on  tin'  part  of  the  corporation,  and  are  not  being  complied 
with,  he  may  be  unable  to  hold  the  corporation  to  the  con- 
tract,7 but   if  In-   lias    no  such    knowledge,  and    is  not  charged 

i Roberta  v.  Doming,  etc.,  <'<>.,   Ill  Bhip,  L10U.S.  L62;  Topping  v.  Bick- 

N.  c.  132;  Pixley  v.  Wesl  Pac.  R.  ('<>.,  ford,  I  Allen  |  Maes.)  120. 

i.  L83;  t  uitis  v.  Mining  Co.,  L09  "Pixley  v.  Weal  Pac.  R.  Co.,38Cal. 

N.  c.  m i.  is:;. 

■Royal  Bank  v.  Grand  Junction  R.  "Dana  v.  St.  Paul  Bank,  4  Minn.  885, 

i  is,  ( ;ii.  29]  ;  Leonard  v.  American   ins. 

•Mayor  of  Norwich  v.  Norwich  R.  Co.,  97  [nd  .299;  Head  v.  Providence 

c,     i  ii   &  r.ii;    ii ::.  [ns.Co.,2  Cranch.  (U.  B.)  127.    Notice 

4  \iu.  Nat,  Bank  v.   Am.,  etc.,  Co.,  of  restriction  annexed  to  the  grant  of 

19  i;    i    L49;  Mercer  Co.  v.  Racket,  I  powers  to  a  corporation  ischarged  to 

\v:,n     r  persons  dealing  with  the  corporation. 

■Head  v.  Insurance  Co.,  2  Cranch.  Smith  v.  Cornelius,  41   W.  Va.  69,  80 

127;  Bissell  v.  Spring  Valley  Town-  L.  R.  A.  747. 


§   172  PARTICULAR    POWERS.  163 

with  notice  under  the  circumstances,  his  rights  are  not  affected 
thereby.1  One  dealing  with  a  corporate  agent  apparently  hav- 
ing authority  may  properly  assume,  on  the  principle  of  right 
acting,2  that  the  agent  is  acting  within  the  scope  of  his  real 
authority,  that  the  corporation  is  acting  regularly,  and  that  all 
formalities  and  regulations  with  reference  to  the  internal  man- 
agement and  affairs  of  the  corporation  have  been  observed.3 

§  172.  Contracts  which  are  against  public  policy. — Corpo- 
rations, like  individuals-,  are  forbidden  to  enter  into  contracts 
or  agreements  which  the  policy  of  the  law  considers  detri- 
mental to  the  public  interest.  Corporations  charged  with  pub- 
lic duties  are  subject  to  restrictions  of  this  nature  which  are 
peculiar  and  which  grow  out  of  the  nature  of  the  franchises 
granted  them  by  the  state.  Their  acts  may  be  ultra  vires  be- 
cause contrary  to  established  principles  of  common  law,  or  in 
violation  of  express  statutes,  such  as  have  been  enacted  in 
most  of  the  states. 

§  173.  Traffic  agreements. — It  is  settled  law  that  agreements 
or  arrangements  between  railway  companies  and  other  common 
carriers,  which  have  for  their  object  the  prevention  of  competi- 
tion, are  void  as  against  public  policy;  but  this  principle  does 
not  forbid  all  traffic  arrangements.  The  «rule  is  that  "a  busi- 
ness or  traffic  arrangement  or  contract  entered  into  by  a  rail- 
road or  other  corporation  charged  with  the  performance  of 
public  duties,  which  is  fairly  necessary,  incidental,  or  ancillary 
to  the  carrying  out  of  its  purposes  of  incorporation,  will  be  valid 
(assuming  the  contract  to  be  entered  into  in  the  proper  manner) 
provided  the  contract  is  not  injurious  to  the  public,  (1)  by 
necessarily  or  potentially  rendering  the  corporation  incapable 
of  performing  its  public  duties  or  enabling  it  to  shirk  its  pub- 
lic obligations,  or  (2)  by  creating  a  monopoly  in  the  contract- 
ing parties  through  the  stifling  of  competition  or  in  other  ways, 

insurance  Co.  v.  McCain,  96  U.  S.  N.   Y.   193;  Thomas  v.  Railroad  Co., 

84.  101  IT.  S.  71. 

2Downing  v.  Mt.  Wash.  R.  Co.,  40        s  Hackensack  Water  Co.  v.  DeKay, 

N.  H.  230;  Patterson  v.  Robinson,  116  36  N.  J.  Eq.  548. 


164  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  174 

or  (3)  by  giving  exclusive  or  unfair  advantages  to  certain  in- 
dividuals over  the  general  public."1  Subject  to  these  restric- 
tions, a  railroad  company  may  enter  into  a  contract  with  ship- 
pers to  carry  beyond  its  own  lines8  and  provide  for  dividing 
rates  and  freight  under  such  circumstances.3  The  contract 
must  not,  however,  be  of  such  a  nature  as  to  amount  to  a  prac- 
tical transfer  of  the  franchises  of  the  corporation.4 

§  174.  Pooling  arrangements — Contracts  to  prevent  com- 
petition.— Pooling  arrangements  between  railway  companies 
which  have  for  their  object  the  suspension  of  competition  are, 
in  the  absence  of  express  authority,  ultra  vires  and  void.5  It  is 
now  settled  that  contracts  of  this  character  are  invalid,  without 
reference  to  the  reasonableness  of  the  rates  established  there- 
under,6 although  it  was  held  in  New  Hampshire7  that  a  con- 
tract to  prevent  competition  between  railroad  companies,  but 
not  for  the  purpose  of  raising  the  cost  of  transportation  above 
reasonable  rates,  was  valid.  The  court  said:  "It  is  equally  free 
from  doubt  that  when  such  contracts  prevent  an  unhealthy 
competition  and  yet  furnish  the  public  with  adequate  facilities 
at  fixed  and  reasonable  rates,  they  are  beneficial  and  in  accord 
with  sound  principles  of  public  policy." 

•Taylor  Private  Corp.,  §  307.  such    arrangements,    whatever   their 

•Railroad   Co.  v.  Pratt,  22  Wallace  form,   however   disguised,    are    ultra 

i           123.  wire*  and  void."     (iivi'ii's  Brice  I  It  m 

1  Elkins  v.  Camden,  etc.,  R.  Co.,  36  Vires,  339.     For  construction  of  a  con- 

N.  .1.   Eq.  241;  Btewarl  v.  Brie,  etc.,  Btitutional    prohibition    (Tex.  Const., 

7  .Minn.  372.  Ait.  L0,  §  5),  see  G.  C,  etc.,  R.  Co.  v. 

•  Ohio,  etc.,  R.  Co.  v.  Indianapolis,  State,  72Tex.  mi. 

etc.,    R.  Co.,  6   \m.  Law  Reg.  N.  S.  5 Stewart  v.  Erie,  etc.,  Co.,  17  Minn. 

783.     "Corporations    may    make    all  372,   Gil.   348;    Gulf,  etc.,  R.  ('<>.   v. 

accessary  arrangements  for  cheaply  stair,  7i.'  l»x .  104;  Hartford,  etc.,  R. 

and  expeditiously  developing  and  car-  Co.  v.  New  York,  etc.,  R.  Co.,  3d  K<>l>- 

rying  on  their  particular  business,  but  ertson  (N.  Y.)  HI. 

It  is  another  thing  logo  beyond  this,  8  United  States  v.  Freighl  Assn.,  L68 

to  enter  in  to (tracts  for  instance,  by  tJ.  S.  290.     As  to  the  federal  statute, 

whirh  the  exclusive  control  of  their  see  §  178,  infra. 

exclusive  righl  of  working  the  tine  is  7  Railroad  ('<>.  v.  Railroad  Co.,  66 

handed  over  to  other  parties.     All  N.  II.  loo. 


§  175  PARTICULAR    POWERS.  165 

§  175.  Contracts  granting  special  privileges. — Public  pol- 
icy forbids  common  carriers  to  make  contracts  by  which  spe- 
cial or  exclusive  privileges  are  given  to  one  person  or  class  of 
persons  over  others.1  So  there  must  be  no  undue  or  unreason- 
able discrimination  between  shippers  in  charges  or  facilities.2 

§  176.  Trust  agreements. — It  may  now  be  taken  as  settled 
that  corporations  can  not  without  express  authority  enter  into 
what  have  become  known  as  trust  agreements.  Such  contracts, 
whether  made  by  formal  corporate  action  or  by  the  sharehold- 
ers assuming  to  act  in  their  individual  capacities,  but  for  the 
purpose  of  bringing  the  control  of  many  corporations  under 
one  management,  tend  to  stifle  legitimate  competition  and  cre- 
ate unlawful  monopolies.  Such  contracts  are  ultra  vires,  and 
are  also  void  on  grounds  of  public  policy.  When  a  corpora- 
tion enters  into  a  trust,  it  is  open  to  attack  by  the  state  on  the 
ground  (1)  that  it  has  attempted  to  grant  away  franchises 
conferred  upon  it  in  trust,  the  transfer  being  a  breach  of 
the  implied  condition  that  the  particular  grantee  shall  re- 
tain and  execute  the  trust,  and  (2)  that  in  making  the  con- 
tract, the  result  of  which  is  the  creation  of  a  monopoly,  it 
is  guilty  of  an  abuse  of  its  franchises  by  employing  them 
in  the  doing  of  an  illegal  act.3  Corporations  can  be  organ- 
ized only  for  carrying  on  a  lawful  business,  and  as  these 
combinations  are  unlawful  and  tend  to  create  monopolies,  the 
entering  into  them  is  sufficient  ground  for  forfeiting  the  cor- 
porate charter  in  proceedings  brought  by  the  state  for  that 
purpose.4  Whatever  tends  to  create  a  monopoly  or  prevent 
competition  amongst  those  engaged  in  business  of  a  public 
character  is  illegal.  It  has  been  said  a  private  manufacturing 
corporation  stands  on  the  same  footing  as  an  individual  with 

1  Messenger  v.  Pennsylvania  R.  Co.,  s  People  v.  N.  R.  Ref.  Co.,  121  N.  Y. 
37  N.  J.  Law   531;  Chicago,  etc.,  R.    582. 

Co.  v.  Suffern,  129  111.  274.  4  State  v.  Standard  Oil  Co.,  49  Ohio 

2  Atchison,  etc.,  R.  Co.  v.  Denver,  St.  137;  People  v.  N.  R.  Ref.  Co.,  121 
etc.,  R.  Co.,  110  U.  S.  667;  State  v.  C.  N.  Y.  582.  See  note  on  monopolies 
N.,  etc.,  R.  Co.,  47  Ohio  St.  130.  to  People  v.  Chicago,  etc.,  Co.,  8  L. 

R.  A.  497. 


1GQ 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  177 


respect  to  its  power  to  enter  into  contracts  to  limit  production,1 
but  the  better  rule  would  seem  to  be  that  the  corporation  can 
have  its  charter  taken  away  for  so  doing,  if  the  state  sees  fit  to 
do  so.  The  contract  is  therefore  something  more  than  void, — 
a  violation  of  the  corporate  franchise  also.2  In  order  to  forfeit 
a  charter  in  quo  warranto  proceedings  against  the  corporation 
for  entering  into  a  trust  or  illegal  combination,  it  is  not  neces- 
sary to  show  actual  public  injury,  as  that  will  be  presumed 
from  the  nature  of  the  agreement.3 

§  177.  Illustrations  of  trust  agreements. — A  manufacturing 
corporation  formed  for  the  purpose  of  buying  up  the  plants  of 
practically  all  other  manufactories  engaged  in  the  same  line 
for  the  purpose  of  pooling  them  and  practically,  if  not  wholly, 
preventing  competition,  enhancing  prices,  and  producing  a 
monopoly  in  a  necessary  article  of  food,  is  an  illegal  body,  and 
has  no  standing  in  a  court  of  equity.4  Thus,  the  American 
Biscuit  &  Manufacturers  Co.  was  organized  as  a  corporation 
and  issued  a  few  shares  to  certain  persons  to  qualify  them  as 
directors.  It  then  began  buying  up  plants  and  making  pay- 
ment therefor  in  its  own  stock.  The  defendant  sold  his  bak- 
ery to  the  company  and  gave  it  possession,  but  took  back  a 
lease  and  entered  into  a  contract  by  which  he  was  to  act  as  the 
agent  of  the  company  in  conducting  the  business.  He  subse- 
quently dispossessed  the  company,  declared  the  scheme  illegal, 
and  in  the  litigation  resulting  it  was  held  that  the  company 
had  no  rights  which  would  be  recognized  by  a  court  of  equity, 

1  Oliver v.Gilmore, 52  Fed.  Rep.562. 

'See  People  v.N.  R.  Sugar  lief. Co., 
121  N.Y.  682, Wilgus'  Cases,— a  private 
sugar  manufacturing  company,  and 
State  v.  Standard  <  >il  Co.,  49  Ohio  St. 
137, — a  private  manufacturing  com- 
pany. Tli'-  complain!  in  bol  b  of  these 
•  es  way  that  they  had  violated  their 
irate  franchise  in  entering  into 
Bach  contracts  and  carrying  them  out. 
See  al  o  nexl    ection,  177. 

'  in  Hilton  v.  i  6  El.  &  Bl. 

47,  86,  Campbell,  C.  J.,  Baid:  "I  do 
not  think  i hat  any  averment  is  n< 
■ary  a  i  to  whal  hai  been  done  under 
It,  oi  as  to  an)  mi  chief  which  it  lias 
llv  produced.  We  are  to  con- 
lider  w bal  may  be  done  under  it ,  and 
whal  mi  ichief  may  thua  arise." 

4  I  ii  Nat  ional,  etc.,  '  k>.  v   I  iuicV  .  87 

Fed    Rep.  L80,  the  court  said  ol  the 

combination  under  consideration :  "it 

uch  a  combination 


is  illegal  and  that  its  purposes  are  vio- 
lations of  Bound  public  policy.  The 
common  law  forbids  the  organisation 

of  such  combinations,  formed  of  nu- 
merous corporations  and  tinns.  They 
are  dangerous  to  the  peace  and  good 

order  of  society,  and  tlicv  arroiratc  to 
themselves  the  exercise  of  powers  de- 
structive of  the  rights  of  free  compe- 
fn ion  in  the  markets  of  the  count r.v, 
and  by  their  aggregate  power  and  in- 
fluence imperil  the  free  and  pure  ad- 
ministration of  justice."  Emery  v. 
Candle  Co.,  47  Ohio  St.  820;  Santa 
Clara,  etc.,  Co.  v.   Haves,  76  Cal.  387, 

and  cases  cited  in  the  following  notes. 

( 'oinl'inat  ion  to   fix    t  lie    price  of  coal, 

Bee  People  v.  Sheldon  (N.  Y.),  34  N. 
E,  Rep.  785.  For  a  general  discussion 
and  review  of  the  authorities, 
Atty.  Gen.  v.  Central  R.  Co.,  50  N.  .1. 
Eq.  62  189,  24  AH.  Rep.  984,  25  Ail 
Rep.  '.MU. 


§   177  PARTICULAR    POWERS.  167 

as,  under  the  guise  of  a  manufacturing  company,  its  real  pur- 
pose was  to  combine  the  leading  bakeries  into  a  pool  or  trust.1 
Upon  the  same  principle  it  was  held  that  the  Match  Trust  was 
invalid.  The  court  refused  to  enforce  the  contract  made  in 
furtherance  of  a  monopoly  in  corporate  guise,  although  both 
sides  to  the  controversy  desired  that  the  contract  should  be 
deemed  valid.  The  court  said  : 2  "  Large  sums  of  money  were 
used  in  buying  up  the  various  plants,  greatly  in  excess  of 
what  they  are  worth;  this  was  done  to  stop  competition. 
These  sums  were  called  expenses,  and  were  recouped  by  keep- 
ing up  the  prices  of  matches."  So,  a  contract  between  a  firm 
and  a  corporation  and  others,  combining  all  the  harrow-tooth 
manufactories,  for  the  purpose  of  monopolizing  the  trade,  was 
held  illegal.3  The  Preserve  Trust  was  held  invalid  on  very 
broad  grounds,  the  court  holding  that  the  corporation  had  no 
power  to  become  a  member  of  the  trust  or  to  place  its  property 
in  the  hands  of  trustees  with  power  to  purchase  and  control 
other  plants.4  In  the  Whisky  Trust  cases  it  was  held  that  a 
corporation  could  not  sell  its  entire  property  in  furtherance  of 
a  monopoly.5  A  manufacturing  corporation,  formed  for  the 
purpose  of  providing  commodities  useful  for  the  sustenance 
and  maintenance  of  the  people,  can  not  without  legislative 
authority  delegate  to  a  central  body,  whether  incorporated  or 
not,  full  control  and  management  of  the  corporate  affairs.6  A 
contract  between  gas  companies,  fixing  prices  and  pooling 
profits,  and  requiring  one  company  not  to  extend  its  pipes  in 
certain   territory,  is  contrary  to  public  policy,  and  void.7     A 

American,  etc.,  Co.  v.  Klotz,44  Fed.  not    only    limiting  the   product,    but 

Eep.  721.  also  by   dismantling  as   many  distil- 

2  Richardson  v.  Buhl,  77  Mich.  632.  leries  as  the  trust  saw  fit,  absolutely 

'Strait  v.  National,  etc.,  Co.,  18  N.  preventing  the    manufacture,    except 

Y.  Sup.  224.  in  a  few    controlled  by   the  trust." 

4  American,  etc.,  v.  Taylor,  etc.,  Co.,  Herschl,  Consolidation,  etc.,  p.  120. 
46  Fed.  Rep.  152.  e  people  v.  N.  R.  Ref.  Co.,  121  N.  Y. 

5  State    v.   Nebraska,   etc.,   Co.,   29  582. 

Neb.  700;  Distilling,  etc.,  Co.  v.  Peo-  7Gibbs   v.  Consolidated,  etc.,   Co., 

pie,  156  111.  448.     "The  object  of  the  130  U.  S.  396;  Chicago,   etc.,   Co.  v. 

trust  is  clearly  shown  to  have  been  People's,  etc.,  Co.,  121  111.  530;  Peo- 

illegal,  as  destroying  competition  and  pie  v.  Chicago,  etc.,  Co.,  130  111.  268. 
creating  a  most  offensive  monopoly, 


168  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  178 

corporation  can  not  legally  be  organized  for  the  purpose  of 
controlling  all  other  corporations  engaged  in  a  certain  kind  of 
business  in  a  city.1  A  corporation  formed  to  control  the  price 
of  milk,  or  coal,  is  formed  for  an  illegal  purpose,  and  void.2 
But  a  contract  between  two  water  companies  for  co-operation 
in  supplying  water  by  which  one  officer  of  each  company  is  ap- 
pointed a  trustee,  the  two  to  have  general  charge  of  the  opera- 
tion of  the  works,  keeping  account  of  receipts  and  expendi- 
tures, with  a  limited  power  of  determining  what  should  be 
charged  to  account  of  operating  expenses  with  other  powers 
simply  directory,  such  as  could  not  be  discharged  by  a  board 
of  directors,  except  through  an  agent,  is  valid.3  A  combination 
for  the  control  and  prevention  of  competition  in  the  sale  of 
beer  is  not  void  at  common  law,  although  in  restraint  of  trade, 
as  beer  is  not  an  article  of  prime  necessity,  and  its  sale  is 
closely  restricted  by  public  policy.4 

§  178.  Statutes  forbidding  trust  agreements. — Many  states 
have  passed  statutes  forbidding  combinations  which  tend  to 
prevent  competition  and  create  monopolies.  The  act  of  con- 
gress of  July  2,  1890, 5  makes  "every  contract,  combination 
in  tin-  form  of  trust  or  otherwise,  or  conspiracy  in  restraint  of 
trade  or  commerce  among  the  several  states,  or  with  foreign 
nations,"  illegal.  The  scope  of  this  law  was  elaborately 
considered  in  the  Trans-Missouri  Freight  Association  case,6  and 
it  was  held  by  a  divided  court  that  the  agreement  by  which 
the  association  was  created,  although  legal  when  made,  was 
rendered  invalid  by  the  statute.  "  The  language  of  the  act, " 
said  the  court,  "  includes  every  contract,  combination  in  the 
form  of  trusl  or  otherwise,  or  conspiracy  in  restraint  of  trade 
or  commerce  among  the  several   states,  or  with   Foreign    ua- 

iPeople  v.  Chicago,  etc.,  Co.,  L80  »  26  Stat.  209,  0.  647. 

Ill   268  '  I  nited  States  v.  Trans-Mo.,  etc., 

■People  v.  Milk, etc.,  146 N.Y.  267;  Assn.,   L66  U.  8.  290,  Justices  White, 

P     pie  v.  8held 139  N.  Y,  Field.   Gray   and   Shiras    dissenting. 

etc.,  Co.  v.  Ban  Diego,  Bee  the  elaborate  discussions  in  the 

I      ■  i     i;    \    339.  Circuil  <  burl  of  Appeals  ( L9  I  .  E     \pp. 

•  Anheuser-Bu  ch,etc.,Co.v.Houck  86)  and  in  the  District  Court  (63  Feci. 

I,                    w  .  Rep.  692.     Bui  pee  Rep.    140),  both  holding  contrary  to 

Brewing  <               3up.),  29  the  supreme  court.    See,  also,  United 

Atl.  Rep.  102.  States  v.  Pipe  Co.,  85  Fed.  Rep.  271. 


§  179  PARTICULAR    POWERS.  169 

tions.  So  far  as  the  very  terms  of  the  statute  go,  they  apply 
to  any  contract  of  the  nature  described.  A  contract,  there- 
fore, that  is  in  restraint  of  trade  or  commerce  is,  by  the  strict 
language  of  the  act,  prohibited,  even  though  such  contract  is 
entered  into  between  competing  common  carriers  by  railroad, 
and  only  for  the  purpose  of  thereby  affecting  traffic  rates  for 
the  transportation  of  persons  and  property."  All  such  agree- 
ments, although  their  terms  may  be  reasonable,  and  the  rates 
established  reasonable,  are  thus  rendered  invalid.  It  is  suffi- 
cient if  the  necessary  result  of  the  agreement  be  the  restraint 
of  trade.1  A  monopoly  in  the  manufacture  of  an  article  is  not 
prohibited  by  this  act.2 

§  179.  Contracts  by  trusts, — As  a  general  rule  a  contract 
made  in  violation  of  a  statute  is  void,  and  when  a  party  can 
not  establish  his  cause  of  action  without  relying  upon  an  ille- 
gal contract  he  can  not  recover.  This  doctrine  has  been  in- 
voked to  prevent  corporations  which  have  entered  into  trust 
combinations  from  recovering  on  contracts  made  in  aid  of 
the  object  of  the  combination.  In  many  states  the  anti-trust 
statutes  provide  that  a  purchaser  of  any  article  from  any  in- 
dividual or  corporation  transacting  business  contrary  to  the 
provisions  of  the  act  shall  not  be  liable  for  the  price  of  the 
article,  and  may  plead  the  act  as  a  defense  to  an  action  for  the 
purchase  price.  Where  a  corporation  which  was  organized 
for  the  purpose  of  regulating  the  price  of  milk  sold  by  its 
members  to  the  dealers  in  a  certain  city,  brought  an  action  to 
recover  for  the  value  of  milk  sold  to  the  defendant,  it  was  held 
that  the  action  was  in  furtherance  of  the  illegal  combination, 
and  the  plaintiff  could  not  recover.4     In  another  Illinois  case 

'For  the  present    law    relating  to  same  case  in  House  of  Lords;   11  The 

contracts    in  restraint  of   trade,   see  Reports  1  (1S94).    The  entire  subject 

Diamond  Match  Co.  v.  Roeber,  106  N.  is  discussed  with  great  learning  by 

Y.  473  ;  Matthews  v.  Associated  Press,  Lord    Justices    Bowen,   Lindley   and 

136  N.  Y.  333;  National  Ben.  Co.  v.  others. 

Union  Hospital  Co.,  45  Minn.  272;  '  United  States  v.  Knight,  156  U.  S.  1 . 
Maxim-Nordenfelt,  etc.,  Co.  v.  Nor-        s  Ford  ^.  Chicago,  etc.,  Assn.,   155 

denfelt,  2  The  Reports  298  (1893),  and  111.  166,  reversing  Chicago,  etc.,  Assn. 

v.  Ford,  46  111.  App.  576. 


170  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  179 

it  appeared  that  the  defendant  sold  his  property  to  a  trust  and 
transferred   it  by  a  bill  of   sale,  but  remained  in  possession  as 
an  employe  for  several  years.     He  then  repudiated  the  agree- 
ment, and  took  possession  of  his  former  property.     The  trust 
brought  an  action  of   replevin,  and  obtained  judgment  in  its 
favor  in  the  lower  court,  on  the  theory  that  the  purchase  of 
property  by  a  foreign  corporation   in  pursuance  of  a  plan  of 
monopoly  does  not  prevent  the  title  from  passing.1     This  was 
reversed  by  the  supreme  court,2  which  said:      "The  bill  of  sale 
rests  under  the  ban  of  the  law,  as  well  when  executed  to  carry 
out  the  illegal  agreement  as  if  it  had  been  made  for  the  pur- 
pose of  defrauding  creditors.     The  law  will  not  aid  the  appel- 
lee to  recover  the  property,  but  will  leave  both  it  and  the  ap- 
pellant where  they  were  when  the  suit  was  begun."     A  some- 
what  different  case  is  presented  when  it  is  sought  to  recover 
the  value  of  property  sold  to  the  trust.    Where  the  plaintiff  (a 
brewing  association)  sold  beer  to  a  firm  which  was  a  member 
of  a  combination  that  was  prohibited  by  statute,  although  not 
void  at  common  law,  the  association  was  allowed  to  recover. 
The  court  said:3    "The  general  rule,   sustained  by  the  great 
weight  of  authority,  is  to  the  effect  that  the  buyer  is  not  in  a 
position  to  resist  payment  for  goods  bought  by  him  for  an  un- 
lawful purpose,  known  to  the  seller  at  the  time  of  sale,  unless 
it    is   made  to  appear  that  the  seller   has  done  something   in 
furtherance  of  the  unlawful  act,  besides  the  mere  act  of  selling 
tin'  goods  with  such  knowledge."   A  corporation  which  appears 
to  have  been  chartered  in  Illinois  tor  an  illegal  purpose  can  en- 
force a  stock  subscription  in  New  York,  and  the  defendanl  will 
not  be  permitted  to  plead  the  illegal  purpose  of  its  organization.1 

1  Bishop  v.   American,  etc.,  Co.,  63  payment    Bee  Hanauer  v.  Doane,  12 

III.   v,.,..  117.  Wall.  (U.  s  >  842. 

*  Bishop  v.  American,  etc.,  Co.,  i">7  '  Dnited  sintcs,  etc.,  <'<>.  v.  Bchlegel, 

HI  I  i::  N.  Y.  .v:7.     In  National,  He,  <'-». 

5  Anheoser-Busch,  etc., Co.  v.  Houck  v.  Quick,  67  Fed.  Rep.  130,  it  was  held 

w\  Rep  692.    There  are  thai  :i  corporation  organized  tor  the 

cases,  however,  which  Ik. hi  thai   the  purpose  of  securing  assignments  of  all 

mere  knowledge  of  the  seller  thai  the  patents  relating  to  spring  i".»ili  har- 

buyer  will    make  illegal   use  of  the  rows,  f"  '_'':"ii  licenses  t"  tli«'  assign- 

i-  a, 1 1  deprive  him  "i  the  righl  to  orsto  use  the  patents  <>n  the  payment 


180 


PARTICULAR    POWERS. 


171 


§  180.  Power  to  indorse  and  guarantee  paper. — Banking 
and  manufacturing  corporations  have  implied  power  to  make 
negotiable  paper  for  use  within  the  scope  of  their  corporate  busi- 
ness, but  not  to  become  indorsers  or  guarantors  for  the  accom- 
modation of  others.1  No  authority  to  lend  its  credit  is  implied 
from  the  mere  fact  that  it  may  be  beneficial  to  the  corporation 
to  do  so.  But  if  such  paper  passes  into  the  hands  of  a  bona 
fide  holder  without  notice,  it  may  be  enforced.2  So,  if  all  the 
stockholders  consent,  an  accommodation  indorsement  may  be 
enforced.3 


of  royalties,  to  fix  and  regulate  the 
prices  at  which  the  harrows  shall  be 
sold,  and  to  take  charge  of  all  litiga- 
tion and  prosecute  all  infringements 
of  such  patents,  is  an  illegal  combina- 
tion, and  can  not  maintain  a  suit 
against  a  person  who  is  infringing  a 
patent. 

1  Blake  v.  Domestic  Mfg.  Co.  (N.  J. 
Ch.),38  Atl.  Rep.  241 ;  Memphis,  etc., 
Co.  v.  Memphis,  etc.,  R.  Co.,  85  Tenn. 
703,  5  S.  W.  Rep.  52;  Tod  v.  Ken- 
tucky, etc.,  Co.,  57  Fed.  Rep.  47 ;  Nat'l 
Bank  of  Republic  v.  Young,  41  N.  J. 
Eq.  531 ;  Nat'l  Park  Bank  v.  Ger- 
man, etc.,  Co.,  116  N.  Y.  281;  Nat'l 
Bank  v.  Wells,  79  N.  Y.  498;  ^Etna 
Nat'l  Bank  v.  Charter  Oak,  etc.,  Co., 
50  Conn.  167;  Monument  Nat'l  Bank 
v.  Globe  Works,  101  Mass.  57;  Davis 
v.  Old  Col.  R.  Co.,  131  Mass.  258; 
Culver  v.  Reno  R.  Co.,  91  Pa.  St.  367; 
Webster  v.  Howe,  etc.,  Co.,  54  Conn. 
394;  Lucas  v.  White  Line,  etc.,  Co., 
70  Iowa  541  ;  Merchants'  Nat'l  Bank  v. 
Detroit,  etc.,  Works,  68  Mich.  620; 
Nat'l  Bank  v.  Atkinson,  55  Fed.  Rep. 
465.  A  manufacturing  corporation 
has  no  power  to  become  a  negotiator 
of  bonds  upon  commission.  Peck-Wil- 
liamson, etc.,  Co.  v.  Oklahoma  Board 
of  Ed.  (Okla.),  50  Pac.  Rep.  236.  In 
California  a  corporation  may  for  a  val- 
uable consideration  guarantee  or  as- 
sume the  deot  of  another  corporation. 


Smith  v.  Ferres,  etc.,  R.  Co.,  51  Pac. 
Rep.  710.  A  guarantee  by  a  brewing 
company  of  the  payment  of  rent  for  a 
hotel  in  which  its  beer  is  sold  is  valid. 
Winterfield  v.  Cream  City,  etc.,  Co., 
96  Wis.  239,  71  N.  W.  Rep.  101. 

2  In  re  Jacoby-Mickolas  Co. (Minn.), 
70  N.  W.  Rep.  1085;  Jacobs  Pharmacy 
Co.  v.  Southern,  etc.,  Co.,  97  Ga.  573, 
25  S.  E.  Rep.  171;  Farmers'  Nat'l 
Bank  v.  Suton,  etc.,  Co.,  52  Fed.  Rep. 
191 ;  Bank  of  Genesee  v.  Patohin 
Bank,  19  N.  Y.  312;  Nat'l  Bank  v. 
Young,  41  N.  J.  Eq.  531,  7  Atl.  Rep. 
488;  Credit  Co.  v.  Howe,  etc.,  Co.,  54 
Conn.  357,  8  Atl.  Rep.  472.  See 
Holmes  v.  Willard,  125  N.  Y.  75.  Notes 
given  for  the  obligations  of  the  corpo  ■ 
rate  officers  are  presumptively  accom- 
modation paper  and  ultra  vires.  Ger- 
mania,  etc.,  Co.  v.  Boynton,  71  Fed. 
Rep.  797,  19  C.  C.  A.  118;  McLellan 
v.  File  Works,  56  Mich.  579. 

3  Martin  v.  Niagara,  etc.,  Co.,  122  N. 
Y.  165;  Barr  v.  N.  Y.,  etc.,  R.  Co., 
125  N.  Y.  263;  Thompson  v.  Lambert, 
44  Iowa  239.  In  Mercantile  Trust  Co. 
v.  Kiser,  91  Ga.  636,  it  was  held  that  a 
sawmill  corporation  might,  with  the 
express  consent  of  all  the  stockholders, 
guarantee  the  interest  on  the  bonds  of 
a  railway,  the  construction  of  which 
was  necessary  to  the  successful  prose- 
cution of  the  business  of  the  corpora- 
tion. 


172  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   1  SO 

Railway  corporations  are  sometimes  given  express  authority 
to  guarantee  bonds  of  other  corporations.  Power  to  guarantee 
such  bonds  upon  such  conditions  and  terms  as  may  be  agreed 
upon  includes  the  power  to  receive  as  consideration  for  such 
guarantee  stock  of  the  company  whose  bonds  are  thus  guaran- 
teed. Where  a  corporation  organized  under  the  laws  of  Ohio 
for  the  purpose  of  making  iron  work  for  a,  mining  plant  at- 
tempted to  guarantee  the  performance  of  another  contract  for 
the  erection  of  a  mining  plant,  it  was  claimed  that  the  power 
existed  on  the  ground  that  the  guarantee  would  secure  a  sale 
of  the  iron  work  to  be  used  in  the  plant.  The  court  said  that 
the  general  rule  in  this  country  and  in  England  is  that  one  cor- 
poration is  impliedly  prohibited  from  guaranteeing  the  con- 
tract or  debt  of  another,  on  the  ground  that  such  a  guarantee 
exposed  the. funds  of  the  company  to  the  risk  of  a  different  en- 
terprise and  business  under  the  control  of  different  persons 
than  those  which  its  stockholders,  creditors  and  the  state  had 
a  right  from  its  charter  to  expect.1  But  it  was  hold  that 
under  articles  of  incorporation  which  provide  that  the  corpora- 
tion may  do  all  things  proper  and  necessary  to  carry  on  the 
lumber  business,  the  corporation  may  become  a  surety  on  the 
bonds  of  building  contractors  when  it  appeared  that  such  was 
the  custom  among  lumber  companies.2  A  guarantee  may  thus 
sometimes  be  lawfully  made  for  Hie  purpose  of  carrying  out 
tlje  purposes  of  the  corporation.  When  a  railroad  corpo- 
ration has  received  the  bonds  of  a  municipal  corporation  in 
paymenl  for  its  stock,  it  may,  in  order  to  sell  them,  guarantee 
their  payment.1  A  provision  thai  the  articles  of  incorporation 
shall  stat<  the  purposes  for  which  it  is  formed  and  that  it  shall 
not  be  lawful  for  it  to  direct  its  operations  or  appropriate  its 
funds  i"  any  other  purpose,  is  for  the  protection  of  the  public, 
and  does  uol  operate  on  the  contracts  of  the  corporation  sons  to 
prevent  it  from  recovering  on  a  mortgage  given  to  indemnify  it 

■  Humboldt,  etc.,  Co.  v.  American,       •Chicag  >,  etc.,  R.  Co.  v.  Howard,  7 
etc  Fed    Rep.  867,  10  0.  C.    Wall.  1 1      B.)  892;    Low  v.  Railway 

; !.,  Co.,  52  Cal.  58. 

•Wheeler  v  I    etc  .  Co.,    1 1 

Wash  P       Rep.  316. 


§  181  PARTICULAR    POWERS.  173 

for  guaranteeing  the  payment  of  the  notes  of  another  corporation, 
after  it  has  paid  such  notes.1  A  corporation  may  indorse  paper 
which  it  holds  for  the  purpose  of  negotiating  it.2  The  guaranty 
by  a  railroad  company  of  the  bonds  of  a  connecting  road,  made 
under  power  given  by  its  charter  for  the  purpose  of  securing 
valuable  business  connections,  is  not  a  fundamental  business 
change  and  may  therefore  be  exercised  by  the  board  of  direct- 
ors.3 

§  181.  To  enter  into  a  partnership. — Corporations  gener- 
ally have  no  power  to  enter  into  a  partnership  with  individu- 
als or  other  corporations,  or  into  agreements  which  may  create 
partnerships.4  This  rule  applies  with  particular  force  when 
the  business  to  be  conducted  by  the  partnership  is  ultra  vires 
the  corporation.5  A  combination  or  syndicate  formed  by  five 
corporations  engaged  in  manufacturing  cotton-seed  oil,  under 
an  agreement  by  which  all  the  plants  were  placed  in  the 
hands  and  under  the  management  and  control  of  a  committee 
composed  of  representatives  from  each  corporation,  each  cor- 
poration to  share  in  the  profit  or  loss,  was  held  to  be  a  part- 
nership, and  the  agreement  invalid.6 

§  182.     To  borrow  money  and  make  negotiable  paper. — A 

corporation  has  implied  power  to  raise  money  for  purposes 
properly  within  the  scope  of  its  business.  It  may,  of  course, 
for  this  purpose  issue  and  sell  its  stock  within  the  limit  allowed 
by  law  and  may  even  issue  preferred  stock  in  order  to  more 
readily  find  purchasers.     It  also  has  implied  power  to  borrow 

1  Butterworth  v.  Kritzer  Mill  Co.  Mallory  v.  Oil  Works,  86  Tenn.  598; 
(Mich.),  72  N.  W.  Rep.  990;  Union  Marine  Bank  v.  Ogden,  29  111.  248. 
Nat'l  Bank  v.  Matthews,  98  U.  S.  621 ;  See  French  v.  Donahue,  29  Minn.  Ill; 
Mclndoe  v.  St.  Louis,  10  Mo.  575.  Allen  v.  Woonsocket  Co.,  11  R.  I.  288. 

2  Bank  v.  Patchin  Bank,  13  N.  Y.  5  WMttenton  Mills  v.  Upton,  10  Gray 
309.  (Mass.)    582;    Central,    etc.,    Co.    v. 

3  Louisville  Trust  Co.  v.  Louisville,  Smith,  76  Ala.  572;  Standard  Oil  Co. 
etc.,  Co.,  75  Fed.  Rep.  433.  v.  Scofield,  16  Abb.  (N.  C.)  372.     See 

4  Oscillating  Carousal  Co.  v.  McCool  Bates  v.  Coronado  Beach  Co.,  109  Cal. 
(N.  J.  Ch.),35  Atl.Rep.585;  People  v.  160. 

North  River,  etc.,  Co.,  121  N.  Y.  582;        6Gunn  v.  Central  R.Co.,74  Ga.509. 


174  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   1S2 

money  to  enable  it  to  carry  out  its  legitimate  objects  and  to  exe- 
cute the  ordinary  commercial  paper  involved  in  such  transac- 
tion. The  weight  of  modern  authority  supports  the  conclu- 
sion that  private  corporations  organized  for  pecuniary  profit 
may,  like  individuals,  borrow  money  whenever  the  nature  of 
their  business  renders  it  proper  or  expedient  that  they  should 
do  so,  subject  only  to  such  express  limitations  as  are  imposed 
by  their  charters.  The  power  to  borrow  carries  with  it  by  im- 
plication, unless  restrained  by  the  charter,  the  power  to  se- 
cure the  loan  by  mortgage.  It  may,  therefore,  be  regarded 
as  settled  that,  when  general  authority  is  given  to  engage 
in  business  and  there  are  no  special  restraints  in  its  charter, 
it  takes  the  power  as  a  natural  person  enjoys  it,  with  all  its  in- 
cidents and  accessories.  It  may  borrow  money  to  attain  its 
legitimate  objects,  precisely  as  an  individual,  and  bind  itself 
by  any  form  of  obligation  not  forbidden.1 

The  power  to  borrow  money  is  implied  from  an  expressed 
power  to  do  an  act  which  requires  the  use  of  money.  Thus  a 
corporation  which  under  a  statute  may  "hold  real  and  per- 
sonal estate,  and  may  hire,  purchase  or  erect  suitable  buildings 
for  its  accommodations  to  an  amount  not  exceeding  five  hundred 
thousand  dollars,"  may  take  a  lease  of  land  and  erect  a  build- 
ing thereon  and  borrow  the  money  necessary  for  such  purpose.2 

1  Wright  v.  Boghes,   L19  [nd.324;  the  Dame  of  the  corporation.    City, 

...  Kiaranty  Co.,  L01   U.  B.  622;  etc.,  R.  Co.  v.  Bank,  62  Ark.  33,3]  L. 

Reichwald  v.  Hotel  Co.,  L06  [11.439;  R.  A..  535. 

Booth  v.  Robinson, 55 Md. 419 ;  Hayes  ■Bradbury  v.  Boston  Canoe  Club, 

.    Coal  Co.,  29  Ohio  St.  330;  Railroad  L63MaBS.77;  Davis  v.  Old  Colony  R. 

...  Lg  Fed.  Rep.388;  Curtiss  Co.,   131   Mass.  258.     The  right  of  a 

ivitt,  L5  N.  Y. '.i;  Kent  v.Quick-  building  and  loan  Bociety  to  execute 

rilver,  etc.,  Co.,78N.Y.  169-,  Ward  v.  negotiable    paper    is    implied     from 

Johnson,  95  111.  215;  Commissioners  v.  power  to  incur  debts  tor  various  pur- 

9;  Fifth  Ward  Sav.  poses,  and  to  sell  and  mortgage  prop- 

,.li,-t  Nat'l  Bank,  48  N.J.  La*     erty.    Gt aee  v.  Bullivan,  53  U.S. 

In  ra  Durham  County,  etc.,  Soc.,  App.  359,  81   Fed.  Rep.  15,  reversing 

l2Eq.616;Kneelandv.  Towle  v.  Am.,  etc.,  Co.,  78  Fed.  Rep. 

Braintree,etc.,R.Oo.1167Mass.l61,45  688.    Bee  note  to  43  L.  R  a.  119,  on 

•.   |                               dentandsecre-  powerof  building  iiHHociutioiiH  to  isi-n« 

.,i  :,  corporation  have  no  inherent  negotiable  paper, 
powi                                ible  notei   in 


§183 


PARTICULAR    POWERS. 


175 


Such  power  is  plainly  inferable  from  a  charter  limitation  upon 
the  amount  of  the  indebtedness.1 

If  the  execution  of  negotiable  paper  is  obviously  foreign  to 
the  purposes  of  the  corporation  all  persons  are  chargeable  with 
notice  of  the  ultra  vires  character  of  such  paper.  But  if  the 
business  of  the  corporation  is  such  that  it  may  under  some 
conditions  have  occasion  to  execute  such  paper,  and  it  in  fact 
executes  it  for  a  purpose  foreign  to  its  purposes,  as  in  payment 
for  property  which  it  had  no  authority  to  purchase,  the  paper  is 
binding  in  the  hands  of  a  bona  fide  holder  for  value  without 
notice.  The  distinction  is  between  a  total  want  of  power  and 
an  irregular  exercise  of  an  unauthorized  power.2 

§  183.    Limitations  upon   the  amount  of  indebtedness. — A 

person  dealing  with  a  corporation  is  charged  with  notice  of  its 
powers  as  disclosed  by  the  charter  or  articles  of  incorporation.3 


1  Auerbach  v.  LeSueur,  etc.,  Co.,  28 
Minn.  291.  Some  earlier  decisions  show 
an  inclination  to  restrict  this  power. 
Thus,  in  Bateman  v.  Mid-Wales  Ey. 
Co.,  Lower  Courts,  1  C.  P.  499  (1866), 
it  was  held  that  a  railway  company, 
with  a  limited  capital  and  a  limited 
power  of  borrowing  money,  had  no 
power  to  accept  bills.  But  in  Union 
Bank  v.  Jacobs,  6  Humph.  (Tenn.) 
515  (1845*,  where  it  was  contended 
that  the  money  paid  for  capital  stock 
was  the  only  means  provided  by  which 
to  raise  money  to  pay  a  debt,  the  court 
said":  "The  restriction  contended  for 
is  too  refined  and  technical.  It  might 
have  suited  the  days  of  the  year  books, 
when  it  was  held  that  a  corporation 
could  contract  for  nothing  except  un- 
der its  corporate  seal ;  but  it  is  strange 
that  it  should  be  urged  at  this  day  of 
enlightened  jurisprudence,  when  the 
substance  of  things  is  looked  to  rather 
than  forms.  A  corporation  is,  in  the 
estimation  of  the  law,  a  body  created 
for  special  purposes,  and  there  is  no 
good  reason  why  it  should  not,  in  the 


execution  of  these  purposes,  resort  to 
any  means  that  would  be  necessary 
and  proper  for  an  individual  in  exe- 
cuting the  same,  unless  it  be  prohibited 
by  the  terms  of  its  charter  or  some 
published  law  from  so  doing. 

"There  is  no  principle  which  pre- 
vents a  corporation  from  contracting 
debts  within  the  scope  of  its  action ; 
and,  as  has  been  observed,  if  it  may 
contract  a  debt, .it  necessarily  may 
make  provision  for  its  payment  by 
drawing,  or  indorsing,  or  accepting 
notes  or  bills.  It  is  not  pretended 
that  this  power  extends  to  the  draw 
ing,  indorsing  or  accepting  bills  or 
notes  generally,  and  disconnected  with 
the  purposes  for  which  the  corporation 
was  created." 

2  Monument  Nat'l  Bank  v.  Globe 
Works,  101  Mass.  57;  Nat'l  Park  Bank 
v.German,  etc.,  Co.,  116  N.  Y.  281 ; 
Nat'l  Bank  v.  Young,  41  N.  J.  Eq.531  ; 
Jacob's,  etc.,  Co.  v.  Southern,  etc., 
Co.,97  Ga.  573,  25  S.E.  Pep.  171  ;  Brad- 
ley v.  Ballard,  55  111.  413. 

3  Pearee  v.  Madison,  etc.,  R.  Co.,  21 


176  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  183 

Hence,  when  the  amount  of  indebtedness  which  may  be  in- 
curred is  limited  by  the  charter,  one  who  loans  it  an  amount 
in  excess  of  the  limit,  can  not  recover  the  excess.  If,  however, 
there  is  no  bad  faith  and  the  contract  is  not  against  public  pol- 
icy, the  contract  is  valid  to  the  limit  of  indebtedness.  With 
reference  to  the  apparently  conflicting  authorities,  Mr.  Justice 
Mitchell  said:1  "They  all  fall  within  one  or  the  other  of  three 
classes:  (1)  Where  the  act  was  not  in  violation  of  the  corn- 
pan  v's  charter,  but  was  merely  claimed  to  be  in  excess  of  the 
powers  delegated  to  some  inferior  agent;  or  ( "2 )  where  the  corpo- 
ration had  received  and  retained  the  benefits  of  the  transaction; 
or  (3)  where  the  fact  that  the  power  of  the  corporation  in  that 
regard  had  been  exhausted  depended  on  the  existence  of  cer- 
tain extrinsic  facts  not  known  to  the  other  contracting  party.2 
Dicta  may  be  found  in  a  few  cases  to  the  effect  that  limitations 
like  this  upon  the  amount  of  indebtedness  which  the  corpora- 
tion can  contract  are  merely  directory.  But  there  can  be  no 
distinction  in  principle  between  a  case  where  the  charter  or 
articles  of  association  prohibit  a  thing  altogether,  and  where  it 
is  prohibited  beyond  a  certain  limit.  In  the  one  case,  there  is 
a  total  absence  of  authority  to  do  the  thing  at  all,  and  in  the 
other  a  total  absence  of  authority  to  do  it  beyond  a  certain 
limit;  and  after  that  limit  is  reached  there  is  as  much  an  ab- 

<■  of  authority  in  the  latter  case  as  there  is  in  the  former. 

other  rub'  would  keep  corporations  in  subordination  to  the 
state  «»r  properly  protect  shareholders,  for  whose  special  benefit 

How.     0*.  8      Hi;  Davis  v.  Old  ('"1-  lias    been   reached,  he  ••an   recover, 
ony  R.  Co.,  131   M                 Fltzhugh  Humphrey   v.    Patrons',  etc.,    Assn., 
I  Co.,  81  Tex.  806.  60  towa  607;  <  tesipee  Mfg.  Co.  v.  Can- 
1  Kranigerv.  People's  Building  Soc.,  ney,64    N.  H.295;  Conn.  River  Sav. 
•  an.  94;  Oswald  v.  Times  Print-  Bank  v.  Fiske,  60  N.  H.  868.   The  por- 
ing Co.,  86  Minn.  L')i».     As  to  whai  son  who  loans  money  to  the  corpora- 
debts,  see   Lockharl  v.  Van   A.ls-  Hon   is  affected    by  notice   when  bis 
31  Mich.  76 ;  Chase  v.  Curtis,  113  loan  exceeds  the  charter  limitation. 
i     «     152;  Leighton  v.  Campbell,  17  Firs!  Nat'l  Bank  v.  Kiefer,  95  Ky.  97. 
j;     |     5i;    Childfl    v.    Boston,    etc.,  Istowhal  is  included  in  "indebted- 
Works,  137  Ma--.  516.  "  Bee  Tradesman's   Pub.  ('<>.  v. 
*  I,                 loans  money  to  the  cor-  Knoxville,  etc.,  I  !o.,  96  Tenn.  684,  81 
■  .,m,  in  Ignorance  thai  tin-  limit  I..  R.  A..  693. 


§   184  PARTICULAR    POWERS.  177 

the  limitations,  whether  self-imposed  or  imposed  by  statute,  are 
usually  intended." 

§  184.     Liability  to  holder  of  over-issued  negotiable  paper. 

Where  the  charter  of  a  trading  corporation  provided  that  "  the 
highest  amount  of  indebtedness  or  liability  to  which  said  cor- 
poration shall  be  subject  shall  not  exceed  five  thousand  dol- 
lars," and  the  corporation,  nevertheless,  contracted  indebted- 
ness and  gave  its  promissory  notes  for  a  greater  amount,  it 
was  held  that  a  bona  fide  purchaser  of  the  paper  before  ma- 
turity could  recover  thereon  from  the  corporation.  The  court 
said:1  "  Where  a  private  corporation  has  authority  to  issue  ne- 
gotiable securities,  such  instruments  when  issued  possessed 
the  legal  character  ordinarily  attaching  to  negotiable  paper, 
and  the  holder  in  good  faith  before  maturity  and  for  value 
may  recover,  even  though  in  a  particular  case  the  power  of 
the  corporation  was  irregularly  exercised  or  was  exceeded;  or, 
to  state  the  legal  proposition  in  its  application  to  this  case,  this 
defendant  having  power  to  incur  debts  to  a  limited  extent 
and  to  issue  its  negotiable  notes  therefor,  the  plaintiff,  as  a 
bona  fide  holder  of  the  note  in  suit,  may  recover  upon  it,  al- 
though in  this  particular  case  the  indebtedness  of  the  corpo- 
ration at  the  time  of  giving  this  note  already  exceeded  the 
limits  prescribed  by  its  articles  of  association.  Although,  in 
such  a  case,  the  corporation  or  its  officers  exceeded  the  corpo- 
rate authority,  and  its  contract  would  be,  hence,  in  a  sense  ultra 
vires,  yet  other  legal  principles  besides  those  merely  relating  to 
the  powers  of  a  corporation  come  in  to  affect  the  result." 

A  limitation  of  the  indebtedness  to  an  amount  equal  to  one- 
half  of  the  capital  stock  of  the  corporation  means  one-half  of 
the  paid-up  capital  stock.2 

1  Auerbach  v.  LeSueur,  etc.,  Co.,  28  ton  v.  Butler,  14  Wallace  (U.  S.)  282; 

Minn.   291-296;  Stoney  v.  American,  Ossipee  Mfg.  Co.  v.  Canney,  54  N.  H. 

etc.,  Co.,  11  Paige  (N.  Y.)  635;  Monu-  295;  Garrett  v.  Burlington,  etc.,  Co., 

ment  Nat'l  Bank  v.  Globe  Works,  101  70  Iowa  697. 

Mass.  57  ;  Bissell  v.  Michigan,  etc.,  R.  2  Appeal  of  Lehigh,  etc.,  R.  Co.,  129 

Co.,  22  N.  Y.  258-289;  City  of  Lexing-  Pa.  St.  405. 

12 — Private  Corp. 


ITS  THE  LAW  OF  PRIVATE  CORPORATIONS.         §  1S5 

§  1S5.  Power  to  acquire  personal  property. — The  power  to  ac- 
quire real  property  by  purchase  or  devise  has  already  been 
considered.1  The  common  law  placed  no  limit  on  the  quantity 
or  value  of  personal  property  which  a  corporation  might  acquire, 
although,  from  the  nature  of  the  business  of  the  corporation, 
it  might  be  inferentially  prohibited  from  investing  its  funds  in 
certain  kinds  of  personal  property.  The  limitation  in  such 
cases  is  upon  the  power  to  acquire  the  particular  kind  of  prop- 
erty and  not  upon  the  power  to  acquire  property.  The  statutes 
of  mortmain  had  no  application  to  personal  property,  and  a 
corporation  always  had  the  power  to  take  personal  property  by 
bequest.2 

§  186.  Power  of  alienation. — Independent  of  positive  law, 
all  corporations  have  the  absolute  jus  disponendi,  neither  limited 
as  to  objects  nor  circumscribed  as  to  quantity.3  One  of  the 
earliest  writers  on  the  law  of  corporations  stated  the  common 
law  rule  to  be  that  all  civil  corporations,  unless  expressly  re- 
strained by  the  act  which  established  them,  or  by  some  subse- 
quent act,  have  and  always  have  had  an  unlimited  control 
over  their  respective  properties,  and  may  alienate  in  fee  or 
make  what  estates  they  please,  for  years,  for  life,  or  in  tail,  as 
fully  as  any  individual  may  do  with  respect  to  his  own  prop- 
erty.4 When  thought  desirable,  a  corporation  having  no  public 
duties  t<>  perform  may  dispose  of  all  its  property  ami  wind  up 
its  business.  Hence,  the  directors  of  a  corporation  which  has 
been  unsuccessfully  carrying  on  the  business  tor  which  it  was 
organized  may,  with  the  consent  of  the  majority  of  the  stock- 
holders, validly  lease  the  plant  of  the  corporation  to  another 
Corporation  carrying  on  the  same  business,  even  though  a  mi- 
nority of  the  Stockholders  Object  thereto.5 

'§  160, et $eq., supra.    Stockton,  etc.,  erton,   11   Alien  (Mass.)  881;    Dupee 

taples,  98  Cal.  189;   Nicoll  v.  New  v.   Water,  etc.,  <'<>..    mi    Mass.  :;7; 

!_'  N.  V    121.  Benbo*  v. Cook,  115 N.C. 824;  Wythe, 

'Sherwood  v.  American,  etc.,  Soc,  etc.,  Co.  v.  James,  etc.,  Co.,  L5  Utah 

>  Abb.  (N.  V.Ct.  App.Cas.)231.  110. 

at  Com.,  Vol.  II,  p    !80     7  Eng.  •  Kyd    Corp.   (lfll   ed  ,   1793),    107, 

Rul   I              note;  W I  v.  Bedford,  108;  Aurora  Society  v.  Paddock,   80 

-  Phila.  94;    tagell  &  111.  264. 

Ames  Corps.,{  191;   Hendee  v.  rink-  'Bartholomew  v.  Derby,  etc.,  Co., 


§    187  PARTICULAR    POWERS.  179 

§  187.  Limitations  upon  the  right  of  alienation — Corpora- 
tions charged  with  public  duties. — The  general  rule  that  a  cor- 
poration may  alienate  its  property  with  the  same  freedom  as 
an  individual  is  subject  to  the  limitation  that  a  corporation 
charged  with  duties  to  the  public,  and  which  has  received  its 
franchises  and  privileges  from  the  state  in  consideration  of 
the  assumption  and  performance  of  such  duties,  can  not  sell 
or  dispose  of  its  franchises  or  of  the  property  which  is  essential 
to  the  performance  of  such  duties  without  authority  from  the 
state.1  This  rule  also  restricts  the  power  to  mortgage  such 
property,  as  the  execution  of  a  valid  mortgage  necessarily  con- 
templates a  possible  if  not  a  present  change  of  title.  Upon 
the  same  rule  of  public  policy  rests  the  principle  that  "land 
which  has  been  appropriated  to  corporate  objects,  and  is  neces- 
sary for  the  full  enjoyment  and  exercise  of  any  franchise  of 
the  company,  whether  acquired  by  a  purchase  or  by  exercise 
of  the  delegated  power  of  eminent  domain,"  is  held  exempt 
from  levy  or  sale.  This  "on  no  ground  of  prerogative  or  cor- 
porate immunity,  for  the  company  can  no  more  alien  or  trans- 
fer such  lands  by  their  own  act  than  can  a  creditor  by  legal 
process  ;  but  the  exemption  rests  on  the  public  interests  in- 
volved in  the  corporation."  But  the  reason  for  the  rule  fails 
when  a  corporation  owns  land  for  other  than  corporate  pur- 
poses. Hence,  lands  held  for  other  purposes,  and  not  actually 
dedicated  to  corporate  uses,  may  be  levied  on  and  sold  in  the 
same  manner  as  the  lands  of  any  other  debtor.2  A  manufact- 
uring corporation  has  the  right  to  lease  or  rent  its  plant  tem- 
porarily when  the  purpose  is  not  the  abandonment  of  its  fran- 
chise, but  the  raising  of  a  fund  to  enable  it  thereafter  to  trans- 
act its  business  more  profitably.3 

§  188.    Power  to  give  a  mortgage. — As  a  general  rule  a  cor- 
poration  may   mortgage  the  property  it    holds   for   corporate 

69  Conn.  521.  As  to  powers  of  the  ma-  130  U.  S.  1 ;  Pennsylvania  R.  Co.  v. 

jority,  see  further,  §  485.  St.  Louis,  etc.,  R.  Co.,  118  U.  S.  290. 

1  City,  etc.,  Co.  v.  State,  88  Tex.  600,  2  Plymouth  R.  Co.  v.  Colwell,  39  Pa. 

32  S.  W.  Rep.  1033;  Central,  etc.,  Co.  St.  337. 

v.   Pullman,   etc.,  Co.,  139  U.  S.  24;  *  Plant  v.  Macon,  etc.,  Co.,  103  Ga. 

Oregon  R.  Co.  v.  Oregonian  R.  Co.,  666,  30  S.  E.  Rep.  567. 


180 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  18& 


purposes,  unless  expressly  prohibited  from  doing  so.1  The 
power  may  be  implied  from  the  power  to  borrow  money2  or 
from  the  power  to  take  and  hold  real  estate  and  make  contracts8 
or  from  power  "to  acquire,  alien,  transfer  and  dispose  of  prop- 
erty of  every  kind."4  The  limitation  upon  the  general  rule 
which  forbids  corporations  charged  with  public  duties  to  sell 
or  mortgage  their  franchises  or  the  property  which  is  essential 
to  the  performance  of  such  duties  has  already  been  stated.5 
Under  such  circumstances,  the  corporation  has  no  power  to 
mortgage  such  property  or  franchises  without  express  author- 
ity; but  a  corporation  which  is  authorized  to  sell  its  franchises 
is  authorized  to  mortgage  them,  as  a  mortgage  is  in  effect  a  sale 
with  a  power  of  defeasance  which  may  ultimately  end  in  an 
absolute  transfer  of  title.6  It  has  been  held  that  under  the 
New  York  statute  a  manufacturing  corporation  can  mortgage 
property  for  the  purpose  of  securing  a  debt  but  not  to  raise 
money,7  although  this  ruling  has  been  considerably  limited.8 

A  corporation  can  not  make  a  valid  mortgage  upon  its  future 
income  without  express   legislative  authority  under  a  statute 


1  England  v.  Dearborn;141  Mass.590  ; 
State  v.  Rice,  c..-)  Ala.  s:::  Watts  Ap- 
peal, 78  Pa.  st.  370;  Phillips  v.  Win- 
Blow,  L8  B.  Mon.  Ky.  431,  68  Am. 
1).  c.  729;  Warfield  \.  Marshall  Co., 72 
Iowa 666,  2  Am.  St.  Rep.  263;  Lovev. 
Biera,  etc.,  Co.,  32  Cal.  639,  91  Am. 
Dec.  602;  In  re  Pat.  File  Co.,  L.  R.  6 
Ch.  App.  83,  7  Eng.  Rul.  Cas.  668. 

•Wrighl  v.  Hughes,  119  End.  324,  12 
Am.  St.  Rep.  H2;  Fitch  v.  Steam  Mill 
30  Me.  34;  Lehigh  Valley,  etc., 
Co.  v.  Agricultural  Works,  63  Wis. 45; 
hange  Co.,  I  Band!  Ch. 
(N.  Y .)  280;  <  iurtia  v.  Leavitt,  15  N. 
Y.  9;  Eureka,  etc.,  Works  v.  Bresna- 
han,  80  Mich.  832;  Reichwald  v.  Ho- 
tel Co.,  108  ill.  139  i  ine  ■  Heating 
Co.,  rndemni- 

0o.,  I'"   I'.  B.  622. 
' J  Watt*  Appeal,  .'-  Pa  Bl   370;    in- 
r..r a  c,  v.  Paddock,  80  HI  263. 

»Mc  Uli  ter  v.  Plant,  54  Miss.  108. 


5§  18G.  Thomas  v.  Railroad  Co.,  101 
I'.  S.  71  ;  Commonwealth  v.  Smith, 
in  Allen  (Mass.)  448,  87  Am.  Dec. 
672;  Lord  v.  Gas  Co.,  99  N.  Y. 
547;  Carpenter  v.  Mining  Co.,  (>5  N. 
Y.  43;  Daniels  v.  Hart,  lis  Mass. 543; 
City  Water  Co.  v.  state  88 Tex.  600; 
Bank  v.  Delaware,  etc.,  Co.,  22  N.  J. 
Eq.  130;  Pierce  v.  Emery,  32  N.  II. 
484.  Contra:  Bhepley  v.  Railroad  Co., 
55  Maine  395;  Bardstown  R.  Co.  v. 
Metcalf,4  Mete.  Ky.)  199,81  Am.  Dec. 
541  ;  Bank  v.  Edgerton,  30  Vt.  L82; 
Kennebec,  etc  .    R.  Co.  v.   Portland, 

etc.,   I.'    CO.,  59  Maine  9. 

•  Williamette  Mfg.  Co.  v.  Bank  ol 
Columbia,  119  D.  8.  191  :  Common- 
wealth v.Smith,  10  Allen  I  Mass.)  448. 

'Carpenter  v.  Black  Hawk  Mfg. 
Co.,  65  N   Y.  18. 

■  Lord  v.  Yonkers,  etc.,  Co.,  99  N. 

■  17. 


§  189  PARTICULAR    POWERS.  181 

which  forbids  a  mortgage  of  property  which  may  be  acquired 
after  the  execution  of  the  mortgage.1  A  mortgage  given  to  se- 
cure money  borrowed  in  excess  of  the  amount  allowed  by  the 
statute  is  valid  as  against  subsequent  creditors  who  became 
such  with  knowledge  of  all  the  facts.2  A  corporation  can  not 
contest  the  validity  of  an  agreement  by  which  another  corpo- 
ration undertook  to  subject  its  property  to  a  mortgage  executed 
by  the  former  corporation  for  the  purpose  of  securing  bonds, 
on  the  ground  that  the  agreement  is  ultra  vires? 

§  189     Assignment  for  benefit  of  creditors. — Preferences. — 

A  corporation,  when  not  forbidden  by  statute,  may  make  an 
assignment  for  the  benefit  of  its  creditors.4  As  said  by  one 
court,5  "  the  weight  of  authority  seems  to  be  in  favor  of  the 
proposition  that  the  board  of  directors  of  a  corporation,  to 
which  the  general  management  of  its  affairs  is  committed 
without  particular  restriction,  may  authorize  a  general  assign- 
ment of  the  corporate  property  for  the  benefit  of  creditors, 
when  the  condition  of  affairs  is  such  as  to  reasonably  justify 
such  a  course,  as  in  the  case  of  insolvency." 

So,  by  the  weight  of  authority,  in  the  absence  of  a  prohibitive 
statute,  an  insolvent  corporation  may  deal  with  its  property 
in  the  same  manner  as  an  individual,  and  may,  therefore,  make 
an  assignment  with  preferences  in  favor  of  certain  creditors.8 

'Lubroline  Oil  Co.  v.  Athens  Sav.  Co.,  80  Iowa  380;  Bank,  etc.,  v.  Potts, 

Bank  (Ga.),  30  S.  E.  Rep.  409.  etc.,   Co.,   90  Mich.  345;  Boynton  v. 

8 Central  Trust  Co.  v.  Columbus,  etc.,  Roe  (Mich.),  72  N.  W.  Rep.  257. 

R.  Co.,  87  Fed.  Rep.  815.  5  Tripp  v.  N.W.  Nat'l  Bank,  41  Minn. 

3  The  Illinois,  etc.,  Bank  v.  Pacific  400.    The  directors  may  make  the  as- 

R.  Co.,  115  Cal.  287,  49  Pac.  196.  signment  without  the  assent  of  the 

*ArdeseoCo.v.  North  American,  etc.,  stockholders.  Boynton  v. Roe  (Mich.), 

Co.,  66  Pa.  St.  375 ;  State  v.  Bank,  etc.,  72  N.   W.   Rep.  *257 ;  Hutchinson  v. 

6  Gil.  &  J.  206;  Shockley  v.  Fisher,  75  Green,   91   Mo.   367;  DeCamp  v.  Al- 

Mo.  498 ;  Fouche  v.  Brower,  74  Ga.  251 ;  ward,  52  Ind.  473. 

Reichwald  v.  Hotel  Co.,  106  111.  439;  6 Brown  v.  Grand   Rapids,  etc.,  Co. 

Glover  v.   Lee,  140  111.  102;  Tripp  v.  (U.  S.  C.  C.  App.),  58  Fed.  Rep.  286, 

N.W.  Nat'l  Bank,  41  Minn.  400;  Chase  22  L.  R.  A.  817;  Catlin  v.  Eagle  Bank, 

v.  Tuttle,  55  Conn.  455 ;  Coats  v.  Don-  6  Conn.  233 ;  Gould  v.  Little  Rock,  etc., 

nell,  94  N.  Y.  168;  Lamb  v.  Cecil,  25  R.  Co.,  52  Fed.  Rep.  680;  Ringo  v.  Bis- 

W.  Va.  288;  Chamberlain   v.    Brom-  coe,  13  Ark.  563;  Bank  v.  Whittle,  78 

berg,  83  Ala.  576;  Rollins  v.  Carriage  Va.  737;  Buell  v.  Buckingham,  16  Iowa 


182 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  189 


This  rule  is  generally  criticised  by  text  writers,1  but 
without  much  apparent  result.  Some  decisions  hold  that 
as  the  property  of  an  insolvent  corporation  is  a  trust  fund, 
held  by  the  corporation  for  the  benefit  of  all  its  creditors,  it  can 
not  be  disposed  of  by  way  of  a  preference.2  The  rule  has  every 
reason  in  its  favor  and  has  been  embodied  in  the  statutes  of 
some  states.3     But,  as  said  by  Judge  Caldwell,4  although  "a 


284,  85  Am.  Dec.  516 ;  Warfield  v.  Mar- 
shall, etc.,  Co.,  72  Eowa666;  Rollins  v. 
Shaver,  etc.,  Co.,  80  Iowa  380;  Allis  v. 
Jones  (Neb.),  45  Fed.  Rep.  148;  Hen- 
derson v.  Indiana,  etc.,  Co.,  143  End. 
5G1 ;  Vail  v.  Jameson,  41  N.  J.  Eq.648; 
Wilkinson  v.  Bauerle,  41  N.  J.  Eq.  635 ; 
Pyles  v.  Riverside,  etc.,  Co.,  30  W.Va. 
123;  San  Diego,  etc.,  Co.  v.  Pacific, 
etc.,  Co.,  112  Cal.  53,  33  L.  R.  A.  788; 
Bank,  etc.,  v.  Potts, etc  .  Co., 90  Mich. 
846;  Haywood  v.  Lincoln,  etc.,  Co.,  64 
Wis.  639;  Glover  v.  Lee,  140  111.  102; 
Illinois,  etc.,  Co.  v.  O'Donnell,  156  111. 
624,  31  L.  R.  A.  265;  Butler  v.  Rob- 
bins  Co. ,151 111.588;  Union  Nat'l  Bank 
v.  State  Nat'l  Bank,  168  111.  256,48  N. 
E.  Rep.  82;  Belle  v.  Grocery  Co.,  72 
MisH.o'iD;  Alhrrgerv.  Hank,  123  Mo. 
313;  Bchofeldl  v.  Smith,  131  Mo.  280; 
Sanford,  etc.,  Co.  v.  Howe,  157  U.  S. 
312;     Smith    v.   Skeaiy,    17  Conn.   17; 

Coats  v.  Donnell,  94  N.  Y.  168.  Bee 
the  dissenting  opinion  by  Kellam,  J., 
in  Adams  A:  Westlake  Co.  v.  Deyette 
(B.  Dak.),  65  N.  W.  Rep.   171. 

'Thompson  Corp.,  g  6493,  et  seq. 
Taylor  Corp.,  668;  Morawetz  Corp., 
§  803;    Wait   Insolvent  Corp.,  §  162. 

'Rouse  v.  Merchants' Nat'l  Bank,  16 
Ohio  St.  193,  •">  L.  R  \.  878;  Brown  v. 
Morristown,  etc.,  Co.  (Tenn.  Ch. 
App.),  12  S.  W.  Rep.  161  :  Lyon- 
Thomai  II  I  to.  v.  Perry,  etc.,  Co.,  86 
i.  I         !  L     l:      \.    802,     \nn  ; 

Thompson  v.  Lumber  Co.,  I  Wash. 
i  [aywood  v,  Lincoln,  etc  .  Co., 
m  Wis.  889.     in  Wisconsin  a  statute 


makes  all  preferences  except  for  wages 
void.  Ford  v.  Bank,  87  Wis.  363; 
Adams,  etc.,  Co.  v.  Deyette,  8  S.  Dak. 
119;  Biddle,  etc.,  Co.  v.  Steel  Co.,  16 
Wash.  681 ;  Tradesman's,  etc.,  Co.  v. 
Wheel  Co.,  95  Tenn.  634;  Swepson  v. 
Bank,  9  Lea.  (Tenn.)  713.  The  presi- 
dent and  general  manager  of  a  corpo- 
ration, although  having  entire  charge 
of  its  affairs,  can  not  in  the  absence  of 
special  authority  transfer  its  assets 
after  insolvency  to  one  of  its  creditors 
so  as  to  give  him  a  preference.  Had- 
den  v.  Linville  (Md.),  38  Atl.  Rep.  37; 
Kankakee,  etc.,  Co.  v.  Kanipe,  38  Mo. 
App.  229,  (to  a  director)  5.  In  a  case 
arising  in  Ohio,  the  Supreme  court  of 
the  I' nit ed  States  followed  the  decision 
in  Rouse  v.  Merchants'  Nat'l  Hank, 
supra;  Smith,  etc.,  Co.  v.  McGroarty, 
136  I'.  S.  237. 

'See  Throop  v.  Lithographing  Co., 
125  N.  Y.530;  Bcotl  v.   Armstrong.  I  16 

V.  s.  199;  Varnum  v.  Hart.  119  N.  V. 
101.    See  French  v.  AndrewB,  146  N. 

V.  III.  1\  S.  Rev.  St.,  §5242;  Irons  v. 
Ml-.  I'.ank,  f.  I'.iss.  (('.  V.)  301.  Cer- 
tain statutory  preferences  are  also 
commonly  authorized  to  clerks,  ser- 
vants,   employes,    etr.      See    Lewis    \. 

fisher,  80  Md.  189,  26  L.  R.  A.  278; 
Palmer  v.  Van  Santvoord,  L58  N,  Y. 
612,  88  L.  R.  A.  402;  Boston,  etc.,  Co. 
v.  Mercantile,  etc.,  Co.,  82  Md.  586, 
88  L.  R.  A.  97,  tor  construction  of 
such  Btatute. 

4 < ioidd  v.  i.'aiiw ay  ( to.,  52  Fed.  Rep. 
680,  684. 


§  189  PARTICULAR    POWERS.  183 

good  many  courts  have,  from  time  to  time,  inveighed  against 
the  rule  of  the  common  law  which  allows  a  debtor  to  make 
preferences  among  his  creditors,  the  rule  is  too  firmly  imbedded 
in  our  system  of  jurisprudence  to  be  overthrown  by  judicial 
decision,  and  it  can  no  more  be  overthrown  by  the  courts  in 
its  application  to  corporations  than  to  individuals."  After 
quoting  the  statement:  "  Both  reason  and  authority  establish 
the  proposition  that  a  corporation  may  sell  and  transfer  its 
property,  and  may  prefer  its  creditors,  although  it  is  insolvent, 
unless  such  conduct  is  prohibited  by  law,"1  the  court  contin- 
ued:2 "We  think  this  is  a  correct  statement  of  the  rule, 
and  that  it  can  only  be  abrogated  by  legislation."  When 
preferences  are  allowed,  a  stockholder  who  is  a  bona  fide  creditor 
maybe  preferred.3  But  a  director  stands  in  a  trust  relation 
to  the  stockholders  and,  after  insolvency,  to  the  creditors  of 
the  corporation.  The  better  rule  would  seem  to  be  that  an 
insolvent  corporation  can  not  prefer  a  director  or  managing 
agent,4  although  there  are  decisions  to  the  effect  that  a  director 
who  is  a  bona  fide  creditor  may  be  preferred.5 

1  Wilkinson  v.  Bauerle,  41  N.  J.  Eq.  has  befallen  or  threatens  the  enter- 

635.  prise,  shall  be  permitted  to  convert 

'Gould  v.  Little  Rock,  etc.,  R.  Co.,  their  powers  of  management  and  their 

52  Fed.  Rep.  680.  intimate  and  may  be  exclusive  knowl- 

8Reichwald  v.  Com.,  etc.,  Co.,  106  edge  of  the  corporate  affairs  into  means 

111.  439;  Lexington,  etc.,  Co.  v.  Page,  of  self-protection,  to  the  harm  of  other 

17  B.  Mon.  (Ky.)  416,  66  Am.   Dec.  creditors."     Seeds,  etc.,  Co.  v.  Heyn, 

165.  etc.,  Co.  (Neb.),  77  N.  W.  Rep.  660; 

401ney  v.  Conanicut  Land  Co.,  16  Hill  v.  Pioneer,  etc.,  Co.,  113  N.  C. 
R.  I.  597,  5  L.  R.  A.  361 ;  Consol.Tank  173,  21  L.  R.  A.  560. 
Line  v.  Kansas  City,  etc.,  Co.,  45  Fed.  5  Planters'  Bank  v.  "Whittle,  78  Va. 
Rep.  7;  Hays  v.  Citizens'  Bank,  51  737;  Schufeldt  v.  Smith,  131  Mo.  280, 
Kan.  535;  Smith  v.  Putnam,  61  N.  H.  29  L.  R.A.830;  Buell  v. Buckingham,  16 
632 ;  Corey  v.  Wadsworth,  99  Ala.  68,  Iowa  284, 85  Am.  Dec.516 ;  South  Bend, 
23  L.  R.  A.  618;  Lyon,  etc.,  Co.  v.  etc.,  Co.  v.  Cribb  Co.  (Wis.),  72  N.W. 
Perry,  etc.,  Co.  (Tex.),  22  L.  R.  A.  Rep.  749;  Bank  of  Montreal  v.  Potte, 
802,  Ann.  In  Howe,  etc.,  Co.  v.  San-  etc.,  Co.,  90  Mich.  345.  In  Brown 
ford,  etc.,  Co.,  44  Fed.  Rep.  231,  the  v.  Grand  Rapids,  etc.,  Co.  (C.  C. 
court  said:  "It  seems  to  me  enough  to  App.),  22  L.  R.  A.  817,  58  Fed. 
say  that  a  sound  public  policy  and  a  Rep.  286,  Judge  Taft  said:  "All 
sense  of  common  fairness  forbids  that  the  decisions  of  the  supreme  court  of 
the  directors  or  managing  agents  of  a  the  United  States  relied  on  and  re- 
business    corporation,    when    disaster  ferred  to  as  sustaining  the  view  that 


184 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


190 


An  assignment  by  a  corporation  for  the  benefit  of  its  credit- 
ors is  not  invalidated  by  the  preference  of  the  claim  of  a  bank- 
ing corporation,  of  which  one  of  the  directors  of  the  insolvent 
corporation  is  president,  director,  and  a  large  stockholder, 
when  it  was  approved  by  the  unanimous  vote  of  the  stockhold- 
ers and  directors  of  the  corporation.  The  assignment  was  made 
in  good  faith,  without  fraud,  in  fact.1  So,  a  preference  may  be 
given  to  a  creditor  whose  notes  are  guaranteed  by  its  directors.2 

§  190.    Power  to  hold  stock  in  another  corporation, — As  a 

general  rule  it  may  be  stated  that  a  corporation  can  not  pur- 
chase, hold,  or  deal  in  the  stock  of  other  corporations  without  ex- 
press or  implied  authority  so  to  do.8  The  power  may,  however, 
arise   by  implication,  and   may,  therefore,  be  exercised   when 


the  bona  fide  debt  of  a  director  of  a 
corporation  may  not  lie  paid  in  pref- 
erence  to  the  debt  of  some  other  cred- 
itor an-  cases  «  here  the  directors  were 
guilty  of  fraud  in  procuring  the  pay- 
ment of  their  own  debts  by  fraudulent 
wasting  of  the  assets  to  accomplish  the 
preference.  Such  were  the  cases  of 
Drury  v.  Milwaukee,  etc.,  R.  Co.,  7 
Wall.  299;  Koehler  v.  Black  River, 
Co.,  2  Black.  715;  Jackson  v. 
Ludeling,  21  Wall.  616."  The  fact 
that  the  creditor  is  related  to  one  or 
more  of  the  directors  or  officers  will 
not  prevent  the  giving  of  a  valid  se- 
curity as  a  preference  to  such  creditor. 
Blair  v.  111.,  etc.,  Co.,  159  III.  350,  31 
L.  i:.  \. 
1  Colorado  Fuel,  etc.,  Co.\  .Western, 
Co.  ^1  tah  .  50  Pac.  i 
distinguishing  Button  Mfg.  Co.  v. 
Hutchinson,  63  Fed.  Rep.  196,  24  (J. 
\  pp.     1  l"» ;     Haywood    v.    Lincoln, 

etc.,  Co  .  64  Wis.  639. 

■  Blair  v.  Ill  ,  etc.,  Co.,  159  01.  8  K), 
81  l.   i:    \ 

*  People  v.  ( Ihicago,  etc.,  Co.,  180 
III.  268,  17  Am  Bt.  Rep.  819;  Frank- 
tin  Co.  v.  Lewiston  Bav.  Inst.,  68 
Maine    i:;;    Franklin    Bank   v.   Com- 


mercial Bank,  36  Ohio  St.  350;  Peo- 
ple v.  Pullman,  etc.,  Co.,  175  111.  126; 
Milbank  v.  Railway  Co.,  64  How.  Pr. 
(N.  Y.)  320;  Nassau  Bank  v.  Jones, 
95  N.  Y.  115;  Pearson  v.  Concord, 
etc.,  Co.,  62  N.  H.  537;  Oregon,  etc., 
R.  Co.  v.  Oregonian,  etc.,  Co.,  130  U. 
S.  1  ;  Valley,  etc.,  R.  Co.  v.  Lake  Erie, 
etc.,  Co.,  46  Ohio  St.  14;  Central,  etc., 
R.  Co.  v  Penn.,  etc.,  R.  Co.,  31  N.  J. 
Eq. 475;  Byrnes  v.Mfg  Co. ,65  Conn. 
365,  28  L.  R.  A.  304;  Denny, etc.,  Co. 
v.  Bchram,  6  Wash.  134,  36  Am.  St. 
Rep.  L30j  Marble  Co.  v.  Harvey,  92 
Tenn.  115;  Knowles  v.  Sandersock, 
107  Cal.  629;  Easun  v.  Buckeye  Co., 
51  Fed.  Rep.  156.  In  Farmers'  Loan 
and  Trust  v.  New  York,  etc.,  R.  Co., 
150  N.  V.  II".  34  L.  !;.  A.  76,  it  was 
held  that  the  statutory  right  of  a  cor- 
poration to  purchase  the  stock  of  an- 
other company  does  not  give  the  right, 
as  the  ow  ncr  of  a  majority  of  the  stock 
and  bonds  of  the  company,  h>  so  man- 
its  affairs  as  to  cause  b  default  on 
a  mortgage,  and  thus  obtain  control  of 
the  property  by  a  foreclosure  at  less 
than  its  value,  to  the  del  riment  of  min- 
oi  itj  stockholders.  Bee  De  La  Vergne, 
etc.,  Co.  v.  I  .'i  man,  <-\r.,  i  oat .  (TJ.  S. 
B.  Ct.i,  19  Nat.  Corp.  I..  Rep.  542. 


§  190  PARTICULAR    TOWERS.  185 

necessary  to  the  exercise  of  its  granted  powers,  or  when  rea- 
sonably necessary  in  order  to  carry  out  the  objects  of  the  cor- 
poration. If  one  corporation  could  purchase  and  hold  the 
stock  of  another  it  could  thus  control  the  business  of  the  latter 
corporation,  and  indirectly  engage  in  a  business,  and  thus 
exercise  powers  not  granted  or  contemplated  by  its  own 
charter.  A  contract  by  a  railroad  corporation  to  purchase 
shares  in  another  such  corporation  for  the  purpose  of  obtaining 
control  and  thus  preventing  competition  between  the  two  is 
ultra  vires  and  illegal.1  Where  one  gas  company  purchased 
stock  of  another,  the  court  said  :2  "Where  a  charter  in  ex- 
press terms  confers  upon  a  corporation  the  power  to  maintain 
and  operate  works  for  the  manufacture  and  sale  of  gas,  it  is 
not  a  necessary  implication  therefrom  that  the  power  to  pur- 
chase stock  in  other  gas  companies  should  also  exist.  There 
is  no  necessary  connection  between  manufacturing  gas  and 
buying  stocks.  *  *  *  It  is  true  that  a  gas  company  might 
take  the  stock  of  another  company  in  payment  of  a  debt,  or 
perhaps  as  security  for  a  debt,  but  the  actual  purchase  of  such 
stock  is  not  directly  and  immediately  appropriate  to  the  exe- 
cution of  a  specifically  granted  power  to  operate  gas-works  and 
manufacture  gas.  Some  corporations,  like  insurance  com- 
panies, may  find  it  necessary  to  keep  funds  on  hand  for  the' 
payment  of  losses  by  death  or  fire,  or  to  meet  other  neces- 
sary demands  ;  but  it  is  questionable  whether  they  can  invest 
their  surplus  funds  in  the  stocks  of  other  corporations  without 
special  legislative  authority.  *  *  *  If,  then,  the  power  to 
purchase  outside  stocks  can  not  be  implied  from  the  power  to 
operate  gas-works  and  make  and  sell  gas,  a  company  to  which 
the  latter  power  has  been  expressly  granted  can  not  exercise 
the  former  without  legislative  authority  to  do  so.  This  is  the 
law  as  settled  by  the  great  weight  of  authority."  Corporations 
whose  business  it  is  to  loan  money  may  take  stock  in  other 
corporations  as  collateral,  and  in  the  process  of  realizing  on 

1  Central,  etc.,  Co.  v.  Cullen,  40  Ga.        2  People  v.  Chicago,  etc.,  Co.,   130 
582;  Pearson  v.  Concord,  etc.,  R.  Co.,     111.  2G8. 
62  N.  H.  537. 


lSt",  THE    LAW    OF    PRIVATE    CORPORATIONS.  §191 

the  security,  become  the  owner  of  the  stock.1  The  general 
rule  above  stated,  is  subject  to  the  exception  that  one  corpora- 
tion may  acquire  the  shares  of  another  when  necessary  to 
secure  the  payment  of  a  debt,2  although  it  may  be  expressly 
forbidden  to  purchase  such  stock.8  So,  the  application  of  the 
rule  is  sometimes  limited  by  the  doctrine  of  estoppel.  It  is 
thus  held  that  the  objection  that  the  purchase  by  a  corporation 
of  the  stock  of  another  corporation  is  ultra  vires,  can  not  be 
raised  by  the  stockholders  of  the  corporation  whose  stock  is  thus 
purchased.4  But,  in  the  United  States  courts,  a  corporation 
which  unlawfully  purchases  stock  in  another  corporation  may, 
under  all  circumstances,  assert  the  ultra  vires  character  of 
the  transaction.5 

§  191.  Exceptions  to  the  general  rule. — In  some  states6 
and  in  England,7  it  is  held  that  a  corporation  has  implied 
power  to  purchase  and  hold  the  stock  of  another  corporation. 
So,  in  man}''  cases,  the  authority  is  expressly  conferred,8  while 
in  others  it  is  implied,  from  the  express  grant  of  power. 
Tli us,  the  power  to  acquire  stock  in  another  corporation  may 
be  implied  from  authority  to  consolidate  with  such  corpora- 
tion.9 A  banking  corporation  with  authority  to  "discount 
bills,  notes  and  other  securities,"  may  purchase  stock  in 
another  corporation.10  A  corporation  may  be  formed  for  the 
purpose  of  dealing  in  bonds  and  stocks.11     In  some  states  it  is 

1  Firal  Nat'l  Bank  v.  Nat'l  Exchange  782;  Booth  v.  Robinson,  .r>:>  Md.  419; 

Bank,  92  U.  8. 122.    Bee  In  re  Asiatic  Hill  v.  Nisbet,  LOOInd.  341;  Evansv. 

Banking  Corp.,  L.  I:.  Ml..  App.252.  Bailey,  66  Cal.  112. 

'Howe  v.  Boston,  etc.,  Co.,  L6  Gray  7 In're  Asiatic  Banking  Corp.,  L.  R. 

(Mass.    193.  lCh.App.252;  hi  re  Barned's  Bank- 

•  Holmes,  etc.,  Co.  v.  Holmes,  127  ingCo.,  I..  R.  3  Ch.  A.pp.  106. 

I".  -   262.  h  Minn.  Gen.  St.    L894,  §  2834,  con- 

'Kennedy  v.  Cal.  Bav.   Bank,    i"l  Btrued  in  Cowling  v.  Zenith  Iron  Co., 

Cal.   196      Revei  ed  in   167  d.  8. 162,  65  Minn.  263,  83  L.  R.  A.  508. 

grounds  do!  affectng  this  proposi-  'Louisville,  etc.,  Co  v.    Louisville, 

etc.,  R.  Co.,  75  Fed.  Rep.  433. 

■   ilifornia  Bank  v.  Kennedy,  167  l0Latimer  v.  Citizens'  State   Bank, 

i  102  towa  161,  71   N.  W.  Rep.  225. 

tows  Lumber  Co.  v.  Foster,  19  "MarketSt.  R.  Co.  v.  Hellman,  109 

25 :  '  !alumet  Paper  <  fc>.  \ .  Statts'  Cal.  57 1 , 
In-   l               iwa   i  17,  64  V  W.  Rep. 


§191 


PARTICULAR    POWERS. 


18? 


held  that  a  purely  private  corporation,  owing  no  duties  to  the 
public  may,  when  necessary  to  make  an  advantageous  sale  of 
its  property,  sell  the  same  to  another  corporation  and  take  its 
stock  in  payment  therefor.1  In  all  cases  a  corporation  may 
take  the  stock  of  another  corporation  for  the  purpose  of  secur- 
ing payment  of  an  existing  indebtedness.2  And  it  may  acquire 
title  to  stock  in  another  corporation  by  levying  on  the  same 
and  selling  it  under  execution  to  satisfy  a  judgment  against 
the  corporation.3  For  the  purpose  of  retiring  from  business, 
a  corporation  may  sell  the  entire  property  of  the  corporation 
and  take  payment  in  the  shares  of  a  new  corporation  and  dis- 
tribute them  among  the  stockholders  of  the  old  corporation.4 
The  implied  power  to  wind  up  the  business  and  make  a  sale  of 
the  property  will  probably  authorize  a  sale  for  stock  in  another 
corporation.5  As  to  an  agreement  whereby  a  corporation  is  to 
abandon  its  manufacturing  business  and  restrict  itself  to  the 
holding  of  the  stock  of  another  corporation  by  which  it  was  to 
be  carried   on,  the   court   said:6     "  The  avowed  object  was  to 


1  Holmes  &  Co.  v.  Holmes,  etc.,  Co., 
127  N.  Y.  252. 

*  Talmage  v.  Pell,  7  N.  Y.  328 ;  First 
Nat'l  Bank  v.  Exchange  Nat'l  Bank, 
92  U.  S.  122;  McCutcheon  v.  Merz, 
etc.,  Co.,  71  Fed.  Rep.  787;  Howe  v. 
Carpet  Co.,  16  Gray  493;  Hodges  v. 
Screw  Co.,  1  R.  I.  312,  53  Am.  Dec. 
624;  Kennedy  v.  Bank,  101  Cal.  495; 
Knowles  v.  Sandercock,  107  Cal.  629. 

8  Memphis,  etc.,  R.  Co.  v.  Wood,  88 
Ala.  630;  National  Bank  v.  Case,  99 
XJ.  S.  628;  Holmes  &  Co.  v.  Holmes, 
etc.,  Co.,  127  N.  Y.  252.  "A  corpora- 
tion having  power  to  dispose  of  its 
property  may  also,  as  an  incident  to 
the  exercise  of  this  power,  in  some 
instances  at  least,  determine  what 
shall  be  accepted  in  payment,  and 
may  be  justified  in  accepting  the  stock 
of  another  corporation  for  distribution 
among  the   stockholders  of  the  first 


corporation  according  to  their  respec- 
tive interests."  Note  to  Denny,  etc., 
Co.  v.  Schram,  36  Am.  St.  Rep.  140, 
citing  Treadwell  v.  Salsbury,  etc.,  Co., 
7  Gray  393,  405,  66  Am.  Dec.  490; 
Hodges  v.  New  England,  etc.,  Co.,  1 
R.  I.  312,  347,  53  Am.  Dec.  624.  See 
Evans  v.  Bailey,  66  Cal.  112 ;  Ryan  v. 
Leavenworth,  21  Kan.  365. 

4  Treadwell  v.  Mfg.  Co.,  7  Gray 
(Mass.")  393. 

5  Holmes  &  Co.  v.  Holmes,  etc.,  Co., 
127  N.  Y.  252;  McCutcheon  v.  Merz, 
etc.,  Co.,  71  Fed.  Rep.  793. 

6  McCutcheon  v.  Merz,  etc.,  Co., 
supra;  Central  Trans.  Co.  v.  Pullman, 
etc.,  Co.,  139  U.  S.  24,  11  Sup.  Ct.  478; 
Thomas  v.  Railway  Co.,  101  U.  S.  71 ; 
People  v.  North  River,  etc.,  Co.,  li'l 
N.  Y.  582,  24  N.  E.  Rep.  834;  Mallory 
v.  Oil  Works,  86  Tenn.  598,  8  S.  W 
Rep.  396. 


1S8  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   192 

continue  corporate  life  and  activity  through  the  instrumentality 
of  another  corporation.  There  was  to  be  a  corporation  within 
a  corporation.  Individual  activity  was  to  cease,  but  corporate 
energy  was  to  be  exercised  through  a  living  corporation,  whose 
life  and  functions  were  to  be  controlled  through  the  shares 
held  by  its  corporate  creator  and  master.  Forbidden  to  exer- 
cise the  very  functions  for  which  the  breath  of  corporate  life 
had  been  breathed  into  it,  by  the  state,  there  would  remain 
standing  only  the  shell  of  the  corporation,  retaining  corporate 
existence  only  for  the  purpose  of  controlling  and  directing  the 
new  corporation,  in  which  was  invested  its  corporate  capital, 
and  to  receive  and  distribute  its  aliquot  proportion  of  those 
dividends  as  earnings  among  its  own  shareholders.  The 
effect  of  this  action  of  the  appellee  was  to  divest  itself  of  the 
power  to  exercise  the  essential  and  vital  elements  of  its  fran- 
chise, by  a  renunciation  of  the  right  to  engage  directly  and 
individually  in  the  very  business  which  it  was  organized  to 
carry  on,  and  is  a  disregard  of  the  conditions  upon  which  its 
corporate  existence  was  conferred.  The  state  is  presumed  to 
grant  corporate  franchises  in  the  public  interest,  and  to  intend 
that  they  shall  be  exercised  through  the  proper  officers  and 
ucies  of  the  corporation  and  does  not  contemplate  that  cor- 
porate powers  will  be  delegated  to  others.  Any  conduct  which 
destroys  their  functions,  or  maims  or  cripples  their  separate 
activity,  by  taking  away  the  right  to  freely  and  independently 
exercise  the  functions  of  their  franchise,  is  contrary  to  a  sound 
public  policy." 

§  192.     Purchase   of   its   own   shares. — There   is   a   conflict 
o\  authority  as  to  whether  a  corporation. has  implied  authority 

t,,    purchase    and    hold    its    own    BtOck.      The    law    is    settled    in 

England  that  a  corporation  can  not,  purchase  shares  of  its  own 
L,1  and  the  rule  in  the  United  States  is  that  such  a  pur- 
chase is  ultra  vires  at  least  when  the  effect  is  to  reduce  the  capi- 

'Trevor  v.   Whitworth,   !-.    B.    12    5  Oh.  App.  Cas.  444 ;  Hope  v. Interna- 
App  I  >;  Znlueta's Claim,  L.  R.    tional,  etc.,  Soc,  L.  R.  4  Ch.  Div.  827. 


§  192 


PARTICULAR    POWERS. 


189 


tal  stock,  and  thus  diminish  the  security  of  creditors.1  The 
funds  of  an  insolvent  corporation  certainly  can  not  be  used  to 
purchase  a  portion  of  its  capital  stock,  as  it  would  be  inequi- 
table to  the  other  stockholders  and  a  fraud  upon  the  creditors.2 
The  fact  that  creditors  did  not  know  of  the  transaction  when 
their  debts  were  incurred  is  immaterial.3  The  general  rule 
and  its  exceptions  are  thus  stated  by  the  supreme  court  of 
Ohio:4  "The  doctrine  that  corporations,  when  not  prohibited 
by  their  charter,  may  buy  and  sell  their  own  stock,  is  sup- 
ported by  a  line  of  authorities;  but  nevertheless  we  think 
the  decided  weight  of  authority,  both  in  England  and  in  the 
United  States,  is  against  the  existence  of  the  power,  unless 
conferred  by  express  grant  or  clear  implication.  * 

It  is  true,  however,  that  in  most  jurisdictions,  where  the  right 
of  a  corporation  to  traffic  in  its  own  stock  has  been  denied, 
an  exception  to  the  rule  has  been  admitted  to  exist,  whereby 
a  corporation  has  been  allowed  to  take  its  own  stock  in  satis- 
faction of  a  debt  due  to  it.5     This  exception  is  supposed  to 


1  Augsburg,  etc.,  Co.  v.  Pepper,  95 
Va.  92,  27  S.  E.  Rep.  807.  Such  a  pur- 
chase does  not  necessarily  reduce  the 
capital  stock.  _  It  may  be  held  by  the 
corporation  and  reissued.  State  v. 
Smith,  48  Vt.  266;  State  Bank  v.  Fox, 
3  Blatch.  C.  C.431 ;  Vail  v.  Hamilton, 
85  N.  Y.  4~>3 ;  American,  etc.,  Co.  v. 
Haven,  101  Mass.  398;  Dupee  v.  Bos- 
ton, etc.,  Co.,  114  Mass.  37.  In  Lowe 
v.  Pioneer,  etc.,  Co.,  70  Fed.  Rep.  646, 
Nelson,  J.,  said:  "It  is  a  mooted 
question  in  this  country  as  to  whether 
a  corporation  may  purchase  shares  of 
its  own  stock;  many  states  forbid  it. 
In  the  absence  of  a  charter  prohibi- 
tion, or  a  statute  forbidding  it,  there 
is  no  reason  why  the  stock  should  not 
be  purchased,  at  least  with  the  profits 
derived  from  the  business  of  the  cor- 
poration, where  all  the  stockholders 
assent  thereto.  The  tendency  of  the 
decisions  in  the  state  of  Minnesota  is 
on  this  line.  See  State  v.  Minn.,  etc., 
Co.,  40  Minn.  227." 


2  Currier  v.  Lebanon,  etc.,  Co.,  56 
N.  H.  262 ;  Alexander  v.  Rolfe,  74  Mo. 
495;  Adams,  etc.,  Co.  v.  Dyette,  5  S. 
Dak.  418;  Crandall  v.  Lincoln,  52 
Conn.  73;  In  re  Columbian  Bank,  147 
Pa.  422,  23  Atl.  Rep.  626 ;  Commercial, 
Nat'l  Bank  v.  Burch,  141  111.  519, 31  N. 
E.  Rep.  420.  The  receiver  of  an  in- 
solvent coi-poration  may  recover  from 
a  stockholder  whose  stock  has  been 
purchased  by  the  corporation.  Farns- 
worth  v.  Robbins,  36  Minn.  369;  State 
v.  Oberlin,  etc.,  Assn.,  35  Ohio  St.  258 ; 
Price  v.  Coal  Co.  (Ky.),  32  S.  W.  Rep. 
267. 

3  Commercial  Nat'l  Bank  v.  Burch, 
141  111.  519. 

4Coppin  v.  Greenless,  38  Ohio  St. 
275. 

5  Taylor  v.  Exporting  Co.,  6  Ohio 
177;  Coppin  v.  Greenless,  38  Ohio  St. 
273;  Ex  parte  Holmes,  5  Cow.  (N.Y.) 
426;  State  v.  Smith,  48  Vt.  266;  Will- 
iams v.  Mfg.  Co.,  3  Wd.  Ch.  418 ;  First 
Nat'l  Bank  v.  Exchange  Nat'l  Bank. 


190 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§193 


rest  upon  a  necessity  which  arises  in  order  to  avoid  loss." 
So,  in  a  case  where  a  corporation  in  failing  circumstances 
borrowed  money  with  which  to  purchase  its  own  shares,  the 
court  said:1  "If  a  corporation,  to  the  injury  of  creditors,  can 
borrow  money  for  the  purchase  of  one  share  of  its  stock,  or 
the  stock  held  by  one  member,  it  can  borrow  money  with 
which  to  purchase  the  shares  of  all  its  members,  and  thus  de- 
stroy its  very  existence,  as  no  corporation  like  the  defendant 
can  have  an  existence  in  this  jurisdiction  without  stock  and 
without  stockholders.  The  doctrine  is  well  established  that  a 
purchase  of  shares  in  itself  by  a  corporation  is  against  public 
policy  and  ultra  vires,  whenever  such  purchase  diminishes  its 
ability  to  pay  its  debts,  or  lessens  the  security  of  its  cred- 
itors."2 

§  193.    When  a  corporation  may  hold  its  own  shares. — The 

weight  of  American  authority  seems  to  be  in  favor  of  the  view 
that  the  act  of  purchasing  its  own  shares  of  stock  is  not  in  it- 


92  T.  S.  122;  City  Bank  v.  Bruce,  17 
N.  V.  507;  Verplanck  v.  Mercantile, 
etc.,  Co.,  1  Edw.  Cli.  (N.Y.)  84.  May 
accept  its  own  stock  as  a  gift,  Lake 
Superior,  etc.,  Co.  v.  Drexel,  90  N.  Y. 
ST. 

1  Adams,  etc,  ('".  v.  Dyette,  6  6. 
I>:11<.  lis,  59  N.  W.  He]..  21 1,  65  X.  W. 
Rep.  171. 

2<  rermau  Sav.  Bani  v.  Wulfekuhler, 

\'.i  Kan.  'in;  dill  v.  Balis,  72  Mo.  42 1 ; 

Barton  v.  Plank,  etc.,  ('<>.,  17  Barb. 

Clapp  \.    Peterson,  h'l  111.  26; 

Btate  v.  <  tberlin,  etc.,  Assn.,  •':•">  <  >hio 

Ibeles  v.  Cochran,  22  Kan. 

105  ■linn.  v.  T.  M.  Co.,  40 

Minn.  21  rohnson  v.  Bush,  S 

.  (!,.  207;  Morawetz  I,  $112,  el 

ling  1      16S ;  Beach  1 1. 

Brice   Ultra  Vires  (26    im. 

!,.  19.     Mr.  Taylor 

(§  1,  regard  to  the  power 

,,i  :i  ,-,,i poration  to  purchase  it-  own 

!-!■  .■■•- ,  there  is  a  difference  "i  opinion. 


The  English  decisions  seem  unani- 
mously to  negative  the  possession  of 
this  power  by  the  corporation  ;  and 
Mr.  Brice's  proposition  — 'Corpora- 
tions can  not,  whatever  the  nature  of 
their  business,  without  an  express  and 
vnv  clear  power  in    that    behalf,  deal 

in  theirown  shares'—  may  be  regarded 
as  expressing  somewhat  vaguely,  and 
from  bis  use  of  the  word  'deal,'  the 

English  law  on  the  Subject.  In  Amer- 
ica, on  the  other  hand,  the  weighl    of 

authority  clearly  indicates  that  there 
is  nothing  in  itself  illegal  or  ultra  vires 
in  the  purchase  of  its  own  shares  by 

a   corporation;    and    that   whether  the 

purchase  is  valid  depends  on  the  con- 
dition  of  the  corporate    affairs,   the 

purpose   for   which    the    purchase   was 

made  Cor  the  Bhares  received  l>\  the 
corporation )  and  on  1  he  relations  to 
the  corporation  of  the  persons  ques- 
tioning  the  validity  of  the  transao- 
1  ions." 


§193 


PARTICULAR    TOWERS. 


191 


self  illegal,  but  that  the  validity  of  the  particular  transaction 
depends  upon  the  condition  of  the  corporate  affairs,  and  the 
purpose  for  which  the  purchase  was  made.1  It  is  held  in  some 
states  that  a  corporation  may  purchase  its  own  shares  on  con- 
dition that  it  is  solvent  and  that  the  effect  of  the  transaction 
is  not  to  reduce  its  actual  assets  below  its  capital  stock.2  The 
purchase  must  not  be  made  "at  such  time  and  in  such  manner 
as  to  take  away  the  security  upon  which  the  creditors  of  the  cor- 
poration have  the  right  to  rely  for  the  payment  of  their  claim, 
or,  in  other  words,  so  as  not  to  diminish  the  fund  created  for 
their  benefit.  Each  case  must  therefore  depend  upon  and  be 
determined  by  its  own  facts  and  circumstances."3  As  said  by 
Mr.  Cook,4  "If  there  is  no  statutory  liability  on  the  stock,  and 
if  stockholders  do  not  object,  there  is  no  reason  why  the  net 
profits  of  the  corporation  should  not  be  applied  to  the  pur- 
chase of  stock  instead  of  being  used  for  dividends." 

A  corporation  organized  to  deal  in  jewelry  without  any  lim- 
itations as  to  what  it  may  take  in  payment  for  its  goods,  may 
take  payment  in  its  own  stock.5   When  shares  are  legally  pur- 


1  Dupee  v.  Boston,  etc.,  Co.,  114 
Mass.  37 

2  Leland  v.  Hayden,  102  Mass.  542, 
551;  American,  etc.,  Co.  v.  Haven, 
101  Mass.  398;  Dupee  v.  Boston,  etc., 
Co.,  114  Mass.  37;  Chicago,  etc.,  Co. 
v.  Marsailles,  84  111.  145,  643;  Iowa, 
etc.,  Co.  v.  Foster,  49  Iowa  25.  Sub- 
sequent creditors  can  not  complain. 
Rollins  v.  Shaver  Co.,  80  Iowa  380; 
Taylor  v.  Miami,  etc.,  Co.,  6  Ohio  176 ; 
Bank  v.  Champlain,  etc.,  Co.,  18  Vt. 
131 ;  Pierce  Railroads,  505.  See  Hol- 
liday  v.  Elliott,  8  Ore.  84;  Preston  v. 
Grand,  etc.,  Co.,  11  Sim.  327.  In  a 
late  case,  First  Nat'l  Bank  v.  Salem, 
etc.,  Co.,  39  Fed.  Rep.  89,  Deady,  J., 
said:  "The  rule  appears  to  be  well 
settled  that  a  corporation  may,  unless 
prohibited  by  statute,  purchase  its 
own  stock  or  take  it  in  pledge  or  mort- 
gage." Citing  City  Bank  v.  Bruce,  17 
N.  Y.  507 ;  Taylor  v.  Exporting  Co.,  6 
Ohio  177;  In  re  Ins.  Co.,  3  Biss.  452; 


Bank  v.  Transportation  Co.,  18  Vt.  138 ; 
Dupee  v.  Boston,  etc.,  Co.,  114  Mass. 
37.  In  Clapp  v.  Peterson,  104  111.  26, 
the  rule  was  so  laid  down,  with  the 
qualification  "that  such  act  is  had  in 
entire  good  faith,  is  an  exchange  of 
equal  value  and  is  free  from  all  fraud." 
The  purchase  of  shares  of  its  own  stock 
by  a  corporation  having  power  to  do 
so  does  not  operate  as  a  reduction  of 
its  capital  stock  where  the  power  to 
reduce  its  stock  was  not  reserved. 
Western,  etc.,  Co.  v.  Des  Moines  Natl 
Bank,  103  Iowa 455, 72  N.W.  Rep. 657  ; 
Shoemaker  v.  Washburn,  etc.,  Co.,  97 
Wis.  585,  73  N.  W.  Rep.  333. 

3  Fraser  v.  Ritchie,  8  Brad.  (111.) 
554;  Vail  v.  Hamilton,  8-5  N.  Y.  4V1.; 
Iowa,  etc.,  Co.  v.  Foster,  49  Iowa  25; 
Dock  v.  Cordage  Co.,  167  Pa.  St.  370. 

4  Corps.,  §311. 

5  White  v.  Marquardt  (Iowa),  70  N. 
W.  Rep.  193,  74  N.  W.  Rep.  930. 


192  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  194 

chased  by  the  corporation,  they  may  be  reissued.1  Unissued 
stock  may,  by  agreement  of  all  the  stockholders,  where  there 
are  no  debts,  be  paid  for  with  the  money  of  the  corporation, 
and  issued  to  one  of  the  stockholders  as  a  trustee  for  all.2 

§  194.  Powers  of  national  banks. — The  Revised  Statutes  of 
the  United  States3  provide  that  "no association  shall  make  any 
loan  or  discount  on  the  security  of  the  shares  of  its  own  capi- 
tal stock, nor  be  the  purchaser  or  holder  of  any  such  shares, 
unless  such  security  or  purchase  shall  be  necessary  to  prevent 
loss  upon  a  debt  previously  contracted  in  good  faith;  and  stock 
so  purchased  or  acquired  shall,  within  six  months  from  the 
time  of  its  purchase,  be  sold  or  disposed  of  at  public  or  private 
sale;  or,  in  default  thereof,  a  receiver  may  be  appointed  to 
close  up  the  business  of  the  association."  While  this  section 
in  terms  prohibits  a  banking  association  from  making  a  loan 
on  security  of  shares  of  its  own  stock,  it  imposes  no  penalty 
either  upon  the  bank  or  borrower  if  a  loan  upon  such  security 
is  made.  If  the  prohibition  can  be  urged  against  the  validity 
of  the  transaction  by  any  one  except  the  government,  it  can 
only  be  done  before  the  contract  is  executed,  while  the  security 
is  still  subsisting  in  the  hands  of  the  bank.  It  can  then,  if  at 
all.  be  invoked  to  restrain  or  defeat  the  enforcement  of  the 
security.  When  the  contract  has  been  executed,  the  security 
sold  and  tin-  proceeds  applied  to  the  payment  of  the  debt,  the 
.(Hiit  will  not  interfere  with  the  matter.  Both  bank  and  bor- 
rower  are  in  such  case  equally  the  subjects  of  legal  censure, 
and  they  will  be  left  by  the  court  where  they  have  placed 
themsel ' 

§  195.    Consolidation. — Tie'   consolidation   of   corporations 
can  take  place  only  under  proper  legislative  authority,8  and 

'State  \.  smith,   18  Vt  '-'»'•''.:  Com-  Millerton,  etc  ,  Co.,  LS8  N.  V.  L64.    A 

,,,,,,,.,    Boston,  etc.,  Et.  Co.,  L8  Mass.  domestic  corporation  may  be  author- 

142.  ized  to  consolidate  with  a  foreign  cor- 

» Jones  v.  Morrison,  31  Minn.  140.  poration.     Continental,   <■!<•.,   Co.  v. 

I              |  [01,  Toledo,  etc.,  R.  <  '<>..  82  Fed.  Rep.642. 

.  etc.,  v.  Stewart,    l * >T  As  to  consolidation  of  Illinois  and  In- 
dians corporations,  see  an  article  in 

earwatei    v.    Meredith,   I   Wall.  L2  Har.  La*   Rev.  486.     Whether  or 

ii     -        ,e.    ,,,    v.  Madison,  <•!<•.,  nol  the  legislature  can  authorize  the 
l;.  (  ...  21    II-                 >  441;  Col.'  v. 


§   195  PARTICULAR    POWERS.  193 

statutory  requirements  as  to  the  proceedings  are  conditions  pre- 
cedent and  must  be  complied  with  before  there  is  a  legal  con- 
solidation.1 Thus,  when  a  certificate  of  incorporation  is  re- 
quired to  be  filed,  it  must,  in  order  to  be  effectual,  contain  all 
the  recitals  required  by  the  statute.2  When  all  the  other  es- 
sential provisions  of  an  act  authorizing  consolidation  are  com- 
plied with  the  consolidation  is  not  invalidated  by  the  mere  ab- 
sence of  evidence  that  each  company  filed  with  the  secretary 
of  state  a  resolution  accepting  the  provisions  of  the  act,  passed 
by  a  majority  of  the  stockholders  at  a  meeting  called  for  that 
purpose,  or  that  the  stockholders  held  separate  meetings  for 
the  purpose.  The  absence  of  such  evidence  is  supplied  by  the 
implication  arising  from  the  certified  copy  of  the  articles  of 
agreement  for  consolidation  duly  filed  with  the  secretary  of 
state.3 

The  authority  to  consolidate  may  be  contained  in  the  corpo- 
rate charter,4  a  statute,5  or  it  may  be  contained  in  the  charter 
of  the  corporation  with  which  the  corporation  in  question  is 
authorized  to  consolidate.6  So,  an  unauthorized  consolidation 
may  be  cured  by  acquiescence  and  legislative  recognition.7 

The  majority  of  the  stockholders  of  a  corporation  have  no 
power  to  involve  the  minority  in  a  reorganization  without  it? 
consent,  in  such  manner  as  to  compel  the  minority  to  elect  be 
tween  a  new  contractual  relation  with  a  new  company,  or  com- 
pensation for  them  on  an  arbitrary  basis.8 

consolidation  of    corporations   under  s  Leavenworth  Co.  v.  Chicago,  etc., 

the  general  power  reserved  to  alter  R.  Co.,  25  Fed.  Rep.  219. 

or  annul  the  charter,  it  certainly  can  4  Nugent  v.    Supervisors,   19   Wall. 

not  do  so   when  the  rights  of  stock-  (U.  S.)  241. 

holders  will   thereby  be   affected  by  5  Black  v.  Delaware,  etc.,  Co.,  24  N. 

increasing  their  liability  as   such  or  J.  Eq.  455. 

diminishing  the  value  of  their  stock;  6  In  re  Prospect  Park,  etc.,  Co.,  67 

unless    the    consolidation     is    made  N.  Y.  371.     But  see  Morrill  v.  Smith 

with  the  unanimous  consent  of  all  the  Co.,  89  Tex.  529. 

stockholders.    Botts  v.  Simpkinsville,  7  Mead  v.  New  York,  etc.,  R.  Co., 

etc.,  Co.,  88  Ky.  54,  2  L.  R.  A.  594.  45  Conn.  199. 

1  Commonwealth  v.  Atlantic,  etc.,  R.  8Postv.  Beacon,  etc., Co. (C.C.App.), 
Co.,  53  Pa.  St.  9;  Tuttle  v.  Michigan,  84  Fed.  Rep.  371.  As  to  relations  re- 
etc,  R.  Co.,  35  Mich.  247.  suiting  from  succession  and  reorgan- 

2  State  v.  Vanderbilt,  37  Ohio  St.  590.  ization  instead  of  consolidation,   see 

13— Private  Corp.  Kittel  v.  Augusta,  etc.,  R.  Co.,  78  Fed. 


194 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§196 


§  196.  The  effect  of  consolidation. — The  result  of  consoli- 
dation is  ordinarily,  although  not  necessarily,  the  creation  of  a 
new  corporation.  The  old  corporations  may  or  may  not  be  dis- 
solved, depending  upon  the  legislative  will,1  or  one  corporation 
may  be  merely  merged  in  another  by  the  process  of  purchasing 
its  shares  and  franchises  under  legislative  authority.  As  a 
general  rule,  however,  consolidation  works  a  dissolution  of  the 
corporations  previously  existing  and  the  creation  of  a  new  cor- 
poration with  property,  liabilities  and  stockholders  different 
from  those  passing  out  of  existence.2  But  a  new  corporation 
does  not  necessarily  result,  as  there  can  be  a  union  of  interests 
and  of  stock  without  the  surrender  of  personal  identity  or  cor- 
porate existence.3  This  is  always  a  question  of  legislative  in- 
tent. The  test,  "  in  all  cases  is  to  be  found  from  the  facts  and 
circumstances,  terms  of  contracts,  texts  of  statutes,  intent  of 
parties;  from  these  it  must  be  determined  whether  the  original 
corporation  passed  out  of  existence,  or  remains  under  a  new 
name  and  management  with  enlarged  powers."4 


§  197.     Powers  and  privileges  of  the  new  corporation. — The 

powers  of  the  consolidated  corporation  are  generally  regulated 
by  the  statute  authorizing  consolidation.6     Ordinarily,  all  the 


Rep.  855;  Ferguson  v.  Ann  Arbor, 
etc.,  I:.  Co.,  15  N.  V.  Bupp.  172;  Santa 
I  e,  etc.,  Co.  v.  Hitchcock  (N.  Mex.), 
60  Pac.  Rep.  332;  Benesh  v.  Mill- 
Owners' ,etc.,Co.,103  [owa  165,72N.W. 
Rep.  674.  To  render  a  new  corpora- 
tion Liable  at  common  law  tor  the 
debts  ol  an  established  corporation  "i- 
firm,  to  whose  business  and  property 
it  has  succeeded,  it  must,  in  the  ab- 
sence ol  a  special  agreement,  appear 
thai  the  transaction  was  fraudulent  as 
to  creditor!  ol  the  old  corporation,  or 
thai  the  circum  rtanc<  -  attending  the 
tion  ol  the  Dew  corporation  and 
n  to  the  bnsine  a  and 
property  ol  the  old  coi  poration  are  ol 
§uch  a  cl  •'<  :i  find 

mi/  thai  it  Is  a  mere  continuation  ol 


the  former.  Austin  v.Tecumseh  Nat'l 
Bank,  49  Neb.  ■Ill',  68  N.  W.  Rep.  628, 
35  L.  R.  A.  III. 

1  Keokuk,  etc.,  R.  Co.  v.  Missouri, 
152  r.  B.  301  ;  Adams  v.  Yazoo,  etc., 
R.  Co.  (Miss.),  24  So.  Rep.  317. 

1  McMahon  v.  Morrison,  L6  Lnd. 
17:;,  79  Am.  Dec.  418;  Pullman,  etc., 
Co.  v.  Mo.  Pac.  R.  Co.,  L16  U.  S.  587; 
Railroad  Co.  v.  Georgia,  98  U,  8.  359; 
Shields  v.  Ohio,  96  U.  s.  319;  Kansas, 
etc.,  R.  Co.  \.  Smith,  40  Kan.  192. 

•Central  R.  Co.  v.  Georgia,  92  U.  S. 
665;  Chicago,  etc.,  R.  Co.  v.  Ashling, 
L60  [11.  373. 

4  Hirschl,  Cum.  &  Consol.  ol  Corp., 
p.  184. 

»See  Shields  v.  Ohio,  95  U.  S.  819 


§  197  PARTICULAR    POWERS.  195 

franchises  of  the  old  companies  pass  to  the  new,  and  this  in- 
cludes all  the  rights  which  before  consolidation  have  ac- 
crued or  vested  in  the  old  corporations.1  Thus,  a  consolidated 
company  is  entitled  to  the  benefit  of  a  tax  voted  to  one  of  the 
old  companies  by  a  county  or  township.  At  the  time  of 
the  vote  of  the  tax  the  railroad  corporation  had  under  the  law 
authority  to  consolidate  with  the  other  corporations.  After 
consolidation  it  was  contended  that  the  county  was  under  no 
obligation  to  vote  the  tax  for  the  benefit  of  the  new  corpora- 
tion. The  court  said:2  "The  provisions  for  consolidation  be- 
came part  of  the  contract  between  the  township  and  the  rail- 
road company,  and  the  vote  to  issue  the  bonds  to  the  company 
was  an  assent  to  the  exercise  by  it  of  all  the  corporate  powers, 
including  that  of  consolidation,  with  which  it  was  invested  at 
the  time  of  the  vote. "  Hence,  the  new  corporation  is  entitled  to 
bonds  voted  to  one  of  its  constituents,3  to  the  benefit  of  exemp- 
tions for  its  employes  which  were  enjoyed  by  the  former  com- 
pany,4 to  the  constituent's  exclusive  right  to  supply  gas,5  to 
the  power  to  hold  lands,6  to  condemn  lands  under  the  power  of 
eminent  domain,7  to  the  use  of  a  street,8  when  these  powers 
were  possessed  by  one  or  all  of  the  constituent  companies.     By 

1  Paine  v.  Lake  Erie,  etc.,  R.  Co.,  31  97  U.  S.  83,  that  a  county  court  in  Mis- 
Ind.  283;  Cooper  v.  Corbin,  105  111.  souri  could  not.on  a  vote  by  a  township 
224;  Louisville  Trust  Co.  v.  Louis-  to  issue  bonds  toa  corporation  named, 
ville,  etc.,  R.  Co.  (C.  C.  App.),  75  Fed.  issue  bonds  to  a  county  formed  by  the 
Rep.  433.  consolidation  of  that  corporation  with 

2  Livingston     Co.     v.     First     Nat'l  another  corporation,  would  not  be,  if 
Bank,  128  U.  S.  102.    The  court  said:  applied  here,  a  sound  doctrine." 
"We  think  that  in  the  present  case  s  Green  Co.  v.  Conners,    109  U.  S. 
the  rule  applied  in  the  cases  before  104;   Ni antic,  etc.,  Bank  v.  Town  of 
cited  of  County  of  Scotland  v.  Thomas,  Douglass,  5  111.  App.  (Brad.)  579. 

94  U.  S.  682 ;  Town  of  East  Lincoln  v.  4  Zimrner  v.  State,  30  Ark.  677. 

Davenport,  94  U.  S.  801 ;   Wilson  v.  5  New  Orleans  Gas  Co.  v.  Louisiana, 

Salamanca,  99  U.  S.  499;  Menasha  v.  etc.,  Co.,  115  U.  S.  650. 

Hazard,  102  U.  S  81;  Harter  v.  Ker-  6  Georgia,  etc.,  R.  Co.  v.  Wilks,  86 

nochan,  103  U.  S.  562;  New  Buffalo  v.  Ala.  478. 

Iron   Co.,   105  U.   S.   73,   and    Bates  7 Toledo,  etc.,  R.  Co.  v.  Dunlap,  47 

County  v.  Winter,  112  U.  S.325,  is  the  Mich.  456;  Abbott  v.  N.  Y.,  etc.,  R. 

more   proper   and    salutary  one,  and  Co.,  145  Mass.  450;  State  v.  Sherman, 

that  the  doctrine  laid  down  in  Harsh-  22  Ohio  St.  411 . 

man  v.  Bates   County,  92  U.  S.  569,  8  Pittsburgh,  etc.,  R.  Co.  v.  Reich, 

and  in  the  County  of  Bates  v.  Winter,  101  111.  157. 


196 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§198 


the  weight  of  authority  a  consolidation  which  results  in  the 
creation  of  a  new  corporation,  destroys  an  exemption  from 
taxation  which  was  possessed  by  one  of  the  corporations.1  A 
special  statutory  exemption  or  privilege  does  not  pass  in  the 
absence  of  express  statutory  direction.2  The  consolidation 
effects  an  assignment  of  the  choses  in  action  of  the  old  com- 
panies to  the  new,3  and  the  title  of  the  constituent  companies 
to  real  property  vests  ipso  facto  in  the  new  corporation.4  The 
articles  of  consolidation  may  transfer  the  real  estate  of  the  old 
companies  to  a  consolidated  foreign  corporation.5 

§  198.  Liabilities  of  the  new  corporation, — The  general  rule 
is  that  the  new  corporation  resulting  from  consolidation  be- 
comes liable  for  the  debts,  obligations,  liabilities  and  torts  of 
the  old  companies.6     It   has   been   held,  however,  that  in  the 

'For  an   exhaustive    discussion   of    consolidation  involves  an  implied  as- 


this  question  see  Adams  v.  Yazoo, etc., 
E.  Co.  (Miss.  1898),  24  S.  Rep.  371. 

2  As  the  right  of  a  railroad  company 
to  determine  its  rate  of  fare.  St.  Louis, 
etc.,  R.  ("'>.  v.  Gill,  L56  U.  S.  649. 

3  Univ.  of  Vt.  v.  Baxter,  42  Vt.  99, 
43  Vt.  645. 

4  Cashman  v.  Brownlee,  128  Ind. 
266. 


sumption  by  the  new  company  of  all 
the  valid  debts  and  liabilities  of  the 
consolidated  companies.  Indianapo- 
lis, etc.,  R.  Co.  v.  Jones,  i".»  Ind.  465; 
Columbus,  etc.,  R.  Co.  v.  Powell,  40 
Ind.  37;  Jeffersonville,  etc.,  R.  Co.  v. 
Hendricks,  41  Ind.  48;  Cleveland,  etc., 
R.  Co.  v.  Prewitt.  134  Ind.  557,  33  N. 
E.   Rep.   367.    The    rule    which    the 


5Tarpey  v.  Deseret  Salt  Co.,  5  Utah     authorities  support  seems  to  be  that 

where  one  eorporation  goes  entirely 
out  of  existence  by  being  incorporated 
into  another,  if  no  arrangements  are 
made  respecting  the  property  and  lia- 
bilities of  the  corporation  that  ceases 
t..    exist,  the    corporation    into  which 


I'M 

"  Paine  v.  Lake  Erie,  etc,  I:.  ( k>., 
::i  [nd.283;  Indianapolis,  etc.,R.Co.v. 

•  Ind.  165 ;  State  v.  Balti re, 

I:.  Co.,  77  Md.  189;  Philadelphia 

v.  Kid--  Ave.  R.  (',,.,  L43   Pa.  St.   IH; 


9hore    R.   Co.  v.  Hutchins,  :;7    it    is   merged  will   succeed   to  all  its 


Ohio  st.  282;  Chicago,  etc.,  R.  Co.  v. 
Moff.itt,  7".  III.  624.  In  Louisville, etc., 
II  Co.  v.  Boney,  M7  Ind  501,  S  L.  R. 
\  (35,  the  courl  says :  "While  ii  is 
an  open  question  in  some  jurisdictions 
whet  her  or  not  .in  the  absence  of  a 
statute,  the  debts  of  the  original  corn- 


property,  and  be  answerable  for  all 
its  liabilities.  Thompson  v.  Abbott, 
61  Mo.  176;  Mt.  Pleasant  v.  Beckwith, 
loo  r.  s.  :.i  i ;  Pullman,  etc.,  Co.  v. 
Mo,  Pac  i:  Co.,  115  D.  S.  587.  A 
consolidated  railway  company  may  be 
held  responsible  for  the  acts  and  neg- 


panies  follow  as  an  incident  of  conBol-  lects  of    its  constituent    members  to 

m   and    become   by   implication    the  same  extent  as  though  d >byit 

(he  obligations  of  the  new  corporation,  as   a    whole.     Southern    R.    Co.    v. 

ft  is  settled  in  this  state  that  the  act  of  Bourknight,  70   Fed.   Hep.   142,  SOL 


§  198  PARTICULAR    POWERS.  197 

absence  of  a  statutory  imposition,  the  new  corporation  is  liable 
to  the  creditors  of  the  old  only  in  respect  to  the  property  re- 
ceived from  it.1  Under  this  theory,  as  to  the  property  received 
from  the  other  corporations,  it  is  a  new  and  independent  cor- 
poration, liable  for  the  claims  of  creditors  only  by  virtue  of 
the  assumption  of  the  obligation,  or  a  statutory  imposition. 
The  new  company  may,  of  course,  be  required  to  assume  all 
the  obligations  of  the  old  company,  and  this  imposition  may 
be  imposed  by  the  statute  or  by  contract.2  The  sound  rule  is 
that  a  successor  corporation,  which  succeeds  to  the  property, 
must  take  the  obligations  with  the  benefits.3  This  rule  is  par- 
ticularly applicable  in  jurisdictions  where  it  is  held  that  a 
creditor  can  not  prevent  a  corporation  which  owes  him  money 
from  consolidating.  Where  the  statute  authorizes  consolida- 
tion and  makes  no  provision  to  the  contrary,  the  creditor  may 
follow  the  property  into  the  hands  of  the  consolidated  company.* 
Under  an  express  contract  of  assumption  of  the  debts  of  the  old 
companies,  a  corporation  is  liable  for  damages  to  land  caused 
by  one  of  the  old  companies,5  for  labor  performed  for  one  of 
the  old  companies,6  and  is  bound  by  an  agreement  allowing 
other  railroads  to  use  its  right  of  way.  Where  the  statute  pre- 
serves all  the  rights  of  the  creditors  of  the  original  company, 
bondholders  of  the  new  company  are  bound  by  an  unrecorded 
contract  of  one  of  the  original  companies  under  which  it  bound 

R.  A.  823.    The  right  of  a  creditor  to  2  Warren  v.  Mobile,  etc.,  R.  Co.,  49 

recover  hia  claim  against  a  consoli-  Ala. 582;  Western,  etc.,  R. Co. v.  Smith, 

dated  company  under  N.   Y.   Laws,  75  111.496;  New  Bedford,  etc.,  R.  Co. 

1892,  ch.  691,  is  not  defeated  by  the  v.  Old  Colony  R.  Co.,  120  Mass.  397; 

recovery  of  a  judgment  upon  the  claim  John   Hancock,   etc.,  Co.  v.  Railway 

against    the  constituent  corporation.  Co.,  149  Mass.  214;  Day  v.  Worcester, 

In  re  Utica,  etc.,  Co.,  154  N.  Y.  268.  etc.,  R.  Co.,  151  Mass.  302;  Polhemus 

1  Prouty  v.  Lake  Shore,  etc.,  R.  Co.,  v.  Fitchburg  R.  Co.,  123  N.  Y.  502. 
52  N.  Y.  363.     A  corporation   which  3  Montgomery,   etc.,  R.  Co.  v.  Bar- 
purchases  all  the  property  of  another  ing,  51  Ga.  582. 

corporation,   and    gives  its  stock    in  4  Shackelford  v.  Mississippi,  etc.,  R. 

payment  therefor  to  the  stockholders  Co.,  52  Miss.  159. 

of  the  vendor  corporation,  takes  the  5  Smith  v.  Los  Angelea  Co.,  98  Cal. 

property  subject  to  the  rights  of  the  210. 

creditors      Grenell    v.    Detroit,    etc,  6  Western,  etc.,  Co.  v.  Smith,  75  111. 

Co.,  112  Mich.  70,  70  N.  W.  Rep.  413.  497. 


198  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  199 

itself  to  have  a  flag  station  and  to  allow  the  use  of  land  to  the 
grantor  of  a  right  of  way.1  But  a  consolidated  company  can 
not  be  rendered  liable  for  the  debts  of  the  old  company  by  an 
act  passed  after  the  consolidation  when  property  of  the  original 
company  creating  the  debt  had  been  sold  under  a  deed  of  trust 
prior  to  the  consolidation.2 

The  purchaser  of  a  railroad  at  a  decretal  sale  takes  the  prop- 
erty free  from  a  condition  imposed  by  a  county  in  granting  aid 
to  the  effect  that  trains  should  stop  at  a  certain  station.  The 
new  company,  however,  is  subject  to  the  common  law  require- 
ment that  it  must  stop  sufficient  trains  at  the  station  for  the 
purpose  of  transacting  the  business.8 

A  railroad  company  formed  by  consolidation  of  others,  one 
of  which  was  organized  by  the  purchasers  of  a  railroad  at  fore- 
closure, is  hound  by  the  obligation  of  the  original  company  to 
pay  for  land  that  it  appropriated  under  a  parol  license  and 
agreement  to  pay  for  it.  The  court  said*  that  the  "  action  was 
brought  on  the  theory,  not  of  a  breach  of  agreement  made  by 
the  old  company  and  the  plaintiff,  but  for  a  breach  of  equita- 
ble duty  laid  on  the  defendant  by  force  of  the  facts  that  it  had 
taken  the  plaintiff's  land,  and  is  taking  and  using  it  in  the 
same  plight  that  its  predecessor  held  it,  and  that  the  plaintiff 
is  entitled  to  and  is  without  compensation.  The  new  company 
is  enjoying  the  easement  under  the  conditions  of  the  old  com- 
pany and  the  benefits  and  burdens  incident  to  it  are  insepa- 
rable." The  specific  performance  of  a  contract  made  by  a  con- 
Btitutent  company  may  be  enforced  against  the  new  consoli- 
dated  company.1 

§  199.  Loaning  of  money. — A  corporation  can  not  engage 
in  the  Loaning  <»)'  money  unless  authorized  to  do  so  by  its  char- 
ter, <>r  unless  its  business  is  of  a  nature  wliieli  usually  in- 
volves the  making  of  Loans.'     Bui  money  so  illegally  loaned 

1  Mui.il.',  etc.,  R.  < '".  v.Gilmer,  85  *Chicago,  etc.,  R.  C<>.  v.  Hall,  186 

Ah,    :  In. I.  81,  28  I..  I.'.  A.  281. 

■Hatchery.  Toledo,  etc.,  R.  <'".,  62  ■  Cumberland  Valley  R.  Co.  v.  Get- 

III.  i77  tyaburg,  etc.,  R.  Co.,  L77  Pa.  St.  M'.i. 

'  People  v.  Louisville,  etc.,  R.  Co.,  '  Daniel  Neg.  tnat.  I,  §884;  Cook  II, 

120  III.  48.  1690. 


§  199a  PARTICULAR   POWERS.  199 

can  be  recovered,  and  the  borrower  can  not  interpose  the  de- 
fense of  the  want  of  power  in  the  corporation  to  make  the 
loan.1  The  franchise  of  the  corporation  may  be  forfeited  at 
the  instance  of  the  state,  but  the  money  loaned  may  be  recov- 
ered.2 

§  199a.  Power  to  act  as  trustee. — Whether  a  corporation 
may  undertake  the  performance  of  a  trust  depends  upon  the 
provisions  of  its  charter  and  the  circumstances  of  the  particu- 
lar case.  "Although  it  was  in  early  times  held  that  a  corpo- 
ration could  not  take  and  hold  real  and  personal  estate  in 
trust,  upon  the  ground  that  there  was  a  defect  of  one  of  the 
requisites  of  a  good  trustee,  namely,  the  want  of  confidence  in 
the  person ;  yet  that  doctrine  has  long  since  been  exploded  as 
unsound  and  too  artificial ;  and  it  is  now  held  that  where  a 
corporation  has  a  legal  capacity  to  take  real  and  personal 
estate,  there  it  may  take  and  hold  it  upon  trust  in  the  same 
manner  and  to  the  same  extent  as  a  private  individual  may 
do."3 

^oock  v.  Lafayette,  etc.,  Assn.,  71  3  Judge  Story,  in  Vidal  v.  Girard,  2 
Ind.  357 ;  Bond  v.  Terrell,  etc.,  Co.,  82  How.  (U.  S.)  187 ;  White  v.  Rice,  112 
Tex.  309;  18  S.  W.  Eep.  691;  Steam,  Mich.403,70N.W.Rep.l024.  "Theabil- 
etc,  Co.v.Weed,  17  Barb.  382;  Union,  ity  and  competency  to  execute  the  trust 
etc.,  Co.  v.  Murphy's,  etc.,  Co.,  22  Cal.  is  the  real  test  in  determining  whether 
621;  Gold,  etc.,  Co.  v.  National  a  corporation  may  take."  Spelling  I, 
Bank,  96  U.  S.  640;  Smith  v.  White  §  212.  See  Chapin  v.  School  Dist.,  35 
(Tex.),  25  S.  W.  Rep.  809;  Kadish  v.  N.  H.  445;  Philip  Academy  v.  King, 
Garden  City,  etc.,  Assn.,  47  111.  App.  12  Mass.  546;  In  re  Howe,  1  Paige  214. 
602.  Contra:  Grand  Lodge  v. Wadded,  Without  express  authority  a  corpora- 
36  Ala.  313 ;  Chambers  v.  Falkner,  65  tion  can  not  act  as  executor  or  admin- 
Ala.  448;  Life  Ins.  Co.  v.  Mech.,  etc.,  istrator.  Georgetown,  etc.,  v.  Brown, 
Co.,  7  Wend.  31 ;  New  York,  etc.,  Co.  34  Md.  450.  A  corporation  can  not  be 
v.  Ely,  5  Conn.  560.  a  partner.     People  v.  N.  R.  S.  R.  Co., 

2  Shoemaker  v.  Mech.  Nat'l  Bank,  2  121  N.  Y.  582. 
Abb.  (U.  S.)  416;  Elder  v.  Bank,  etc., 
12  Kan.  238. 


CHAPTER  9. 

THE    DOCTRINE    OF    ULTRA    VIRES    AND    ITS    APPLICATION. 


§  200. 
201. 
202. 
203. 
204. 

205. 

206. 

207. 

208. 
209. 


General  statement. 

Proper  use  of  phrase  ultra  vires. 

The  strict  rule. 

The  reason  for  the  rule. 

Conflicting  theories  and  decis- 
ions. 

Actions  in  furtherance  of  ultra 
vires  contracts. 

Buckeye  Marble  Co.  v.  Harvey. 

Central  Transportation  Co.  v. 
Pullman  Palace  Car  Co. 

Disaffirmance  after  part  per- 
formance. 

Recovery  of  consideration 
paid. 


§216. 
217. 


I.    Certain  Bulea  Affecting  Doctrine  of 
Ultra  Vires. 
i.    in  general. 

211.  Presumption  of  validity. 

212.  Notice  of  corporate  powers. 

213.  Limitations  upon  the  authority 

of  corporate  officers. 

214.  Restrictions  contained   in  by- 

laws. 
216.    I. imitations  upon  general  rale. 


II.  Estoppel  to  Assert  Defense  of  Ultra 

Vires. 
General  statement. 
Estoppel— Rule  of  the  supreme 
court. 

218.  Partially   executed    ultra   vires 

contracts. 

219.  Estoppel— Retention   of  bene- 

fits. 

220.  Acquiescence  in  ultra  vires  acts. 

221.  Ratification  of  ultra  vires  acts. 

III.  Contracts  Illegal  Because  Malum 
Prohibitum  or  Malum  In  Se. 

§  222.    General  statement. 

223.  Contracts  malum  in  se. 

224.  Contracts  against  put. lie  policy. 

225.  Statutory  prohibitions. 

226.  Illustrations. 

227.  Liability    for  benefits  received 

under  illegal  contracts. 

IV.   Irregular  Exercise  of  Power. 
§  228.    Effecl  of  irregularities. 

229.  Waul  of  power  and  neglect  of 

formalities. 

230.  Reasons   tor  the  distinction- 

Statement    of   Chief  Justice 

Saw  vcr. 


§  200.  General  statement. — The  phrase  ultra  vires  hasheen 
in  general  use  to  describe  the  acts  of  corporations  and  their  of- 
ficers which  are  in  excess  of  the  corporate  power.1     Much  con- 

i  Power  here  signifies  authority,  le-    authorized  acts  is  to  put   forth  a  very 

gal  competence,  capacity  or  right.    In    plain   truism;   but   to  say  that   Buch 

ii  v.  Mich.,  etc.,  R.  Co  .  22  V  Y.    bodies  bave  do  power  or  capacity  to 

rosaythat    err,  is  to  Imputetothem  an  e  ccellence 

rporation  has  ao  right  to  doun-    which  does  not  belong  to  any  created 

(200) 


$  201  THE    DOCTRINE    OF    ULTRA    VIRES.  201 

fusion  has  resulted  from  its  use  to  express  acts  in  excess  of  the 
authority  conferred  upon  the  corporation,  and  acts  which  are 
illegal  in  the  sense  of  being  prohibited  by  law.  An  act  which 
is  in  excess  of  the  authority  of  an  agent  or  officer  of  a  corpora- 
tion is  not,  upon  well  established  principles  of  the  law  of 
agency,  binding  upon  the  corporation.  There  is  nothing  pe- 
culiar to  the  law  of  corporations  in  this;  and  the  use  of  the 
phrase  ultra  vires  in  this  connection  is  confusing  and  mislead- 
ing. There  is  also  a  division  of  authorities  upon  the  question 
of  the  use  of  the  phrase  to  describe  acts  which  are  illegal  in  the 
sense  of  being  malum  per  se  and  malum  prohibitum.  It  seems 
that  it  would  be  better  to  use  the  words  to  describe  only  such 
contracts  of  corporations  as  are  in  excess  of  .their  corporate 
powers.  In  considering  the  defense  of  ultra  vires,  however,  it 
must  be  noted  that  a  distinction  is  made  between  contracts 
which  are  (1)  unauthorized  because  not  granted  expressly  or 
by  implication,  (2)  contracts  which  are  merely  an  irregular 
exercise  of  a  granted  power,  (3)  contracts  which  are  intrinsic- 
ally immoral  or  against  public  policy,  malum  in  se,  and  (4) 
contracts  which  are  prohibited  by  the  charter  or  general  law, 
malum  prohibitum. 

§  201 .  Proper  use  of  the  phrase  ultra  vires, — With  reference 
to  the  proper  use  of  this  phrase,  it  was  said  by  Justice  Allen:1 
"When  acts  of  corporations  are  spoken  of  as  ultra  vires,  it  is  not 
intended  that  they  are  unlawful,  or  even  such  as  the  corporation 
can  not  perform,  but  merely  those  which  are  not  within  the 
powers  conferred  upon  a  corporation  by  the  act  of  its  creation." 

existences  with    which    we    are   ac-  tions,  like  natural  persons,  have  power 

quainted.     The  distinction    between  and  capacity  to  do  wrong.   They  may, 

power  and  right  is  no  more  to  be  lost  in  their  contracts  and  dealings,  break 

sight  of  in  respect  to  artificial  than  in  over  the  restraints  imposed  by  their 

respect   to  natural  persons."     A  cor-  charters;  and  when  they  do  their  ex- 

poration,  like  a  natural  person,  can  do  eruption  from    liability    can.  not  be 

wrong,    although    not    authorized    to  claimed  on  the  mere  ground  that  they 

do  so.     See  Salt  Lake  City  v.  Hollis-  have  no  attributes  or  faculties  which 

ter,  118  TJ.  S.  256,  2  C.  C.  107;  Life,  render  it  possible   for  them  thus  to 

etc.,    Co.    v.    Mechanic,    etc.,    Co.,    7  act." 

Wend.  (N.  Y.)  31.   As  said  in  Wright        l  Whitney,  etc.,  Co.  v.  Barlow,  63  N 

v.  Hughes,  119  Ind.  324:     "Corpora-  Y.  62. 


•202  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  201 

Iii  a  recent  case  in  New  Jersey,1  Justice  Depue  said:  "The  in- 
discriminate use  of  this  expression  with  respect  to  cases  different 
in  their  nature  and  principles,  has  led  to  considerable  confu- 
sion if  not  misapprehension.  Where  an  act  done  by  directors 
or  officers  is  simply  beyond  the  powers  of  the  executive  de- 
partment of  the  corporation,  the  agency  by  which  the  corpora- 
tion exercises  its  functions,  and  not  of  the  corporation  itself,  it 
may  be  made  valid  and  binding  by  the  action  of  the  board  of 
directors  or  by  the  approval  of  the  stockholders.  Where  the 
act  done  by  the  directors  is  not  in  excess  of  the  powers  of  the 
corporation  itself,  but  is  simply  an  infringement  upon  the  rights 
of  other  stockholders,  it  may  be  made  binding  upon  the  latter 
by  ratification,  or  by  consent  implied  by  acquiescence.  Where 
the  infirmity  of  the  act  does  not  consist  in  a  want  of  corporate 
power  to  do  it,  but  in  the  disregard  of  formalities  prescribed, 
it  may  or  may  not  be  valid  as  to  third  persons  dealing  bona 
fide  with  the  corporation,  according  to  the  nature  of  the  form- 
alities not  observed  or  the  consequences  the  legislature  has  im- 
posed  upon  non-observance.  These  are  all  cases  depending 
upon  legal  principles  not  peculiarly  applicable  to  corporations, 
and  the  use  of  the  phrase  ultra  vires  tends  to  confusion  and 
misapprehension.  In  its  legitimate  use,  the  expression  ultra 
vires  should  be  applied  only  to  such  acts  as  are  beyond  the 
powers  of  the  corporation  itself."  The  proper  scope  of  the 
doctrine  is  thus  Btated  by  Mr.  Justice  Brewer:2  "Two  prop- 
ositions  are  Bettled.  One  is  that  a  contract  by  which  a 
corporation  disables  itself  from  performing  the  functions  and 
duties  undertaken  and  imposed  by  its  charter  is,  unless  the 
state  which  created  it  consents,  ultra  vires.  A  charter  not 
only  grants  rights,  it  also  imposes  duties.  An  acceptance 
of  those  rights   is  an  assumption   of  those  duties.     As  it  is 

linden,    etc.,    R.    Co.  v.   May's  v.  Chicago,  etc.,  Co.,  ISO  111.  286;  State  v. 

Land  18  N.  J.  L.  530,  in  Nebraska,  etc.,  Co., 29 Neb. 700;  Frank- 

;i  dissenting  opinion.     But  in   many  lyn  v.  Lewiston  Inst.,  68  Maine  43'. 

tracts  which  are  merely  be-       'Chicago,  etc.,  R.  Co.  v.  Union  l':i<-. 

yond  ili"  power  of  the  corporation  are  l>'  Co.,  47  Fed.  Rep  L6    Bee  statement 

called  illegal.   Bee  Central,  etc.,  Co.  v.  by  Mr.  .lust  ice  Mitchell,  in  Minnesota, 

Pullman,  etc.,  Co.,  IS  People  etc.,  Co.  v.  Langdon,  44  Minn.  48. 


§  202  THE    DOCTRINE    OF    ULTRA    VIRES.  203 

a  contract  which  binds  the  state  not  to  interfere  with  those 
rights,  so,  likewise  it  is  one  which  binds  the  corporation  not  to 
abandon  the  discharge  of  those  duties.  It  is  not  like  a  deed 
or  patent  which  vests  in  the  grantee  or  patentee  not  only  title, 
but  the  full  power  of  alienation.  But  it  is  more — it  is  a  con- 
tract whose  obligations  neither  party,  state  nor  corporation  can, 
without  the  consent  of  the  other,  abandon.  The  other  is  that 
the  powers  of  corporation  are  such,  and  such  only,  as  the  char- 
ter confers,  and  an  act  beyond  the  measure  of  those  powers,  as 
either  expressly  stated  or  fairly  implied,  is  ultra  vires.  A  cor- 
poration has  no  natural  or  inherent  rights  or  capacities.  Cre- 
ated by  the  state,  it  has  such  powers  as  the  state  has  seen  fit  to 
give  it,  'only  this  and  nothing  more. '  And  so,  when  it  assumes  to 
do  that  which  it  has  not  been  empowered  by  the  state  to  do,  its 
assumption  of  power  is  vain;  the  act  is  a  nullity,  the  contract 
is  ultra  vires.  These  two  propositions  embrace  the  whole  doc- 
trine of  ultra  vires.  They  are  its  alpha  and  omega.  Were  the 
two  foregoing  propositions  steadily  kept  in  view  by  the  courts 
in  applying  this  doctrine,  the  diversity  of  judicial  opinion  on 
this  subject  would  be  much  less." 

§  202.  The  strict  rule. — It  follows  from  the  doctrine  of  lim- 
ited capacities  that  a  corporation  has  only  such  powers  as  are 
expressly  or  by  necessary  implication  granted  to  it.  The 
theory  is  that  the  state  is  granting  a  favor,  and  the  grantee 
takes  only  what  is  granted.  As  the  corporation  is  able  to  exer- 
cise its  powers  by  virtue  of  the  grant  alone,  it  follows  that  all 
attempts  to  exercise  powers  not  granted  are  ineffectual  as 
against  the  grantor.  If  the  granted  privileges  are  abused  the 
state  may  withdraw  them.  And  it  would  be  extremely  illogi- 
cal for  the  state  through  its  courts  to  aid  those  who  enter  into 
unauthorized  relations  with  its  creatures  to  carry  out  such  un- 
authorized acts.  As  against  the  corporation  in  such  cases  the 
duty  of  the  state  is  clear.  But  when  innocent  third  per- 
sons become  involved  there  is  often  a  conflict  between  logi- 
cal consistency  and  justice  to  the  individual,  and  as  a  result 
the   American   law   seems  to  be  in  a  state  of  hopelessly  in- 


204  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  202 

extricable  confusion.  The  English  decisions  apply  the  doc- 
trine that  ultra  vires  acts  are  illegal  with  much  more  strict- 
ness than  the  American  decisions.  But  practically  the  same 
rule  is  enforced  by  the  federal  courts.  According  to  this 
rule,  "A  contract  of  a  corporation  which  is  either  unauthor- 
ized by  or  in  violation  of  its  charter  or  governing  statutes,  or 
which  is  entirely  outside  the  scope  of  the  powers  of  its  crea- 
tion, is  void  in  the  sense  of  being  no  contract  at  all,1  because  of 
the  want  of  power  in  the  corporation  to  enter  into  it;  that  such 
a  contract  will  not  be  enforced  by  any  species  of  action  in  a 
court  of  justice,2  that  being  void  ab  initio,  it  can  not  be  made 
good  by  ratification,3  or  by  any  succession  of  renewals,  and 
that  no  performance  on  either  side  can  give  validity  to  it  so  as 
to  give  a  party  to  the  contract  any  right  of  action  upon  it."4 
Under  this  rule,  "The  contracts  of  corporations  which  are  not 
authorized  by  their  charter  are  illegal,  because  they  are  made 
in  contravention  of  public  policy."  Although  the  "unauthor- 
ized contract  may  be  neither  malum  in  se  nor  malum  prohibitum, 
but  on  the  contrary  may  be  for  some  benevolent  or  worthy  ob- 
ject, *  *  yet  if  it  is  a  violation  of  public  policy  for  corpora- 
tions to  exercise  powers  which  have  not  been  granted  to  them, 
such  contracts,  notwithstanding  their  praiseworthy  nature,  are 
illegal  and  void."5  No  action  can  be  maintained  on  such  a  con- 
tract, although  there  has  been  part  performance  or  expenses  in- 

>  Davie  7.  Old  Colony   R.  Co.,   131  R.  Co.  v.    Eastern,  etc.,   R.  Co.,  11 

.  258;  Chicago,  etc.,  Co.  v.  The  ('.  I'..  77"-,  7  Eng.  Law   and  Eq.  Rep. 

People's,  etc.,  Co.,  121  [11. 630 ;  Franco,  505.    Jervis,  C.  J.,  Baid  of  a  contract 

Co.  v.  McCormick,  85  Tex.  416 ;  nol  within  the  authority  of  the  corpo- 

Long  v.  Georgia,  etc.,  R.  Co.,  91  Ala.  ration,  "the  assent  oi  all  the  share- 

519;  Twiss  \.  Guaranty,  etc.,    Assn.  holders  to  sucha  contract,  thougb  it 

V  W.  Rep.  8.  may  make  them  all  personally  Liable 

'Greenville,  etc.,  Co.  v.  Planters',  to  perform  such  contract,  would  not 

etc.,  Co.,  70  Miss.  669;  Pearce  v.  The  bind    them    in    their    corporate   ca- 

Mad                  I'   Co.,  21  How.  (U.  8.)  parity,  or  render  liable  their  corporate 

441;  Brunswick,  etc.,  Co.  v.  United  funds."    Germania,  etc.,  Co.  v.  Boyn- 

Elevator    i 71  Fed.  Rep.  797,  L9  C.C.  A.  us. 

'    I            Denn.  'Thompson    Priv.   Corp.,  §  6856,  13 
\m.   I..  Rev.  682,  5  Am.  L,  Rev.  272, 

lifornifl    Bank  v.   Kennedy,  167  282, 12  Cent.  L.  J.  386. 

I             ■     Nor  by  the                      I  ee  Bissell  v.   Michigan,  etc.,  R. 

the  stockholders,     [n    I                ian  Co.,  22  N.  Y. 


§  203  THE    DOCTRINE    OF    ULTRA    VIRES.  205 

cur  red  on  the  faith  of  the  ultra  vires  promise.1  An  action,  how- 
ever, in  disaffirmance,  may  be  maintained.  An  exception  is 
sometimes  made  in  favor  of  those  who  deal  with  a  corporation 
without  notice,  actual  or  constructive,  of  the  ultra  vires  charac- 
ter of  the  contract.2  And  a  distinction  is  made  between  con- 
tracts for  which  there  is  no  authority  and  contracts  within  the 
general  scope  of  the  authority,  but  in  excess  thereof  in  some 
particular. 

§  203.  The  reasons  for  the  rule. — The  reasons  upon  which 
the  doctrine  of  ultra  vires  rests  are  thus  stated  by  Mr.  Justice 
Gray:3  "The  reason  why  a  corporation  is  not  liable  upon  a 
contract  ultra  vires,  that  is  to  say,  beyond  the  powers  conferred 
upon  it  by  the  legislature,  and  varying  from  the  objects  of  its 
creation,  as  declared  in  the  law  of  its  organization,  are: 

"(1)  The  interest  of  the  public  that  the  corporation  shall 
not  transcend  the  powers  granted. 

"(2)  The  interest  of  the  stockholders  that  the  capital  shall 
not  be  subjected  to  the  risk  of  enterprises  not  contemplated  by 
the  charter,  and  therefore  not  authorized  by  the  stockholders 
in  subscribing  for  stock. 

"(3)  The  obligation  of  every  one  entering  into  a  contract 
with  a  corporation  to  take  notice  of  the  legal  limits  of  its 
powers." 

In  an  Iowa  case,  the  court  said:4     "Corporations  and  offi- 

1  Davis  v.  Old  Colony,  etc.,  R.  Co.,  4  Lucas  v.  White  Line,  etc.,  Co.,  70 

131  Mass.  258;  Downing  v.  Mt.  Wash-  Iowa  541,59  Am.  Rep.  449,453.     In 

ington  Road  Co.,  40  N.  H.  230;  Cen-  McCormick  v.  Market  Nat.  Bank,  165 

tral,   etc.,  Co.  v.  Pullman,  etc.,   Co.,  U.    S.    538,  the  court    said:       "The 

139  U.  S.  24.  doctrine  of  ultra  vires,  by  which  a  con- 

a  Miners',  etc.,  Co.  v.  Zellerbach,  37  tract  made  by  a  corporation  beyond 

Cal.   543;  Lucas  v.  Transfer  Co.,  70  the  scope  of  its  corporate  powers  is 

Iowa  541 ;  Humphrey  v.  Association,  unlawful  and  void  and  will  not  sup- 

50  Iowa  607;  Boyce  v.  Coal  Co.,  37  port  an  action,  rests,  as  this  court  has 

W.  Va.  73.  often  recognized  and  affirmed,  upon 

3 Pittsburg,  etc.,  R.  Co.  v.  Keokuk,  three  distinct  grounds:    The  obliga- 

etc,  Co.,  131  U.  S.  Rep.  371.  See  state-  tion  of  any  one  contracting  with  a  cor- 

ment  of  Cooley,  J.,  in  Day  v.  Spiral,  poration  to  take  notice  of  the  legal 

etc.,  Co.,  57  Mich.  146,  58  Am.  Rep.  limits  of  its  powers;   the  interest  of 

352.  the  stockholders  not  to  be  subjected  to 

risks  which  they  have  never  under- 


206  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  204 

cers  do  not  always  keep  within  their  powers,  and  the  applica- 
tion of  the  doctrine  of  ultra  vires  is  often  attended  with  very 
perplexing  questions.  By  the  application  of  a  few  plain  rules, 
however,  we  may  readily  reach  the  proper  answer  to  the  ques- 
tions involved  in  the  case.  (1)  Every  person  dealing  with  a 
corporation  is  charged  with  knowledge  of  its  powers  as  set  out 
in  its  recorded  articles  of  incorporation.  (2)  Where  a  corpora- 
tion exercises  power  not  given  by  its  charter  it  violates  the  law 
of  its  organization,  and  may  be  proceeded  against  by  the  state 
through  its  attorney-general,  as  provided  by  the  statute,  and 
the  unanimous  consent  of  all  the  stockholders  can  not  make 
illegal  acts  valid.  The  state  has  the  right  to  interfere  in  such 
cases.  (3)  Where  a  third  party  makes  with  the  officers  of  a 
corporation  an  illegal  contract  beyond  the  powers  of  a  corpora- 
tion, as  shown  by  its  charter,  such  third  party  can  not  recover; 
because  he  acts  with  knowledge  that  the  officers  have  exceeded 
their  powers,  and  between  him  and  the  corporation  or  its  stock- 
holders no  amount  of  ratification  by  those  unauthorized  to 
make  the  contract  will  make  it  valid.  (4)  Where  the  officers 
of  a  corporation  make  a  contract  with  third  parties  in  regard  to 
matters  apparently  within  their  corporate  powers,  but  which, 
upon  the  proof  of  extrinsic  facts  of  which  the  parties  had  no 
notice,  lie  beyond  their  powers,  the  corporation  must  be  held, 
unless  it  may  avoid  liability  by  taking  timely  steps  to  prevent 
loss  or  damage  to  such  third  parties;  for  in  such  cases  the 
third  party  is  innocent,  and  the  corporation  or  stockholders  less 
innocent  for  having  selected  officers  not  worthy  of  the  trust 
reposed  in  them." 

§  204.  Conflicting  theories  and  decisions — More  liberal  doc- 
trine— There  has  always  been  a  strong  current  of  opposition 
to  the  application  of  the  rule  as  slated  by  Mr.  Justice  Gray  and 
applied  incases  which  follow  the  lead  of  the  supreme  court 
of  the  I  faited  States.  The  doctrine  originated  at  a  time  when 
corporations  were  created    for   public  purposes  only,  and  its 

i;  and,  above  all,  the  Interest  ol    not   transcend  the  powers  conferred 
the  public  that  the  corp<  til    apon  it." 


§  204  THE    DOCTRINE    OF    ULTRA    VIRES.  207 

early  development  was  with  reference  to  the  transactions  of 
municipal  corporations.  It  is  properly  applied  with  great 
strictness  to  the  transactions  of  public  corporations,1  but  many 
of  the  reasons  urged  for  its  application  to  the  contracts  of 
purely  private  corporations  are  somewhat  fanciful  in  these 
times  of  free  incorporation.  Scarcely  any  two  text  writers 
agree  upon  a  consistent  theory  of  ultra  vires.  Judge  Thomp- 
son has  nothing  but  hard  words  for  the  strict  doctrine  and  the 
courts  which  enforce  it;2  while  Mr.  Reese  is  equally  certain 
that  only  through  its  rigid  enforcement  can  our.  legal  salvation 
be  worked  out.3  The  strict  doctrine  is  most  consistently  ad- 
hered to  by  the  federal  courts,  but  in  the  most  of  the  state 
courts  the  rule  that  ultra  vires  contracts  of  corporations  are  il- 
legal and  void  is  repudiated.  Under  these  decisions  want  of 
authority  alone  does  not  render  a  contract  illegal  and  hence 
void.4  If  it  is  founded  upon  a  good  consideration  and  is  not 
void  because  prohibited  by  law,  it  is  voidable  only,  and  may 
give  rise  to  rights  of  action,  although  the  corporation  did  not 
have  authority  to  make  it.  The  courts  accepting  this  doctrine 
hold  that  "the  plea  of  ultra  vires  should  not  as  a  general  rule 
prevail,  whether  it  is  interposed  for  or  against  the  corporation, 
when  it  would  not  advance  justice,  but  on  the  contrary  would 
accomplish  a  legal  wrong."5  Hence,  if  the  condition  of  the 
parties  is  such  that  it  would  be  inequitable  to  allow  the  defense 
of  ultra  vires,  the  doctrine  of  estoppel  will  be  applied  in  such 
manner  as  to  preclude  the  defense.6     It  would  seem  that  the 

^oung  v.  Board  of  Education,  54  N.  Y.  62;  Kadish  v.  Association,  151 

Minn.  385,  40  Am.  St.  Rep.  340;  New-  111.  531. 

bery  v.  Fox,  37  Minn.  141,  51  Am.  St.  6Bissell  v.  Railroad  Co.,  22  N.  Y. 

Rep.  830;   Elliott  Pub.  Corp.,  §  288,  258;  Parish  v.  Wheeler,  22  X.  Y.  494; 

and  cases  cited.  Holmes,  etc.,  Co.  v.  Holmes,  etc.,  Co., 

2 Thompson  Priv.  Corp.,  §  5969.  127  N.  Y.  252;  Bradley  v.  Ballard,  55 

sReese    Ultra    Vires,  ch.  III.      See  111.  413;  Heims,  etc.,  Co..  v.  Flannery, 

11  Harv.  Law  Rev.  387,  article  on  Non-  137  111.  309;    Day  v.  Spiral   Springs, 

public  Corporations  and  Ultra  Vires,  etc.,  Co.,  57  Mich.  146,  58   Am.  Rep. 

*See  a  discussion  of  the  authorities  352;  Dewey  v.  Railway  Co.,  91  Mich. 

in  an  article  in  12  Cent.  L.  J.  386,  by  351 ;  Wright  v.  Bughes,  1 10  Ind.  324; 

J.C.Harper.  Seymour  v.    Society,   54    Minn.    147; 

5  Whitney,  etc.,  Co.  v.  Barlow,  63  Magee  v.  Improvement  Co.;  98  Cal. 


208  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   205 

following  statement  of  the  doctrine  by  Mr.  Taylor  could  not  be 
improved.1  "An  act  beyond  the  scope  of  its  corporate  powers, 
if  done  on  behalf  of  a  corporation,  or  if  done  by  the  body  corpo- 
rate itself,  affects  the  rights  of  persons  in  respect  of  the  cor- 
porate enterprise  only  in  so  far  as  the  possessors  of  those  rights 
by  their  own  acts  or  omissions  have  estopped  themselves  from 
-  srting  their  rights;  provided  the  acts  be  of  such  a  character 
that  the  party  dealing  with  the  corporation  or  its  agent  could 
from  an  examination  of  the  charter  or  enabling  statute  and 
articles  of  association  have  ascertained  that  the  act  was  ultra 
vires." 

§205.  Actions  in  furtherance  of  ultra  vires  contracts. — 
When  an  ultra  vires  contract  has  been  fully  executed  on  both 
sides,  neither  party  thereto  can  be  heard  to  assert  its  invalidity 
as  ground  for  relief  against  it.2  According  to  the  weight  of 
authority,  where  the  contract  has  been  fully  executed  by  one 
party  the  defense  of  ultra  vires  is  not  available  in  an  action  by 
the  other  to  recover  the  agreed  consideration,  so  long  as  the 
benefits  which  have  been  received  are  retained.  When  the 
contract,  the  performance  of  which  is  demanded  by  the 
plaintiff,  consists  in  itself  of  something  beyond  the  powers  of 
the  corporation,  or  otherwise  unlawful,  so  that,  in  order  for 
the  action  to  proceed,  something  further  unlawful  must  be 
done,  then  it  seems  that  the  action  can  not  be  maintained.3 
Thus,  a  suit  for  specific  performance  of  an  ultra  vires  contract 
to  convey  real  estate  can  not  be  maintained.1  The  rule  is  ap- 
parently  without  exception  thai  an  action  can  not  be  main- 
tained <ni  mi  ultra  vires  contract  under  circumstances  where 
the  doctrine  of  estoppel  can  not  be  invoked.     But  according 

i te  line  of  authorities,  the  ]>;iriics  may   "be  estopped  in 

some  cases  from  disputing  the  validity  of  a  corporate  contract 

678;  Union,  etc.,  Co.  v.  Plume,  etc.,  etc.,   (V   v.    Holmes,  etc,    ('<>.,  127 

i            i    tin.  219;   Manchester,  etc.,  N.  V.  252;  Day  v.  Spiral  Springs,  etc., 

R    I            ■    >ncord,  etc.,   R.   Co.,  68  Co.,  57  Mich.  146,  58  Am.   Rep.  S52. 

N    n    100.  »Thompson  Priv.  Corp.,  §  8024. 

*  Bank  ol   Mich.  v.  Niles,  1  Doug. 

2  Long  ■. .  Georgia,  etc.,   i:.  Co.,  91  (  Mich.)  401. 
A l.i  519,  24  Am.M.  Rep. 931  ;  Holn 


§  206  THE    DOCTRINE    OF    ULTRA    VIRES.  209 

when  it  has  been  fully  performed  on  one  side,  and  when  noth- 
ing short  of  its  performance  will  do  justice."1 

§  206.  Buckeye  Marble  Co.  v.  Harvey.— This  case  contains 
an  elaborate  discussion  of  the  doctrine  of  ultra  vires.  It  was 
an  action  brought  to  enforce  a  claim  which  grew  out  of  a  con- 
tract by  which  one  corporation  agreed  to  purchase  the  shares 
of  another  corporation  which  was  engaged  in  a  similar  busi- 
ness. It  was  held  that  the  contract  was  ultra  vires  and  void; 
and  that  no  rights  resulted  from  it  which  were  enforcible  in 
the  courts.2     The  court  said: 

"The  complainant  sues  upon  the  contract,  and  in  affirm- 
ance of  it,  seeks  to  have  this  defendant  perform  an  agreement 
which  sprang  from  and  was  collateral  to  it.  It  has  received  the 
shares  it  purchased,  and  holds  on  to  them.  It  simply  asks  that 
the  defendant  be  further  compelled  to  perform  his  contract  by 
contributing  in  accordance  with  his  agreement,  his  proportion 
of  the  liability  paid  off  by  complainant  in  protection  of  the 
property  of  the  McMillan  Marble  Company.  The  suit  is  clearly 
in  furtherance  of  the  original,  unlawful  and  void  contract. 
That  the  contract  has  been  executed  by  the  plaintiff  does  not 
make  it  lawful  or  entitle  it  to  an  enforcement  of  it. 

"  This  proposition  was  very  plainly  put  in  Pittsburgh,  etc., 
R.  Co.  v.  Keokuk,  etc.,  Co.,3  when  it  was  stated  as  a  result 
of  all  the  previous  decisions  of  that  court  upon  this  subject, 
'that  a  contract  made  by  a  corporation,  which  is  unlawful 
and  void  because  beyond  the  scope  of  its  corporate  power, 
does  not,  by  being  carried  into  effect,  become  lawful  and  valid; 
but  the  proper  remedy  of  the  party  aggrieved  is  by  disaffirm- 
ing the  contract  and  sue  to  recover,  on  a  quantum  meruit,  the 
value  of  what  the  defendant  has  actually  received.'  " 

§  207.  Central  Transportation  Co.  v.  Pullman  Palace  Car 
Co. — This  well-known  case4  involved  a  consideration  of  thecir- 

^ooley,  C.    J.,  in  Day  v.  Spiral  4 139  U.  S.  24.    See  a  review  of  this 

Springs, etc., Co., 57  Mich.  146,58  Am.  .case  in  Yak'  Law  Journal,  1898.     See 

Rep.  352.  also  the  sequel  to  this  case  in  Pullman, 

2!»2  Tenn.  115,  18  L.  R.  A.  252.  etc.,  Co.  v.  Central,  etc.,   Co.,  171  U. 

3 131  U.  S.  371.  S.  138.  In  Marble  Co.  v.  Harvey,  92 
14 — Private  Corp. 


210  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  207 

cumstances  under  which  a  defendant  may  interpose  the  de- 
fense of  ultra  vires  notwithstanding  the  fact  that  the  contract 
has  been  fully  performed  by  the  other  party.  The  transporta- 
tion company  had  leased  and  transferred  all  of  its  property  of 
every  kind  to  the  defendant  company,  which  was  engaged  in 
a  similar  and  competitive  business.  The  lessee  company  un- 
dertook to  pay  all  of  the  debts  of  the  lessor  company,  and  to 
pay  to  it  annually  the  sum  of  .$264,000  for  a  term  of  ninety- 
nine  years.  Possession  was  taken  and  the  installments  paid 
for  a  number  of  years.  The  suit  was  for  a  part  of  the  install- 
ment for  the  last  year  before  suit.  The  defense  of  ultra  vires  was 
interposed  and  sustained,  the  court  holding  that  the  sale  was 
unauthorized  a,nd  in  excess  of  the  power  of  the  selling  com- 
pany. It  was  urged  for  the  plaintiff,  that  even  if  the  contract 
was  void,  because  ultra  vires  and  against  public  policy,  yet  that, 
having  been  fully  executed  on  the  part  of  the  plaintiff,  and  the 
benefits  of  it  received  by  the  defendant  for  the  period  covered 
by  the  declaration,  the  defendant  was  estopped  to  set  up  the 
invalidity  of  the  contract  as  a  defense  to  an  action  to  recover 
the  compensation  agreed  on  for  that  period. 

After  reviewing  the  decisions  upon  this  branch  of  the  case, 
the  court  said: 

"The  view  which  this  court  has  taken  of  the  question  pre- 
sented by  this  branch  of  the  case,  and  the  only  view  which  ap- 

Tenn.    115,    the    court    said:      "The  intended  it  to  be  understood  that  the 

passage  cited   by  counsel  from   Rail-  defense  would  be  a  legal  wrong  only 

way  Co.  v.  .McCarthy,  96  I'.  S.  267,  when  the  law  did  doI  require  its  con- 

'that  the  doctrine  of  ultra   uire*when  sideration  by  the  court.    This  passage 

invoked   for  or  against  a  corporation  and  one  of  similar  character  in   San 

should    nol     be    allowed    to    prevail  A.ntonio  v.  Mahaffy,  96  U.  8.  312,  was 

when   it    would    defeal    the  ends  of  uncalled   for  in  the  case  in  which  it 

justice  or  work  a  legal  wrong,' ie  mis-  was  used  and   in  Central,  etc.,  Co.  v. 

leading   and    if    literally    construed  Pullman,  etc.,  Co.  was  characterized 

would  resull  in  an  enormous  practical  as  a  mere  passing  remark.    To  Bustaii 

,   of    the  power  of  corpora-  suit   as  now   presented   would   be  in 

tions.     We  do  nol  understand  thai  a  affirmance  and  furtherance  of  an  un- 

result   required   by  adherence  to  the  lawful  and  void  contract,     it  is  in  no 

law  would  be  either  unjust  or  a  legal  sense  a  suit  in  disaffirmance." 
wrong.    The  learned  judge  doubtless 


§  208  THE    DOCTRINE    OF    ULTRA    VIRES.  211 

pears  to  us  consistent  with  legal  principles,  is  as  follows:  A 
contract  of  a  corporation  which  is  ultra  vires  in  the  proper  sense, 
that  is  to  say,  outside  the  object  of  its  creation  as  defined  in 
the  law  of  its  organization,  and  therefore  beyond  the  powers 
conferred  upon  it  by  the  legislature  is  not  voidable  only,  but 
wholly  void,  and  of  no  legal  effect.  The  objection  to  the  con- 
tract is  not  merely  that  the  corporation  ought  not  to  have  made 
it,  but  that  it  could  not  make  it.  The  contract  can  not  be  rat- 
ified by  either  party  because  it  could  not  have  been  authorized 
by  either.  No  performance  on  either  side  can  give  the  unlaw- 
ful contract  any  validity,  or  be  the  foundation  of  any  right  of 
action  upon  it.  When  a  corporation  is  acting  within  the  gen- 
eral scope  of  the  powers  conferred  upon  it  by  the  legislature, 
the  corporation,  as  well  as  persons  contracting  with  it,  may  be 
estopped  to  deny  that  it  has  complied  with  the  legal  formalities 
which  are  prerequisite  to  its  existence  or  to  its  action,  because 
such  requisites  might  in  fact  have  been  complied  with.  But 
where  the  contract  is  beyond  the  powers  conferred  upon  it  by 
existing  law,  neither  the  corporation  nor  the  other  party  to  the 
contract  can  be  estopped  by  assenting  to  it  or  by  acting  upon 
it,  to  show  that  it  was  prohibited  by  law. 

"A  contract  ultra  vires  being  unlawful  and  void,  not  because 
it  is  in  itself  immoral,  but  because  the  corporation,  by  the  law 
of  its  creation,  is  incapable  of  making  it,  the  courts,  while  re- 
fusing to  maintain  any  action  upon  the  unlawful  contract, 
have  always  striven  to  do  justice  between  the  parties,  so  far  as 
it  could  be  done  consistently  with  adherence  to  law,  by  per- 
mitting property  or  money  parted  with  on  the  faith  of  the  un- 
lawful contract  to  be  recovered  back  or  compensation  to  be 
made  for  it.  In  such  cases,  however,  the  action  is  not  main- 
tained upon  the  unlawful  contract,  nor  according  to  its  terms, 
but  on  an  implied  contract  of  the  defendant  to  return,  or  fail- 
ing to  do  that,  to  make  compensation  for  property  or  money 
which  it  has  no  right  to  retain.  To  maintain  such  an  action 
is  not  to  affirm,  but  to  disaffirm,  the  unlawful  contract." 

§  208.  Disaffirmance  after  part  performance. — The  right 
and  duty  of  a  party  to  disaffirm  an  ultra  vires  contract  after  it 


212  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  209 

has  been  partially  performed  without  being  responsible  in 
damages  for  the  value  of  the  unexecuted  portion  of  the  con- 
tract, is  thus  stated  by  Mr.  Justice  Miller: '  "What  is  sought 
in  the  case  before  us  is  the  enforcement  of  the  unexecuted  part 
of  the  agreement.  So  far  as  it  has  been  executed  *  *  * 
the  accounts  have  been  adjusted  and  each  party  has  received 
what  he  was  entitled  to  by  its  terms.  There  remains  unper- 
formed the  covenant  to  arbitrate  with  regard  to  the  value  of 
the  contract.  It  is  the  damages  provided  for  in  that  clause  of 
the  contract  which  are  sued  for  in  this  action — damages  for  a 
material  part  of  the  contract  never  performed;  damages  for  the 
value  of  a  contract  which  was  void.  It  is  not  a  case  of  a  con- 
tract fully  executed.  *  *  It  is  a  contract  forbidden  by 
public  policy  and  beyond  the  power  of  the  defendant  to  make. 
Having  entered  into  the  agreement  it  was  the  duty  of  the  com- 
pany to  rescind  or  abandon  it  at  the  earliest  moment.  This 
duty  was  independent  of  the  clause  in  the  contract  which  gave 
them  the  right  to  do  it.  Though  they  delayed  its  perform- 
ance for  several  years,  it  was,  nevertheless,  a  rightful  act  when 
it  was  done.  Can  this  performance  of  a  legal  duty,  a  duty 
both  to  stockholders  of  the  company  and  to  the  public,  give  to 
plaintiffs  a  right  of  action?  Can  they  found  such  a  right  on 
an  agreement  void  tor  want  of  corporate  authority  and  forbid- 
den by  the  policy  of  the  law?  To  hold  that  they  can,  is,  in 
our  opinion,  to  hold  that  any  act  performed  in  executing  a 
void  contract  makes  all  its  parts  valid,  and  that  the  more  that 
i-  done  under  a  contract  forbidden  by  law,  the  stronger  is  the 
claim  to  its  enforcemenl  by  the  courts." 

§  209.  Recovery  of  consideration  paid. — As  already  stated, 
the  courts  will  not  interfere  with  an  executed  ultra  vires  con- 
tract/ Bui  tie-  injustice  which  results  from  permitting  a  cor- 
poration to  [dead  ultra  vires,  while  retaining  benefits  received 

Under     a     partly    executed    contract,   has    led    the    courts    which 

enforcethe  stricl  rule  that  an  ultra  vires  contracl  is  illegal  and 

void  to  hold  that,   while  no  action  can  he  maintained  upon    the 

1  Thomas  i    Railroad  Co.,  101  U.S.       »Longv.  Railway  Co.,  9\  Ma.,  mv 

71 .  and  im sea  cited  in  next  note,. 


§209 


THE    DOCTRINE    OF    ULTRA    VIRES. 


213 


contract,  the  other  party  may  disaffirm  the  contract  and  re- 
cover the  value  of  what  has  been  actually  delivered.  This 
may  be  done  in  an  action  quasi  ex  contractu  or  in  a  proper 
case,  in  a  suit  for  an  accounting  of  benefits  received.1  Thus, 
a  manufacturing  company  purchased  materials  for  the  pur- 
pose of  selling  them  again  on  speculation,  and  the  vendor 
after  delivering  a  part  repudiated  the  contract  and  sued 
to  recover  the  value  of  what  had  been  delivered.  Mr.  Justice 
Cooley  said:2  "It  will  be  observed  that  the  contract  though 
void  in  law  involved   no  element  of  criminality  and  nothing 


'Pittsburgh,  etc.,  R.  Co.  v.  Keokuk, 
etc.,  Co.,  131  U.  S.  371;  Miller  v. 
Insurance  Co.,  92  Tenn.  167,  21  S.  "W. 
Rep.  39;  Brunswick,  etc.,  Co.  v. 
United,  etc.,  Co.,  85  Me.  532;  Penn- 
sylvania R.  Co.  v.  St.  Louis,  etc.,  R. 
Co.,  118  U.  S.  290;  Central,  etc.,  Co. 
v.  Pullman,  etc.,  Co.,  139  U.  S.  24; 
California  Bank  v.  Kennedy,  167  U.  S. 
362.  In  Greenville,  etc.,  Co.  v.  Plant- 
ers', etc.,  Co.,  70  Miss.  669,  it  was  held 
that  an  ultra  vires  contract  would  not 
be  specifically  enforced  in  equity,  nor 
would  an  action  at  law  lie  thereon. 
The  court,  by  Cooper,  J.,  said:  "The 
agreement  between  the  directors  of 
their  companies  was  clearly  beyond 
the  corporate  powers  of  either  com- 
pany to  make,  and  it  had  not  been 
fully  executed  when  the  appellant 
withdrew  from  it.  There  are  some 
decisions  which  proceed  on  the  appar- 
ent postulate  that  an  tdtra  vires  agree- 
ment executed  fully  by  one  of  the  cor- 
porations, or  so  far  executed  that  the 
status  quo  can  not  be  restored,  may  be 
made  the  basis  of  an  action.  But  in 
many  of  these  cases  it  would  be  found 
that  the  measure  of  recovery  would  be 
the  same  whether  the  injury  to  the 
plaintiff  by  the  failure  of  the  defend- 
ant to  perform,  or  the  benefit  received 
by  the  defendant  under  the  agreement 
is  taken  as  the  standard.  Cases  of 
this  sort  may  therefore   be  well  as- 


signed to  that  other  and  far  more  nu- 
merous class  in  which  the  right  of  re- 
covery is  not  rested  upon  the  invalid 
agreement,  but  is  recognized  to  exist 
notwithstanding  the  agreement  upon 
the  principle  that  the  defendant  may 
not  repudiate  the  contract  and  yet  re- 
tain the  benefit  which  has  been  de- 
rived under  it.  The  decided  weight 
of  authority  in  England  and  America 
is  that  no  action  lies  upon  the  invalid 
contract,  that  no  decree  can  be  made 
by  a  court  of  equity  for  its  specific 
performance,  nor  a  recovery  be  had 
at  law  for  its  breach;  but  that  by 
proceeding  in  the  proper  court,  the 
plaintiff  may  recover  to  the  extent  of 
the  benefit  received  by  the  defendant 
from  the  execution  of  the  agreement 
by  the  plaintiff."  Ashbury,  etc.,  Co. 
v.  Riche,  L  R.,  7  II.  L.  653;  Tn  re 
Cork,  etc.,  R.  Co.  L.  R.,  4  Ch.  748; 
Garrett  v.  Kansas  City,  etc.,  Co.,  113 
Mo.  330;  Le  AVarne  v.  Meyer,  38  Fed. 
Rep.  191 ;  Nashua,  etc.,  R.  Co.  v.  Bos- 
ton, etc.,  R.  Co.  164  Mass.  222;  An- 
thony v.  Machine  Co.,  16  R.I.  571; 
Morville  v.  Tract  Soc,  123  Mass.  129; 
Northwestern,  etc.,  Co.  v.  Shaw,  37 
Wis.  655;  Logan  Co.,  etc.,  Bank  v. 
Townsend,  139  U.  S.  67;  Moore  v. 
Tanning  Co.,  60  Vt.  459. 

2  Day  v.  Spiral  Spring,  etc.,  Co.  57 
Mich.  146. 


214  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  210 

of  an  immoral  nature.  The  case  is  not,  therefore,  one  in 
which  the  law  will  leave  the  parties  without  redress  for  the 
consequences  of  criminal  or  immoral  action.  The  plaintiff 
has  a  right  to  sell  her  manufactures  and  to  be  paid  for  it;  the 
defendant  has  received  something  of  value  from  her,  and  there 
is  manifest  equity  in  its  being  required  to  make  payment  not- 
withstanding it  exceeded  its  powers  in  the  purchase."  Where 
money  is  paid  on  such  a  contract  it  ma}r  be  recovered  in  an 
action  for  money  had  and  received.1  A  corporation  which 
seeks  in  equity  relief  against  an  ultra  vires  contract  must  re- 
turn the  consideration  which  it  has  received.2 

7".    Certain  Rules  Affecting  Doctrine  of  Ultra   Vires. 

§  210.  In  general. — Before  proceeding  with  the  discussion 
of  the  application  of  the  doctrine  of  estoppel  to  ultra  vires  con- 
tracts, it  is  necessary  to  call  attention  to  certain  rules  which 
seem  to  lie  at  its  very  foundation. 

§  211.  Presumption  of  validity. — While  a  corporation  must 
be  able  to  show  a  grant,  express  or  implied,  of  power  which  it 
seeks  to  exercise,  it  is  well  settled  that  contracts  which  are  not 
contrary  to  the  express  provisions  of  the  charter  are  presumed 
to  bo  within  the  power  of  the  corporation;  and  the  burden  of 
proof  is  upon  the  one  denying  their  validity.8  Thus,  a  mort- 
executed  by  the  officials  of  a  corporation  is  presumed  to 
have  been  executed  under  proper  authority.'1 

§212.    Notice  of  corporate  powers, — The  doctrine  of  ultra  vires 

largely  upon  the  rule  thai  every  person  who  deals  with  a 

corporation    must  at  his  peril   take   notice  of  the   limitations 

upon  its  power  which  are  contained  in  its  charter  or  articles  of 

Incorporation.     "Every    person   who  enters    into  a  contract 

'Northwestern,  etc.,  Co.  v.  Shaw,  N.  7.300;  Elkina  v.  Railroad  Co.,  86 

n  Wis.  '■  V  .1.  Eq.  241  ;  Downing  v.  Mt.  Wash- 

1  Atlantic,  etc.,  Co.  v.  Pacific R.  Co.,  Ington  Road  Co.,  40  N.    II.  280;  Kx 

l  Ped   Rep.  746.  parte  Peru,  etc.,  Co.,  7  Cow.  640. 

'Gorder  v.   Platten th,  etc.,   Co.,        M'.oycc  v.   Monumk,  etc.,  Co.,  37 

a<t  Neb.  648;  Railway  Co.  \    McCar-  \v.  Va.  7:;. 
thy,  86  '                               Qokey,  'is 


§  212  THE    DOCTRINE    OF    ULTRA    VIRES.  215 

with  a  corporation,"  says  Chief  Justice  Gray,1  "is  bound  at 
his  peril  to  take  notice  of  the  legal  limits  of  its  capacity,  es- 
pecially where,  as  in  this  commonwealth,  all  acts  of  incorpo- 
ration are  deemed  public  acts,  and  every  corporation  organized 
under  general  laws  is  required  to  file  in  the  office  of  the  secre- 
tary of  the  commonwealth  a  certificate  showing  the  purpose 
for  which  the  corporation  is  constituted." 

As  stated  by  Chief  Justice  Waite:*  "Every  corporation 
necessarily  carries  its  charter  wherever  it  goes,  for  that  is  the 
law  of  its  existence.  It  may  be  restricted  in  the  use  of  some 
of  its  powers  while  doing  business  away  from  its  corporate 
home,  but  every  person  who  deals  with  it  any  where  is  bound 
to  take  notice  of  the  provisions  which  have  been  made  in  its 
charter  for  the  management  and  control  of  its  affairs,  both  in 
life  and  dissolution."  This  rule  applies  to  foreign  as  well  as 
domestic  corporations. 

It  seems  rather  a  harsh  rule,  however,  which  requires  all 
persons  at  their  peril  to  take  notice  of  the  provisions  of  charters 
which  are  private  acts  of  which  the  courts  will  not  take 
judicial  notice. 

This  doctrine  is  illustrated  by  the  cases  which  hold  that 
where  a  bank  loans  a  corporation  more  money  than  the  latter's 
recorded  articles  of  incorporation  authorize  it  to  borrow,  it 
does  so  at  its  peril,  and  can  collect  only  the  amount  which 
the  corporation  is  thus  authorized  to  contract  an  indebtedness 
for.3 

'Davis  v.  Old  Colony  R.  Co.,  131  Society,  60 Minn.  94;  Wilson  v.  Kings, 

Mass.  258,41  Am.  Rep.  221.    To  the  etc., R.  Co.,  114N.  Y.487;  Bocockv.  Al- 

same  effect  see  Pearce  v.  Madison,  leghany,  etc.,  Co.,  82  Va.  913,  3  Am. 

etc.,  R.  Co.,  21  Howard  (U.  S.)  441;  St.  Rep.  128;  Humphrey  v.  Patrons', 

Relfe  v.  Rundle,  103  IT.  S.  222;  Salt  etc.,  Assn.,  50  Iowa  607;  Elevator  Co. 

Lake  City  v.  Hollister,  118  U.  S.  256;  v.  Memphis,  etc.,  Co.,  85  Tenn.  703, 

Pittsburgh,  etc.,  R.  Co.  v.   Keokuk,  4  Am.  St.  Rep.  798;  Franklin  Co.  v. 

etc.,  Co.,  131  U.  S.  371 ;  Central,  etc.,  Lewiston  Inst,  for  Sav.,  68  Me.  43. 

Co.  v.  Pullman,  etc.,  Co.,  139  U.  S.  24 ;  2  Relfe  v.  Rundle,  103  U.  S.  222. 

McCormick    v.    Market    Nat.   Bank,  3  First   Nat.   Bank  v.  Kiefer,   etc., 

165  U.  S.  538;  Kraniger  v.  Building  Co.,  95  Ky.  97,  23  S.  W.  Rep.  675. 


216  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  213 

§  213.    Limitations  upon  the  authority  of  corporate  officers. 

— Persons  who  deal  with  corporations  are  bound  to  take  no- 
tice of  the  powers  of  the  corporation  as  contained  in  the  char- 
ter and  also  of  the  powers  of  the  agents  of  the  corporation. 
"Persons  dealing  with  the  officers  of  a  corporation  or  with  per- 
sons assuming  to  represent  it,  are  chargeable  with  notice  of 
the  purpose  of  its  creation  and  its  powers,  and  with  the  au- 
thority actual  or  apparent  of  its  officers  or  agents,  with  whom 
they  deal;  and  when  they  seek  to  charge  the  corporation  with 
liability  upon  a  contract  made  apparently  in  its  behalf,  the 
burden  is  upon  them  to  prove  the  authority  of  such  person  as- 
suming to  act  as  such  officer  or  agent,  to  so  make  it."1  This 
places  the  requirement  of  notice  of  corporate  powers  and  the 
authority  of  agents  upon  the  same  principle,  although  in  fact 
they  rest  upon  totally  different  principles.  The  former  assumes 
that  every  person  is  bound  to  know  the  law  and  the  powers  of 
corporations  created  by  law,  while  the  latter  rests  upon  the 
rule  of  the  law  of  agency  that  one  who  deals  with  an  asserted 
agent  is  bound  at  his  peril  to  know  the  extent  of  his  authority.2 

§  214.  Restrictions  contained  in  by-laws. — Although  there 
are  decisions  which  say  that  a  person  dealing  with  a  corpora- 
tion is  bound  to  take  notice  of  its  constitution,  by-laws  and  ways 
of  doing  business,'  they  are  contrary  to  the  weight  of  authority 
and  rest  upon  no  sound  principle.  There  are  good  reasons  for 
charging  all  persons  with  knowledge  of  what  is  contained  in  a 
public  Btatute  orspread  upon  a  public  record,  but  it  is  difficult 
to  see  why  they  must  know  the  contents  of  a  private  rule  made 
corporation  for  the  government  of  its  officers  and  agents 
in  the  transaction  of  its  business.  The  by-laws  may,  of  course, 
be  material  as  evidence  of  the  actual  authority  of  the  agent  and 
are  binding  upon  those  who  deal  with  knowledge  of  their  eon- 

1  Wilson  v.  Kin'/-,  etc.,  R.  <'".,  ill  bod  v.  Citizens'  Bank,  il'l'  N.  Y.  186, 

N.   V.    187;    Adriance   \.    Roome,  52  L9  ^m.  8t.  Rep.  482 ;  Bockover  v.  life 

".    Bat eeef  215, infra.  Issn.,  77  Va.85;  Relfe v. Bundle,  103 

'Thompson  Corp.,  §  5974.  U.  B.  222;  Haden  v.  Farmers',  etc., 

Bocock  v.  Alleghany,  etc.,  Co.,      I  OVa.683.    See  Nat.,  etc.,  Co 

918,   •■;  Am.     i     Rep.  L28;  Jemi-  v.  Home,  etc.,  Bank  (111.),    >i  \.  E. 

Ren.  819. 


§215  THE    DOCTRINE    OF    ULTRA    VIRES.  217 

§  215.  Limitations  upon  the  general  rule. — The  harsh  rule 
which  requires  a  person  dealing  with  corporations  to  take  no- 
tice of  the  extent  of  their  powers  is  subject  to  certain  well  de- 
fined limitations.  When  the  want  of  power  is  apparent  upon 
an  inspection  of  the  charter  or  statute,  the  party  dealing  with 
the  corporation  may  reasonably  be  presumed  to  have  knowledge 
of  the  defect  and  the  defense  of  want  of  authority  is  available 
against  him.  But  this  defense  will  not  avail  against  one  who 
can  not  be  presumed  to  have  had  knowledge  of  the  want  of 
authority  to  make  the  contract.  Hence,  if  the  act  is  appar- 
ently within  the  scope  of  the  corporate  powers,  and  the  al- 
leged defect  rests  upon  the  existence  of  certain  extrinsic  facts 
peculiarly  within  the  knowledge  of  the  corporate  officers,  the 
corporation  as  against  a  person  dealing  in  good  faith  is  es- 
topped from  denying  that  which  by  assuming  to  make  the 
contract  it  has  virtually  affirmed.1  Thus,  a  person  dealing 
with  a  corporation  is  not  bound  to  know  that  a  power  can  not 
be  rightfully  exercised  in  a  particular  case,2  as  that  the  limit 
of  indebtedness  fixed  by  the  charter  has  been  reached.3  Where 
an  agent  has  authority  to  issue  negotiable  paper  for  any  pur- 
pose, a  person  receiving  it  in  the  ordinary  course  of  business 
is  justified  in  assuming  that  it  was  properly  issued.4  So,  a 
holder  of  negotiable  paper  issued  by  a  corporation  which  has 
power  to  issue  negotiable  paper,  is  not  affected  by  the  fact  that 
it  was  issued  at  a  place  and  for  a  purpose  not  authorized   by 

1  Monument    Nat.   Bank    v.   Globe  for  that  of  the  public.    The  corpora- 
Works,  101  Mass.  57;  Beecherv.  M.  &  tion    would,    however,    be    estopped 
P.  Rolling,   etc.,   Co.,   45  Mich.  103;  from  setting  up  the  defense  in  a  case 
Boyce  v.  Montauk,  etc.,  Co.,  37  W.  Va.  "where  the  other  party  to  the  contract 
73;   Express  Co.  v.  Railroad  Co.,  99  could  not  be  presumed  to  be  cognizant 
U!  S.  191 ;  Wardner,  etc.,  Co.  v.  Jack,  of  the  excessof  power." 
82  Iowa  435;  Luttrel  v.  Martin,  112  2  Germantown,  etc.,  Co.   v.  Dhein, 
N.  C.  593;   Kennedy  v.  Savings  Bank,  43  Wis.  420,  28  Am.  Rep.  549. 
101  Cal.  495.  InBissel  v.  Railroad  Co.,  3  Humphrey  v.  Patrons,  etc.,  Assn., 
22  N.  Y.  258,  the  court  said  :     "It  is  a  50  Iowa  007 ;  Auerbach  v.  LeSeur, 
good  defense  to  a  corporation  when  Co.,   28   Minn.   291  ;  Ellsworth  v.  St. 
sued  upon   contract,   that  in  making  Louis,  etc.,  Co.,  98  X.  Y.  553. 
such  contract  it  exceeded  its  corporate  *Genesee  Sav.   Bank  v.   Michigan, 
powers;    this  defense  being  allowed,  etc.,  Co.,  52   Midi.  438;  Ellsworth  v. 
not  forthe  sake  of  the  corporators,  but  St.  Louis,  etc.,  Co.,  98  X.  Y.  553. 


218  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  216 

the  charter.1  When  a  corporation  has  power  to  purchase 
property,  the  vendor  without  notice  is  not  affected  by  the  fact 
that  it  is  purchased  for  an  unauthorized  purpose.2  The 
distinction  in  such  cases  is  between  the  possession  and  the 
abuse  of  a  power. 

II.    Estoppel  to  Assert  Defense  of  Ultra  Vires. 

§  216.  General  statement. — The  harshness  of  the  strict  rule 
of  ultra  vires  is  much  softened  in  many  cases  by  the  applica- 
tion of  other  principles  of  law.  From  the  mass  of  decisions  the 
rule  may  be  fairly  deduced  that  an  ultra  vires  contract  is  unen- 
forcible  except  against  those  persons  and  corporations  who  have 
by  participation,  acquiescence,  retention  of  benefits  or  some 
other  act  which  it  would  be  contrary  to  justice  to  disavow, 
estopped  themselves  from  interposing  the  defense.  It  is  safe 
to  say  that  this  is  the  rule  which  will  govern  the  courts  in  the 
great  majority  of  future  cases.  Thus,  if  all  the  stockholders  are 
estopped  in  a  particular  case,  the  contract  may  be  enforced  un- 
less possibly  when  the  rights  of  creditors  of  the  corporation 
will  thereby  be  prejudiced,  or  the  contract  is  against  public 
policy  or  in  violation  of  law.  But  the  reason  for  the  exception 
fails  when  the  party  seeking  to  assert  the  estoppel  had  knowl- 
edge of  the  fact  that  the  contract  was  ultra  vires.  The  limita- 
tion exists  only  for  the  benefit  of  those  whose  rights  would  be 
prejudiced  by  enforcing  the  strict  legal  rule.  Only  those  who 
have  !>•  in  misled  can  assert  theestoppel.  "In  the  application 
of  the  doctrine  of  ultra  vires,"  says  Judge  Folger,"  "it  is  to  be 
borne  in  mind  thai  it  has  two  phases,  one  where  (he  question 
is  between  the  corporate  body  and  the  stockholders,  or  between 
it  and  its  Stockholders,  and  third  parties  dealing  with  it,  and 
through  it,  with  them.  When  the  public  is  concerned  tore- 
strain  a  corporation  within  the  powers  given  to  it  by  its  charter, 
an  asseni  of  all  the  stockholders  to  the  use  of  unauthorized 

1  Main  \   I               6"  I  il.  127;  Le-  Cowell  v.  Springe  <'<>.,  kh)  r.  s.  :,:>■ 

high,  etc.,  Co.  v.  Agricultural  Works,  Eastern,  etc.,    u.  Co.  v.   Hawkes,   I 

inder  v.  Rollins,  84  H.  L.  0.  881. 

Mo  '  3  K.nt  v.  Quicksilver,  etc,  Co.,  78 

'Thompson v. Lambert, 44 Iowa 289;  N.  Y.  169. 


§  217  THE    DOCTRINE    OF    ULTRA    VIRES.  219 

power  by  the  corporate  body  will  be  of  no  avail.  When  it  is  a 
question  of  the  right  of  a  stockholder  to  restrain  the  corporate 
body  within  its  express  or  incidental  powers,  the  stockholder 
may  in  many  cases  be  denied,  on  the  ground  of  his  express 
assent  or  his  intelligent,  though  tacit,  consent  to  the  corporate 
action.  *  *  *  A  corporation  may  do  acts  which  affect  the 
public  to  its  harm,  inasmuch  as  they  are  perse  illegal  or  malum 
'prohibitum.  Then  no  assent  of  stockholders  can  validate  them. 
It  may  do  acts  not  thus  illegal,  though  there  is  want  of  power 
to  do  them,  which  affect  only  the  interest  of  the  stockholder. 
They  may  be  made  good  by  the  assent  of  the  stockholders;  so 
that  strangers  to  the  stockholders,  dealing  in  good  faith  with 
the  corporation,  will  be  protected  in  a  reliance  upon  those  acts." 
It  will  be  observed  that  according  to  this  rule,  there  can  be  no 
estoppel  asserted  in  aid  of  the  enforcement  of  a  contract  which 
is  illegal  because  malum  in  se  or  malum  prohibitum. 

§  217.  Estoppel — Rule  of  the  supreme  court. — The  position 
of  the  supreme  court  of  the  United  States  in  reference  to  the 
application  of  the  doctrine  of  estoppel  to  ultra  vires  contracts  is 
clearly  stated  in  a  very  recent  case,1  which  grew  out  of  an 
attempt  to  hold  a  national  bank  liable  as  a  stockholder  in  an- 
other corporation.  The  bank  had  power  under  certain  circum- 
stances to  become  the  legal  holder  of  such  stock,  but  in  the 
particular  case  the  act  was  beyond  its  power.  The  case  may 
thus  be  distinguished  from  those  cases  where  there  is  an  abso- 
lute want  of  power.  But  in  deciding  that  the  bank  could  plead 
the  defense  of  ultra  vires,  Mr.  Justice  White  said:  "The  trans- 
fer of  the  stock  in  question  to  the  bank  being  unauthorized  by 
law,  does  the  fact  that  under  some  circumstances  the  bank 
might  have  legally  acquired  stock  in  the  corporation,  estop  the 
bank  from  setting  up  the  illegality  of  the  transaction?  What- 
ever divergence  of  opinion  may  arise  on  this  question  from 
conflicting  adjudications  in  some  of  the  state  courts,  iirthis 

California  Bank  v.  Kennedy,  167  Attorney-General  v.  Great  Eastern  R. 
U.  S.  362.  This  is  the  doctrine  of  the  Co.,  5  App.  Cas.  473;  Trevor  v.  Whit- 
English  decisions.  Ashbury,  etc.,  R.  worth.  12  App.  Cas.  409;  Oregon,  etc. 
Co.  v.    Riche,   L.   R.,  7   H.   L.   653;  Co.  v.  Roper,  1892  App.  Cas.  125. 


220 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§218 


court  it  is  settled  in  favor  of  the  right  of  a  corporation  to  plead 
its  want  of  power,  that  is  to  say,  to  assert  the  nullity  of  an  act 
which  is  an  ultra  vires  act."  In  another  case  the  court  said:1 
'■A  contract  made  by  a  corporation  beyond  the  scope  of  its 
powers,  express  or  implied,  on  a  proper  construction  of  its 
charter,  can  not  be  enforced  or  rendered  enforcible  by  the  ap- 
plication of  the  doctrine  of  estoppel." 

§  21S.  Partially  executed  ultra  vires  contracts. — According 
to  the  weight  of  authority  in  the  state  courts  where  there  has 
been  performance  of  an  ultra  vires  contract  on  the  part  of  the 
corporation,  the  other  party  is  estopped  to  assert  the  claim 
that  the  corporation  had  no  authority  to  make  the  contract.2 
"One  who  has  received  from  a  corporation  the  full  considera- 
tion of  his  engagement  to  pay  money  *  *  *  can  not  avail 
himself  of  the  objection  that  the  contract  thus  fully  per- 
formed by  the  corporation  was  ultra  vires  and  not  within  its 
chartered  privileges  and  powers."3  The  converse  of  this  rule 
that  a  private  corporation  can  not  avail  itself  of  the  defense  of 
ultra  vires,  where  the  contract  has  been  in  good  faith  fully 
performed  by  the  other  party  and  the  corporation  has  had  the 
benefit  of  the  contract  and  the  performance,  is  supported  by 
the  overwhelming  weight  of  authority,4  although  it  has   been 


1  Union,  etc.,  R.  Co.  v.  Chicago,  etc., 
I:.  Co.,  L63  i  .  S.  564. 

kaufv.  Lombard,  L37  N.  V.  U7; 
'  »ii  ( Ireek,  etc.,  R. Co.  v.  Pennsylvania, 
etc.,  Co.,  83  Pa.  Bt.  L60;  Reynolds  v. 
tordsville  Bank,  112  U.  B.  405; 
Bhewalterv.  Pirner,  55  Mo.  218;  Eck- 
ni.-iri  v.  ( Ihicago,  etc.,  R.  < '".,  169  III. 
812;  Chester,  etc.,  I  lo    \     Dewey,   L6 

'.'  I  ;   <  Miin.-ihtMU  ii,    etc.,    <  '".   v. 

Dhein,  13  Wis.  120;  Whitney,  etc.,  Co. 

v.    I:  u  i   N.    V.  n '     Bi    ell  v. 

Mirhfiran,  ft.-  .    I:     i 
Building  Assn.  v.  Lampson,  80  Minn. 
422;  Bath,  etc.,  Co.  v.Claffy,  151  V  v. 
ii  <  it  v.  etc.,  Bank 

90  Mich   550;  National 
Bank  v.  Whitney,   L08  I  99.     In 


Alabama,  the  defense  of  ultra  vires 
may  be  interposed  withoul  accounting 
for  benefits  received. 

3  Whitney,  etc.,  <  !o.  v.  Barlow,8«jjra. 

4  Darsi  v.  Gale,  83  111.  L36;  Bradley 
v.  Ballard,  55  III.  H3,8  Am.  Rep.  656; 
Kadish  v.  Loan  Assn..  L51  III.  581 ; 
Bissell  v.  Michigan,  etc.,  R.  Co.,  22 
\  Y.  258;  Peoria,  etc.,  R.  Co.  v. 
Thompson,  108  ill.  187;  Manchester, 
etc.,  R.  Co.  v.  <  loncord,  etc.,  R.  <  '<>., 
66  N.  II.  100,  20  Ail.  Rep.  883;  Cam- 
den, etc.,  R.  ( '<».  v.  Mays,  i  tc.,  R.  <  '•>.. 
48  V  .1.  L.  580;  In  re  Pendleton,  etc., 
< '..  .  "i  <  >re,  830;  Beymour  v.  I  hiar- 
anty,  etc.,  8oc,  ■'< i  Minn.  I  17  :  1  tolmes, 
etc.,  < '".  v.  Holmes,  etc.,  < !o.,  L27  N 
Y.  262;  Rider, etc.,  Co.  v.  Roach, 97  N. 


§219 


THE    DOCTRINE    OF    ULTRA    VIRES. 


221 


subjected  to  some  criticism.1  There  are  decisions,  however, 
which  hold  that  the  defense  can  be  interposed  at  any  time  by 
either  party.2  But  this  rule  should  evidently  apply  only  to 
contracts  which  are  contrary  to  public  policy  or  positive  law. 
The  part  performance  must  be  such  as  will  render  the  defense 
of  ultra  vires  unjust  and  inequitable.3  An  ultra  vires  contract 
wholly  executory  will  never  be  enforced. 

§  219.  Estoppel— Retention  of  benefits.— The  effect  of  part 
performance  is  generally  made  to  turn  upon  the  fact  that  by 
reason  thereof  the  other  party  has  received  and  retains  benefits 
under  the  contract.  Hence,  neither  party  to  an  ultra  vires 
contract  will  be  heard  to  say  that  one  or  both  of  the  parties 
thereto  had  no  power  to  make  the  contract  while  he  retains  the 
benefits  received  under   the  contract.'     The  result  is  that  the 


Y.  378;  State  Board  v.  Citizens',  etc., 
R.  Co.,  47  Ind.  407,17  Am.  Rep.  702; 
Connecticut,  etc.,  Bank  v.  Fiske,  60 
N.  H.  363 ;  Wood  v.  Corry,  etc.,  Wks., 
44  Fed.  Rep.  146,  12  L.  R.  A.  168; 
Carson  City,  etc.,  Bank  v.  Carson  City, 
etc.,  Co.,  90  Mich.  550,  30  Am.  St.  Rep. 
454;  Wright  v.  Pipe  Line  Co.,  101  Pa. 
St.  204,  47  Am.  Rep.  701 ;  Wright  v. 
Hughes,  119  Ind.  324,  12  Am.  St.  Rep. 
412;  Mainv.  Casserly,  67  Cal.  127. 

1  Taylor  Priv.  Corps.,  §  279. 

2 The  following  cases  hold  that  the 
corporation  may  defend  on  the  ground 
of  ultra  vires  although  it  has  enjoyed 
and  retains  the  benefits  of  the  con- 
tract. Albert  v.  Savings  Bank,  1  Md. 
Ch.  407;  Sherwood  v.  Alvis,  83  Ala. 
115,  3  Am.  St.  Rep.  695;  Chewacla, 
etc.,  Wks.  v.  Dismukes,  87  Ala.  344. 
See  Boynton  v.  Lynn,  etc.,  Co.,  124 
Mass.  197. 

3  Nassau  Bank  v.  Jones,  95  N.  Y. 
115;  Bosshardt,  etc.,  Co.  v.  Crescent, 
etc.,  Co.,  171  Pa.  St.  109. 

4  Seymour  v  .  Spring  Forest,  etc., 
Assn.,  144  N.  Y.  333,  26  L.  R.  A.  859; 
Bath,  etc.,  Co.  v  Claffy,  151  N.  Y.  24, 
36  L.  R.   A.  664;  Wright  v.   Hughes, 


119  Ind.  324,  12  Am.  St.  Rep.  412; 
Wright  v.  Pipe  Line  Co.,  101  Pa.  St. 
204;  Hardware  Co.  v.  Phalen,  128  Pa. 
St.  110;  Dewey  v.  Toledo,  etc.,  R.  Co., 
91  Mich.  351;  Carson  City,  etc.,  Bank 
v.  Carson  City,  etc.,  Co.,  90  Mich.  550  ; 
Union,  etc.,  Co.  v.  Plum,  etc.,  Co.,  58 
Conn.  219;  Louisville,  etc.,  R.  Co.  v. 
Flannagan,  113  Ind.  488,  3  Am.  St. 
Rep.  074  ;  Manchester,  etc.,  R.  Co.  v. 
Concord  R.  Co.,  66  N.  H.  100,  20  Atl. 
Rep.  383;  Colorado,  etc.,  Co.  v.  Grand 
Valley,  etc.,  Co.  (Colo.),  32  Pac.  Rep. 
178 ;'Tylerv.Tualatin  Academy, 14 Ore. 
485;  Natchez  v.  Mallery,  54  Miss.  499; 
Humphrey  v.  Patrons',  etc.,  Assn.,  50 
Iowa  607;  Twiss  v.  Guaranty,  etc., 
Assn.,  87  Iowa  733,  55  N.  W.  Rep.89; 
Darstv.Gale,  83  111.136 ; Wood  v.Corry 
Water  Works,  44  Fed.  Rep.  146;  Link- 
auf  v.  Lombard,  137  N.  Y.  417;  Whit- 
ney,  etc.,  Co.  v.  Barlow,  63  N.  Y.  62; 
Camden,  etc.,  R.  Co.  v.  Mays,  etc.,  R. 
Co.,  48  N.  J.  L.  530;  Sherman,  etc., 
Co.  v.  Morris,  43  Kan.  282;  McGee  v. 
Pacific,  etc.,  Co.,  98  Cal.  678;  Comw. 
v.  Suffolk,  etc.,  Co.,  161  Mass.  550,  37 
N.  E.  Rep.  757;  Hitchcock  v.  Galves« 
ton,  96  U.  S.  341. 


222  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  219 

action  is  maintained  on  the  contract,  because  the  party  who  re- 
tains the  benefits  under  it  is  not  permitted  to  say  that  it  is 
invalid.1  "The  contract  in  such  case  is  assumed  by  the  court 
to  be  valid,  the  party  seeking  to  avoid  it  not  being  permitted 
to  attack  its  character  in  this  respect.2  This  rule  has  been 
applied  where  an  insurance  company  issued  a  policy  against 
loss  caused  by  hail;3  where  a  corporation,  engaged  in  the  busi- 
oesa  of  innkeeper,  sought  to  escape  liability  as  such  to  a  guest,4 
and  where  a  street  railway  corporation  agreed  to  pay  a  certain 
sum  if  an  agricultural  fair  was  held  at  a  certain  place,  and 
attempted  to  avoid  payment  on  the  ground  that  the  contract 
was  ultra  vires."*  "There  are  few  rules,"  said  Chief  Justice 
Gilfillan,6  "better  settled  or  more  strongly  supported  by  author- 
ity, with  fewer  exceptions  in  this  country,  than  that  when  a 
contract  by  a  private  corporation,  which  is  otherwise  unob- 
jectionable, has  been  performed  on  one  side,  the  party  which 
has  received  and  retains  the  benefit  of  such  performance  shall 
not  be  permitted  to  evade  performance  on  the  ground  that  the 
contracl  was  in  excess  of  the  purpose  for  which  the  company 
was  created.  The  rule  may  not  be  strictly  logical,  but  it  pre- 
vents a  great  deal  of  injustice."  Thus,  a  party  who  has  bor- 
rowed money  from  a  corporation  and  given  his  promissory 
note  therefor  can  not,  when  sued  upon  the  note,  be  heard  to 
Bay  that  the  corporation  had  no  power  to  make  the  loan.7  In 
a  very  recent  Wisconsin    case,    where    a   receiver  of  a   foreign 

'Wright  v.    Pipe  Lin.-  (V,  mi  Pa.  17  Barb.  378,  Parker,  J.,  said:    "It  ill 

St.   204;    Dewey  v.    Railroad   <'<>..  91  becomes  the    defendants    t"    borrow 

Mich.  861.  from  the  plaintiffs  $1,000  fora  single 

2  Denver,  '•!'-.,  <'■•.  v.  McClelland,  9  day,  to  relieve  their  immediate  neces- 

Colo.  11.  Bities,  and  then  to  turn  around  and 

•  Denver,  etc.,  Co.  v.  McClelland,  9  say  :  'I  will  not  return  you  this  money, 

Colo.  !i.  because  you  had  no  power,  by  your 

•Magee    v.   Improvement    <'".,   98  charter,  to  lend  it.'    Let  them  first  re- 

C;il    ■  Btore  the  money,  and  then  it  w ill  be 

I  v.  Citizens',  etc.,  l>'.  time  enough  for  them  to  discuss  with 

i        i ;  i,pl.  107.  the  sovereign   power  of  tin'  state  of 

■  vi rv. Guaranty,  etc.,  Society,  Connecticut  the  extent  "i  the  plaint- 

.-, i  Minn.  it7.  in"-  chartered  privileges.      We  shall 

7  l'i k  v.  Lafayette,  etc.,    \--n.,  71  lose  our  respect  for  the  law,  when  it 

[„.|.  .;.,    in  -••  im  '       7.  Weed,  bo  far  loses  its  character  for  justice  as 


§  220  THE    DOCTRINE    OF    ULTRA    VIRES.  223 

corporation  asserted  that  the  action  of  the  officers  of  the  cor- 
poration in  depositing  securities  in  the  state  in  order  to  qualify 
the  corporation  for  doing  business  there  was  ultra  vires,  the 
court  said:  "It  is  well  settled  that  a  corporation  can  not  avail 
itself  of  the  defense  of  ultra  vires  when  the  contract  in  question 
has  been  in  good  faith,  fully  performed  by  the  other  party  and 
the  corporation  has  had  the  full  benefit  of  the  performance  oi 
the  contract.  Much  less  will  the  claim  that  the  transaction 
was  ultra  vires  be  allowed  as  a  ground  for  rescinding  the 
contract  and  restoring  to  the  complaining  party  on  that  ground 
the  property  or  funds,  with  which  he  has  parted,  after  he  has 
had  the  benefit  of  full  performance  of  the  contract  by  the  other 
party;  and,  in  general,  the  plea  of  ultra  vires  will  not  be 
allowed  to  prevail,  whether  interposed  for  or  against  a  cor- 
poration, when  it  will  not  advance  justice,  but,  on  the  con- 
trary, will  accomplish  a  legal  wrong."1 

§  220.  Acquiescence  in  ultra  vires  acts. — If  a  stockholder 
desires  protection  against  an  ultra  vires  act  of  the  corporation 
he  must  act  promptly  and  energetically,  or  he  will  be  bound 
by  acquiescence.  If  he  assents  to  the  transaction  or  for  an  un- 
reasonable time  acquiesces  until  the  other  party  has  acted  on 
the  faith  of  the  transaction  so  that  he  will  suffer  great  injury 
by  its  repudiation,  a  court  of  equity  will  be  slow  in  granting 
him  relief.2 

to  sanction  the  defense  here  at-  2  Stewart  v.  Transportation  Co.,  17 
tempted."  Minn.  372  (Gil.  348);  Alexander  v. 
1  Lewis  v.  American,  etc.,  Assn.,  Searcy,  81  Ga.  536;  Dimpfel  v.  Rail- 
98  Wis.  203,  73  N.  W.  Rep.  793,  39  road  Co.,  110  lT.  S.  209;  St.  Louis,  etc., 
L.  R.  A.  559,  citing  Kadish  v.  Gar-  R.  Co.  v.Terre  Haute,  etc.,  R.  Co.,  145 
den,  etc.,  Assn.,  151 111.531 ;  Whitney,  U.  6.  393;  Boyce  v.  Montauk,  etc.,  ( V, 
etc.,  Co.  v.  Barlow,  63  N.  Y.  62;  37  W.  Va.  73;  Ashhurst's  Appeal,  60 
Union,  etc.,  Bank  v.  Matthews,  98  Pa. St. 290;  Green's  Brice's  Ultra  Vires, 
U.  S.  621 ;  Carson  City,  etc.,  Bank  v.  783.  In  Nashua,  etc.,  Corp.  v.  Boston, 
Carson  City,  etc.,  R.  Co.,  90  Mich.  550,  etc.,  Corp.,  157  Mass.  268,  31  N.  E. 
30  Am.  St.  Rep.  454.  As  to  the  right  of  Rep.  1060,  it  was  held  that  a  contract 
the  receiver  to  assert  the  defense  of  for  the  joint  operation  of  two  railroads 
ultra  vires,  see  Abbott  v.  Baltimore,  would  not  be  declared  ultra  vires  in  an 
etc.,  Co.,  1  Md.  Ch.  542;  First,  etc.,  action  on  the  contract,  when  the  de- 
Bank  v.  Kiefer  Co. ,  95  Ky.  97.  fense  was  not  set  up  in  the  answer,  or 


224  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  221 

It  is  said  to  be  the  continuing  duty  of  a  party  to  an  ultra 
vires  contract  to  rescind  the  same,  but  where  a  suit  was  brought 
to  have  set  aside  and  canceled  a  conveyance  of  the  plaintiff's 
railroad  and  franchises,  plaintiff  failed  because  of  his  laches. 

It  appeared  that  the  contract  had  been  fully  executed  on  the 
part  of  the  plaintiff  by  the  actual  transfer  of  its  railroad  and 
franchises  to  the  defendant  and  that  the  defendant  had  held 
the  property,  and  paid  the  stipulated  consideration  from  time 
to  time  for  a  period  of  seventeen  years,  and  had  taken  no  steps 
to  rescind  or  repudiate  the  contract.  The  contract  was  held  to 
be  ultra  vires,  but  the  court  said:1  "Upon  this  state  of  facts, 
for  the  reasons  above  stated,  the  plaintiff  considered  as  a  party 
t>>  the  unlawful  contract  has  no  right  to  invoke  the  assistance 
of  a  court  of  equity  to  set  it  aside.  And  so  far  as  the  plaintiff 
corporation  can  be  considered  as  representing  the  stockholders, 
and  seeking  to  protect  their  interests,  it  and  they  are  barred  by 
laches."2  This  case  is  not  like  those  in  which  the  defendant, 
having  abandoned  or  refused  to  perform  the  unlawful  contract, 
has  been  held  liable  to  the  plaintiff,  as  upon  an  implied  con- 
tract, for  the  value  of  what  he  has  received  from  him,  and  had 
no  right  to  retain.3 

§  221.  Ratification  of  ultra  vires  acts. — A  corporation  may 
ratify  a  contract  which  it  has  power  to  make.  Hence,  if  a 
contract  ie  entered  into  by  some  one  in  its  behalf  without  au- 
thority, or  is  voidable  because  some  formality  has  not  been  ob- 
served, it  may  be  ratified  by  the  corporation  acting  in  some 
proper  form.1  A  voidable  contract  may  he  ratified  by  a  ma- 
jority ot  the  stockholders,  because  a  majority  having  the  con- 
in  a  previous  action  between  the  same  lSt.  Louis,  etc.,  R.  ('>>.  v.  Terre 
parties    on    the  same    contract,   and     Haute,  etc.,  R.  Co.,  145  TJ.  S.  898. 

when   no  statute  or  decision  oi  thai        'Harw 1    \.    Railway,    17    Wall. 

;/n  -t;it''  i-  cited  in    (TJ.  8. 1  78. 
support  "i   tli"    defense,    and    when       •  Spring  Co.  v.  Knowlton,  LOS  U.S. 

othing  to  show  that  the  legia*    49;  Bank  v.  Townsend,  189  TJ.  S.  67 
lature  or  any  public  officer  of  either       4  North  Point, etc.,  Co.  v.  Utah, etc., 
er  objected  to  the   con«    Co.,  16  Utah  246, 40  L.  R.  A.  851;  Sey- 
mour v.  Spring  Forest,  etc.,  Assn.,  1 1 J 
N.  v.  :;:;:;,  26  L.  R.   \.  859. 


§  222  THE    DOCTRINE    OF    ULTRA    VIRES.  225 

trol  of  the  corporation  within  the  general  scope  of  its  powers 
might  have  made  the  original  contract.  But  a  contract  which 
is  ultra  vires  because  in  excess  of  the  power  of  the  corporation 
can  not  be  ratified.1  The  question  of  the  liability  of  a  corpo- 
ration for  the  torts  of  its  agents  in  excess  of  their  authority 
will  be  considered  elsewhere.  The  corporation  may  become 
responsible  for  such  acts  by  receiving  the  benefits  accruing 
therefrom.  Thus,  where  the  agents  of  a  corporation  organ- 
ized for  educational  purposes  engaged  in  the  business  of  con- 
veying passengers  from  the  railway  station  to  the  grounds  of 
its  school  buildings,  it  was  held  that  the  corporation  was 
liable  for  injuries  occasioned  by  the  negligence  of  such  agents 
where  it  appeared  that  the  managing  officers  knew  that  the 
business  was  being  carried  on  and  received  and  retained  the 
income  resulting  therefrom.2 

III.    Contracts  Illegal  Because   Malum    Prohibitum  or  Malum 

In   Se. 

§  222.  General  statement. — Attention  has  already  been 
called  to  the  distinction  sometimes  made  between  contracts 
which  are  merely  unauthorized  by  the  corporate  charter  and 
contracts  which  are  illegal  because  contrary  to  law.  The  word 
illegal  is  very  often  used  to  characterize  both  kinds  of  con- 
tracts. A  contract  may  be  illegal  because  immoral  in  itself, 
because  expressly  forbidden  by  statute,  or  because  it  is  against 
public  policy.  An  act  which  is  not  authorized  is  ultra  vires; 
an  act  which  is  not  only  not  authorized,  but  expressly  prohib- 
ited is  not  only  ultra  vires  but  also  illegal.  There  is  no  reason 
for  using  the  phrase  ultra  vires  to  describe  contracts  which  are 
illegal  in  this  sense  of  the  word,  because  they  are  governed  by 

1San  Diego,  etc.,  R.  Co.  v.  Pacific,  and  agreeth  to  a  trespass  after  it  ia 

etc.,  Co.,  112  Cal.  53,  33  L.  R.  A.  788.  done,  is  no  trespasser,  unless  the  tres- 

2Nims  v.  Mt.  Hermon,  etc.,  School,  pass  was  done  to  his  use  or  for  his 

160  Mass.  177,  22  L.  R.  A.  364;  East-  benefit,  and  then  his  subsequent  agree- 

ern,  etc.,  R.  Co.  v.  Broom,  6  Exch.  ment  amounteth  to  a  commandment." 

314.     "He  that  receiveth  a  trespasser,  4  Inst.  317. 
15 — Private  Corp. 


226  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  223 

the  same  principles  that  govern  similar  contracts  between  in- 
dividuals.1 

§  223.  Contracts  malum  in  se. — There  is  nothing  peculiar  to 
the  law  of  corporations  in  contracts  of  this  character.  Such 
contracts  can  never  be  enforced.  The  illegality,  however, 
must  adhere  in  the  contract  itself,  and  mere  knowledge  on 
the  part  of  one  party  that  the  proceeds  of  the  contract  will  be 
used  for  an  illegal  purpose  will  not  render  the  contract  void 
as  against  the  party  who  did  not  participate  in  the  illegal  un- 
dertaking.2 An  illustration  of  contracts  which  are  illegal, 
malum  in  se,  is  found  in  an  agreement  to  pay  for  lobbying  an 
act  through  the  state  legislature.3 

§  224.  Contracts  against  public  policy. — Certain  classes  of 
contracts,  while  not  expressly  prohibited  by  statute,  are  re- 
garded as  illegal,  because  against  the  public  policy  of  the  state. 
Corporations  which  are  charged  with  public  duties  are  not  per- 
mitted to  enter  into  contracts  which  will  render  them  incapable 
of  performing  such  duties.  All  such  contracts  on  grounds  of 
public  policy  are  illegal  and  unenforcible.  Thus,  such  cor- 
porations can  not,  without  the  consent  of  the  state,  dispose  of 
their  entire  property,  transfer  or  encumber  their  franchises, 
or  make  any  contracts  which  will  deprive  them  of  the  ability 
to  perform  their  public  duties.4  Ultra  vires  contracts  of  this 
character,  which  relate  to  franchises,  trust  monopolies,  traffic 
and  pooling  arrangements,  have  been  already  considered.5 

§  225.  Statutory  prohibitions. — If  the  statute  expressly  pro- 
hibits tli«'  making  of  a  certain  contract  and  uses  language 
Which  shows  that   it  was   the  intention  of   the    legislature    that 

»01f  tupra.  ('"-  v.  Sims,  l04Cal.  326.    Bee  cases 

|.  ..  •    ,.  Talmage,  it  N.  Y.  162;  cited,  §125,  supra.     A  mortgage  cov- 

.1                 Planters'    Bank,  9  Heisk.  ering    the    corporate    property    and 

i.-,.-,  franchises   may   !><■  valid    as  tit  tin- 

•Marshall  v.  Baltimore, etc., R. Co.,  property  and   invalid  as  to  the  fran- 

!t;  ||,,                    ii.  chises.    Gloniger  v.  EtailroadOo.,  L89 

1  American,  etc  .  Co.  v.  Onion  Pac.  Pa.  St.  18. 

I:    Co      i    McCray  188;  Visalia,  etc.,  ■'' .  [76,  supra. 


§  225  THE    DOCTRINE    OK    ULTRA    VIRES.  227 

such  contracts  should  be  void,  they  are  necessarily  illegal  and 
unenforcible.  In  many  states  there  are  statutory  provisions, 
which  prohibit  corporations  from  doing  any  acts  not  author- 
ized by  their  charters.  Thus,  the  New  York  statute1  provides 
that  "In  addition  to  the  powers  enumerated  in  thefiist  section 
of  this  recital,  and  to  those  expressly  given  in  its  charter,  or 
the  act  under  which  it  is  or  shall  be  incorporated,  no  corpora- 
tion shall  possess  or  exercise  any  corporate  powers,  except 
such  as  shall  be  necessary  to  the  exercise  of  powers  so  enumer- 
ated and  given."  This  is  merely  a  statement  of  the  common 
law  rule  which  has  already  been  discussed.  A  contract  in  ex- 
cess of  the  corporate  power  is  no  more  illegal  in  the  proper  use 
of  that  word,  than  it  would  be  if  no  such  statute  existed.  It 
is  merely  ultra  vires  for  want  of  corporate  power.  The  quality 
of  the  act  is  in  no  way  determined  by  the  statute.  The  New 
York  courts  construe  the  provision  as  merely  declaratory  of  the 
common  law,2  although  in  other  states  such  a  statute  is  re- 
garded as  making  the  act  illegal  and  void.3  The  English 
courts  under  the  theory  of  general  capacity  are  in  exactly  the 
same  position  as  an  American  court  under  such  a  statute. 
Under  the  doctrine  of  general  capacity  the  charter  contains 
only  prohibitions,  and  what  is  not  prohibited,  if  within  the 
scope  of  the  object  of  the  incorporation,  is  granted.4  Under 
general  statutes  like  that  above  quoted,  every  act  not  granted 
is  prohibited  with  the  same  force  as  by  negations  contained  in 
English  corporate  charters. 

As  a  general  proposition  it  may  be  said  that  a  prohibited 
act  is  an  illegal  act,  and  an  illegal  act  can  not  be  made  the 
basis  of  a  legal  action.  In  this  respect  it  is  like  an  act  malum 
in  se,  which  involves  moral  turpitude,  and  is  governed  by 
the  maxim   ex  turpi  causa  non  oritur  actio.     But  this  general 

'3N.Y.  Rev.  Stat.  (8th  ed.)  1723.  are  generally  called  illegal.     See  Tay- 

2  Curtis  v.  Leavitt,  15  N.  Y.9;  Bond  lor    v.    Chichester,    etc.,  R.    Co.,    L. 

v.  Terrell,  etc.,  Co.,  82  Tex.  309.  R.  2  Ex.  35fi ;  South  Yorkshire  R.  Co. 

sMorris,  etc.,  R.  Co.  v.  Sussex,  etc.,  v.  Great    Northern   R.  Co.,  9  Ex.  55, 

R.  Co.,  20  N.  J.  Eq.  542.  S4 ;  Scottish,  etc.,  R.  Co.  v.  Stewart, 

4 East,  etc.,  Co.  v.  Eastern,  etc.,  R.  3  Macq.  382,  415.     See  Nat.,  etc.,  Co. 

Co.,  11  C.  B.  775.    All  ultra  vires  acta  v.  Home  Sav.  Bank  (111.),  54  N.  E. 

Rep.  619. 


228  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  22G 

rule  is  subject  to  exceptions.  "  If  a  statute  expressly  forbids 
a  corporation  to  make  a  certain  contract,  the  contract  is  void, 
even  though  not  expressly  declared  to  be  so,  and  is  incapable 
of  ratification;  and  that  the  contract  is  unlawful  may  be 
pleaded  by  any  one  to  an  action  founded  directly  and  ex- 
clusively on  the  contract;1  unless  (1)  the  statute  expressly 
states  what  the  consequences  of  violating  it  shall  be  and  those 
consequences  are  other  than  that  the  contract  is  void;2  or  (2) 
the  statutory  prohibition  was  evidently  imposed  for  the  pro- 
tection of  a  certain  class  of  persons  who  alone  may  take  ad- 
vantage of  it;  or  (3)  to  adjudge  the  contract  void  and  incapa- 
ble of  forming  a  basis  of  a  right  of  action  would  clearly  frus- 
trate the  evident  purpose  of  the  prohibition  itself."1 

§  22(3.  Illustrations. — The  most  of  the  cases  in  which  the 
courts  enforce  a  contract,  although  made  in  the  face  of  charter 
or  statutory  prohibition,  fall  under  the  third  exception  to  the 
general  rule  stated  in  the  preceding  section.  Where  a  na- 
tional bank  made  an  ultra  vires  loan  of  money  upon  real  es- 
tate security,  the  court  refused  to  enjoin  the  sale  of  the  security 
under  a  deed  of  trust,  as  it  was  not  the  intention  of  the  law 
"that  stockholders  and  perhaps  depositors  and  other  creditors 
should  be  punished  and  the  borrower  rewarded  by  giving 
success  to  this  defense  whenever  the  offensive  facts  should 
occur.  The  impending  danger  of  a  judgment  of  ouster  and 
dissolution  was,  we  think,  the  check  and  none  other  contem- 
plated  by  congress.  Thai  has  been  always  the  punishment 
pr<  Bcrihed  for  the  wanton  violation  of  a  charter,  and  it  maybe 
made  to  follow  wheneverthe  proper  public  authority  shall  see 
fit  to  invoke  its  application."'  An  art  which  provides  that 
savings  hank-  -hall  qo1  make  loans  upon  personal  security 
alone  will  not  prevent  the  hank  from  maintaining  an  action 
for  a  note  given  for  Buch  prohibited  loan.8 

'Bank  y.  Owens,  2  Pet.  (U.S.)  527;  •National    Bank    v.   Matthews,  98 

.at  v.  Palmer,  3  V  Y.  L9;  Bank  U.S.  621;  National  Bank  v.  Whitney, 

v.  Alvord,  81  V  V  LOS  L7.  S.  99. 

•Pratl  v.  Short,  79  v  Y    187.  ■ Farmington  Sav.  Hank  v.  Palls,  71 

..  loi   Ph..  I  orp  .     297.  Me.  49. 


§    227  THE    DOCTRINE    OF    ULTRA    VIRES.  229 

A  violation  of  the  law  which  forbids  national  banks  to  loan 
more  than  a  certain  amount  to  one  person  will  not  prevent  the 
enforcement  of  such  an  excessive  loan.1  So,  a  director  who 
borrows  from  the  bank  in  violation  of  the  statute,  may  be  com- 
pelled to  repay  the  money.2  The  same  rule  applies  when  the 
prohibition  arises  by  implication,  as  where  national  banks  are 
impliedly  forbidden  to  take  real  estate  security,  for  loans.8  So, 
but  for  other  reasons,  a  statutory  prohibition  of  a  debt  will  not 
authorize  a  corporation  to  keep  money  which  it  was  forbidden 
to  borrow.4 

§  227.    Liability  for  benefits  received  under  illegal  contracts. 

— It  has  already  been  stated  that  under  contracts  ultra  vires  for 
want  of  power,  the  defense  can  not  be  asserted  while  benefits 
received  thereunder  are  retained.5  Where  the  contract  is 
illegal,  malum  per  se,  the  parties  being  particeps  criminis,  the 
court  will  leave  them  where  it  found  them.  If  it  is  merely 
malum  prohibitum,  it  is  held  in  some  cases  that  it  may  be 
rescinded  at  any  time  and  the  money  advanced  thereon  recov- 
ered.6 Where  both  parties  to  such  a  contract  have  received 
benefits  under  it,  the  one  which  seeks  to  rescind  and  recover 
what  he  has  paid  must  offer  to  return  what  he  has  received.7 
So,  the  party  who  is  less  guilty  than  the  other  may  disaffirm 
and  recover  what  he  has  parted  with.  The  statutory  prohibi- 
tion may  be  intended  for  the  benefit  of  the  party  seeking  re- 
lief. Thus,  where  a  bank  issued  bills  contrary  to  law,  the 
court  said:  8  "The  corporation  issuing  bills  contrary  to  law  and 
against  penal  sanctions  is  deemed  more  guilty  than  the  mem- 
bers of  the  community  who  receive  them,  whenever  the  receiv- 
ing of  them  is  not  expressly  prohibited.    The  latter  are  regarded 

1  National    Bank    v.    Matthews,   98        6  Spring  Co.  v.  Knowlton,  103  TJ.  S. 
U.  S.  621.  4H ;  Oneida  Bank  v.  Ontario  Bank,  21 

2  Lester  v.  Howard  Bank,  33   Md      N.  Y.  190. 

558.  7  American,  etc.,  Co.  v.  Union,  etc., 

'National    Bank    v.  Matthews,    98    R.  Co.,  1  McCrary  188. 
U.  S.  621.  s  Thomas  v.  Richmond,  12  Wall.  349; 

4  Conn.,    etc.,    Bank    v.   Fiske,   60    White  v.  Bank,  22  Tick.  181,  ,  Tracy 
N.  H.  363.  v.  Talmage,  14  N.  Y.  162, 

5  Franco,  etc.,  Co.  v.  McCormick,85 
Tex.  416.  Contra  (111.),  54  N.  W.  Rep. 
619. 


230  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  228 

as  the  persons  intended  to  be  protected  by  the  law;  and,  if  they 
have  not  themselves  violated  an  express  law  in  receiving  the 
bills,  the  principles  of  justice  require  that  they  should  be  able 
to  recover  the  money  received  by  the  bank  for  them." 

IV.    Irregular  Exercise  of  Power 

§  228.  Effect  of  irregularities, — There  remains  for  consid- 
eration the  case  of  an  irregular  exercise  of  an  authorized  power. 
It  is  apparent  that  a  contract  of  this  character  should  not  be 
held  void.  Generally  contracts  which  are  within  the  general 
scope  of  the  corporate  powers,  but  in  excess  of  the  powers  in 
some  particulars,  are  valid,  unless  they  are  contrary  to  public 
policy.  Persons  dealing  with  the  corporation  are  not  required 
to  take  notice  of  the  failure  to  observe  formalities  or  of  extrin- 
sic facts  which  are  within  the  knowledge  of  the  corporation.1 

When  a  corporation  has  acted  upon  an  executed  contract,  it 
is  to  be  presumed  against  it  that  everything  necessary  to  make  it 
a  binding  contract  on  both  parties  was  done,  the  corporation 
haying  had  all  the  advantage  it  would  have  had  if  the  contract 
had  been  regularly  made.2 

§  229.  Want  of  power  and  neglect  of  formalities, — The 
manner  of  executing  a  power  may  be  prescribed  by  the  statute 
in  such  manner  as  to  be  a  limitation  upon  the  grant,  and  to 
render  an  act  done  in  any  other  way  voidable.3  But  when  the 
general  power  to  do  an  act  exists  persons  dealing  with  a  cor- 
poration may  assume  that  the  accessary  formalities  have  been 
observed  ID  its  exercise.4  As  said  by  one  court:5  "If  a  cor- 
poration  in  the  exercise  of  ;i  franchise  not  granted  to  it  by  the 
lature  makes  n  contracl  or  does  an  act,  they  may  plead 
their  wanl  of  authority  on  the  ground  thai  the  courts  will  not 
Interfere  to  granl   redress  between  two  persons  engaged  in  an 

'The leading i                babh    Moore  'SeeGutta  Percha,  etc.,  Co.  v.  Oga- 

■    m.i-  .-.  etc.,  7:;  V   Y.  288,  29   im.  hill".  K)  Neb.  775. 

134;  in  nrance  Co.  v.  Dhein,  i">  'Miners',  etc.,  Co.  v.  Zellerbacb.,87 

Wia.    120;   Merchant*'  Bank  v.  State  Gal.  648,  99  Am.  Dec.  800, 

Bank,  10  Wall     I        <  804.  I  Sty,  etc.,  Co.  v.  Carrogi,  41  Ga 

•Bole  in  7  Eng.  Bui.  «  660. 


§  230  THE    DOCTRINE    OF    ULTRA    VIRES.  231 

illegal  enterprise.  But  if  the  contract  is  within  the  scope  of 
the  franchise,  but  fails  to  conform  to  the  regulations  prescribed 
by  the  charter  for  the  guidance  of  its  officers,  and  the  protection 
of  the  rights  of  the  members  as  to  each  other,  the  corporation 
may  be  held  liable  under  the  general  rules  of  law,  as  to  agency, 
estoppel  and  waiver."  The  question  often  arises  where  serv- 
ices have  been  rendered  under  a  contract  not  made  in  accord- 
ance with  statutory  requirements.  Thus,  one  who  is  employed 
to  teach  a  district  school,  may  recover  for  services  actually  ren- 
dered, although  the  contract  of  employment  was  not  authorized 
by  the  trustees  at  a  meeting  of  all  their  number  called  for  that 
purpose  as  required  by  law.  The  court  said:1  "Having 
availed  itself  of  the  services,  and  received  the  benefits,  it  is 
bound  in  conscience  to  pay,  and  will  not  be  heard  to  say  that 
the  original  agreement  was  not  made  by  a  person  legally 
authorized  to  make  it."  Another  illustration  is  found  in  the 
rule  that  negotiable  paper  issued  by  a  corporation  for  an  un- 
authorized purpose  is  valid  in  the  hands  of  an  innocent 
holder  if  the  corporation  had  power  to  issue  such  paper  for 
any  purpose. 

§  230.  Reasons  for  the  distinction — Statement  of  Chief 
Justice  Sawyer. — The  distinction  between  acts  which  are  be- 
yond the  power  of  the  corporation  and  acts  within  the  general 
scope  of  the  corporate  power,  but  in  excess  thereof  in  some 
particular,  is  thus  stated  by  the  supreme  court  of  California:  * 

1  Fister  v.  La  Rue,  15  Barb.  (N.  Y.)  not  void  because  made  in  violation  of 
323.  See,  also,  City  of  Ellsworth  v.  express  law,  or  good  morals,  or  public 
Rossiter,  46  Kan.  237;  Cincinnati  v.  policy,  and  where  the  corporation  re- 
Cameron,  33  Ohio  St.  336;  Pixley  v.  tains  such  benefits,  it  must  pay  for 
Railroad  Co.,  33  Cal.  183;  Ward  v.  them."  But  a  school  teacher  can  not 
Forest  Grove,  20  Ore.  355;  Hawk  v.  recover  for  services  rendered  when 
Marion  County, 48  Iowa  472;  Kneeland  he  had  not  the  certificate  of  qualifica- 
v.  Oilman,  24  Wis.  39.  In  Commission-  tions  required  by  Btatute.  It  was 
crs  v.Webb,  47  Kan.  104,  the  court  said:  treated  as  a  prohibitory  statute. 
"  Where  a  corporation,  municipal  or  Goose  River  Bank  v.  Willow  Lake 
otherwise,  has  received  benefits  from  School  Tp.,  1  N.  Dak.  26,  26  Am.  St. 
others,  upon   contracts   ultra  vires  or  Rep.  605. 

void  because  of  some  irregularity  or  2  Miners',    etc.,    Co.    v.  Zellerbach, 

want  of  power  in  their  creation,  but  37  Cal.  543.     For  the  same  principle 


232  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  230 

"Strangers  are  presumed  to  know  the  law  of  the  land,  and  they 
are  bound  when  dealing  Avith  corporations  to  know  the  powers 
conferred  by  the  charters.  These  are  open  to  their  inspection 
and  it  is  easy  to  determine  whether  the  act  is  within  the  scope 
of  the  general  powers  conferred  for  that  purpose.  But  they 
have  no  access  to  the  private  papers  of  the  corporation  or  to 
the  motives  which  govern  directors  or  stockholders,  and  no 
means  of  knowing  the  purposes  for  which  an  act  that  may  be 
lawful  for  some  purposes  is  done.  The  very  fact  that  the  ap- 
pointive officers  of  the  corporation  assume  to  do  an  act  in  the 
apparent  performance  of  their  duties,  which  they  are  author- 
ized to  perform  for  the  lawful  purposes  of  the  corporation  is  a 
representation  to  those  dealing  with  them  that  the  act  per- 
formed is  for  a  lawful  purpose.  And  such  is  the  presumption 
of  the  law,  and  upon  this  presumption,  strangers  having  no 
notice  in  fact  of  the  unlawful  purpose  are  entitled  to  rely.  *  * 
Upon  any  other  principles  there  would  be  no  safety  in  dealing 
with  corporations,  and  the  business  operations  of  these  institu- 
tions would  be  greatly  crippled,  while  the  interests  of  the 
stockholders  and  the  public  and  their  general  usefulness 
would  be  seriously  Impaired.  The  officers  are  appointed  by 
the  corporation,  and  if  any  loss  results  to  strangers  dealing 
with  the  corporation  in  matters  within  the  general  scope  of 
their  duties,  it  should  fall  upon  the  corporation  which  is  re- 
sponsible for  their  appointment  rather  than  upon  parties  who 
have  no  other  means  of  ascertaining  the  facts  anil  must  rely 
upon  their  assurances  or  not  deal  with  the  corporation  at  all." 

as  determining  the  liability  of  a  public    of  Minneapolis  (Minn.,  1898),  77  N.W. 
corporation  for  torts,  see  Sacks  v.  City    Rep.  563. 


CHAPTER  10. 

LIABILITY  FOR  TORTS  AND  CRIMES. 

§  232.   General  statement.  §  236.  The  commission  of  crime. 

233.  Growth  of  the  law.  237.    Crimes  involving  intent. 

234.  The  modern  rule.  238.   Contempt  of  court. 

235.  Liability  for  punitive  damages.       239.   Proceedings. 

§  232.  General  statement. — The  rule  by  which  corporations 
are  held  responsible  for  the  results  of  their  tortious  acts  has 
been  established  in  the  face  of  much  opposition.  In  the  earlier 
cases  the  courts  became  entangled  in  the  meshes  of  metaphys- 
ical theories  regarding  the  nature  of  corporations  and  wasted 
much  thought  in  trying  to  ascertain  how  an  incorporeal  entity 
without  conscience  or  soul  could  entertain  the  intent  which 
was  an  essential  element  of  certain  torts  and  crimes.  It  was 
said  that  a  corporation  could  exercise  only  such  powers  as 
were  expressly  or  by  implication  conferred  upon  it  by  its 
charter  and  no  charter  conferred  the  authority  to  commit  a 
tort  or  a  crime.  Hence  when  the  agents  of  a  corporation  wi  re 
guilty  of  a  wrong  they  were  to  be  considered  as  acting  in  their 
individual  capacity  and  as  individuals  be  held  responsible  for 
their  acts.  So  it  was  said  that  indictment  required  an  appear- 
ance at  the  bar,  and  an  incorporeal  entity  could  not  appear, 
from  which  it  was  supposed  to  follow  that  a  corporation  could 
not  be  indicted  for  a  crime.  But  it  gradually  dawned  upon 
the  courts  that  if  "the  invisible,  intangible  essence  of  air, 
which  we  term  a  corporation,  can  level  mountains,  fill  up  val- 
leys, lay  down  iron  tracks  and  run  railroad  cars  upon  them, 
it  can  intend  to  do  it,  and  can  act  therein  as  well  viciously  a« 
virtuously.1 

1  Bishop  New  Crim.  Law,  §  417. 
(233) 


23-4  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  233 

§  233.  Growth  of  the  law, — It  was  long  thought  that  as  a 
corporation  had  no  mouth  with  which  to  utter  slander,  or  hand 
with  which  to  write  libels  or  commit  batteries,  or  mind  to  sug- 
gest malicious  prosecutions  or  other  wrongs — as  it  was  an  arti- 
ficial person,  and  could  speak  and  act  only  through  the  agency 
of  others — it  was  not  liable  for  any  torts  except  such  as  re- 
sulted from  some  act  of  commission  or  omission  of  its  agents 
or  servants  while  acting  within  the  scope  of  granted  powers, 
or  wrongfully  omitting  and  neglecting  some  duty  imposed  by 
its  charter  or  by-laws.  Consequently  it  was  necessary  to  allege 
that  the  act  committed  was  done  while  acting  within  the  scope 
and  power  of  the  company,  or  that  the  act  omitted  was  required 
to  be  performed.  Whether  it  were  wise  to  depart  from  this 
rule  that  excepted  corporations  from  liability  for  the  acts  of 
its  agents  in  cases  where  the  character  of  the  act  depended  upon 
motives  or  intent  seems  no  longer  open.  The  old  idea  that, 
because  a  corporation  had  no  soul,  it  could  not  commit  torts, 
or  be  the  subject  of  punishment  for  tortious  acts,  may  now  be 
regarded  as  obsolete.  The  rights,  the  powers  and  the  duties  of 
corporate  bodies  have  been  so  enlarged  in  modern  times,  and 
they  have  become  so  numerous,  and  enter  so  largely  into  the 
every-day  transactions  of  life,  that  it  has  become  the  policy 
of  the  law  to  subject  them,  so  far  as  practicable,  to  the  same 
civil  liability  for  wrongful  acts  as  attach  to  natural  persons. 
The  liability  is  not  restricted  to  acts  committed  within  the 
scope  of  granted  powers,  but  the  corporation  may  be  liable  in 
an  action  for  false  imprisonment,  malicious  prosecution  or 
libel.1 

1  For  a  statement  of  the  reasons  for  is  asserted  to  be,  a  greater  and  more 

the  rule  that  a  corporation  is  not  liable  mischievous  monster  can  Dot  be   im- 

i"i  a  malicious  prosecution,  see  V.brath  agined.  According  to  the  doctrine  con- 

rtheastern  I;.  <'•>.,  II  Q.  B.  Div.  tended  for,  if  they  do  and  act  within 

ii'i  •   \m.  I-.  i  per  the  scope  of  their  corporate  powers,  it 

Lord  Brammell.  The  American  cases  is  legal  and  they  are  not  amenable  foi 

holding  this  doctrine  have  been  over-  it.     1 1  the  ad  be  doI  within  the  scope 

ruled.     In  Reed  v.  Home  Bav.   Bank,  of  their  legitimate  powers,  they   had 

ii:.  the  modern  doctrine  do  right  to  do  it;  it  was  doI  one  of  the 

tated  and  the  court  said:    "If  a  objects  for  which  they  were  incorpo- 

oorporation  be  the  intangible  being  it  rated,  and  therefore  il  is  do  act  of  tlnj 


§  234  LIABILITY    FOR   TORTS    AND    CRIMES.  235 

§234.  The  modern  rule.1 — It  is  now  the. settled  law  that  a 
corporation  is  liable  civiliter  for  torts  committed  by  its  agents 
or  servants  precisely  as  a  natural  person,  and  that  it  is  liable 
as  a  natural  person  for  the  acts  of  agents  done  by  its  authority, 
express  or  implied,  although  there  is  neither  a  written  appoint- 
ment under  seal,  nor  a  vote  of  the  corporation  constituting 
the  agency  or  authorizing  the  act.8  When  an  officer  does  an 
act  which  is  within  the  general  scope  of  his  powers,  although 
circumstances  may  exist  which  render  the  particular  act  a  vio- 
lation of  his  duty,  the  corporation  is  nevertheless  bound  by  his 
acts  as  to  persons  dealing  in  ignorance  of  those  circumstances, 
and  is  responsible  to  innocent  third  parties  who  have  sustained 
damages  occasioned  by  such  acts.3  But  in  a  late  case  it  was  said: 
"In  consequence,  however,  of  the  fact  that  a  corporation  must 
of  necessity  act  through  its  agents,  courts  have  almost  invaria- 
bly held  that  to  hold  a  corporation  liable  for  a  tortious  act  com- 
mitted by  its  agent  the  act  must  be  done  by  its  express  precedent 
authority,  or  ratified  and  adopted  by  the  corporation.  Nor 
is  a  corporation  responsible  for  unauthorized  and  unlawful 
acts,  even  of  its  officers,  though  done  colore  officii.  To  fix 
the  liability  it  must  either  appear  that  the  officers  were  ex- 
pressly authorized  to  do  the  act  or  that  it  was  done  bona  fide 

corporation  at  all.  This  doctrine  leads  U.S.  637;  Bank  v.  Graham,  100  U.  S. 
to  the  absolute  immunity  for  every  699;  Fitzgerald  v.  Fitzgerald,  etc., 
species  of  wrong,  and  can  never  be  Co.,  41  Neb.  374,  59  N.  W.  Rep.  838; 
sanctioned  by  any  court  of  justice."  Miller  v.  Railroad  Co.,  8  Neb.  219; 
See  Orr  v.  U.  S  Bank,  1  Ohio  36,  13  State  v.  Morris,  etc.,  R.  Co.,  23  N.  J. 
Am.  Dec.  588.  360;  Wachsmuth  v.  Merchants'  Nat, 
1  An  exception  to  the  modern  rule  Bank,  96  Mich.  426;  Randall  v.  Even- 
still  exists,— a  public  charitable  cor-  ing  News,  97  Mich.  136;  Railroad  Co. 
poration  is  not  liable  for  the  torts  of  v.  Schuyler,  34  N.  Y.  30;  Kansas  Citv 
its  agents.  See  Fire  Ins.  Patrol  v.  etc.,  Co.  v.  Phillips,  98  Ala.  159-  Bank 
Boyd,  120  Pa.  St.  624,  6  Am.  St.  R.  745,  v.  Butchers',  etc.,  Bank,  16  N.  Y.  125  ; 
Wilgus'  Cases  and  cases  there  cited;  Bissell  v.  Railroad  Co.,  22  N.  Y.  258" 
assault  and  battery,  Eastern,  etc.,  R.  Bank  v.  Patchin  Bank  13  N  Y  309- 
Co.  v.  Broom,  6  Ex.  (VVels.  H.  &  G.) 


Williams  v.  Planters'  Ins.  Co.,  57  Miss. 
759;^  New  York,  etc.,  R.  Co.  v.  Haring, 
47  N.  J.  L.  137  ;  Gunn  v.  Railroad  Co., 


314,  Wilgus'   Cases;    false   imprison- 
ment, Wheeler  &  Wilson  Mfg.  Co.  v. 

Boyce,  36  Kan.  350,  59  Am.  R.  571,  74  (4a.  599;   Yarborough  v.  Bank  of 

Wilgus'    Cases;     slander    and    libel,  England,  16 East 6;  Lake  Shore  R.  Co. 

Behre  v.  National,  etc.,  Co.,  100  Ga.  v.  Prentice,  147  U.S.  101  ;  Chestnut  Hill] 

213,  Wilgus'  Cases.  etc.,  Co.  v.  Putter,  4  S.  &  li.  (Pa.)  (i,  8 

8  Denver,  etc.,  R.  Co.  v.  Harris,  122  Am.  Dec.  675;  Hussey  v.  Norfolk  etc 

U.   S.   597,    per    Mr.   Justice  Harlan;  R.  Co.,  98  N.  C.  34,  2  Am.  St.  Rep'.  312; 

Railroad  Co.  v.  Quigley,  21  How.  202;  Goodspeed  v.  Bank,  22  Conn.  530. 
Salt  Lake  City  v.  Holiister,  118  U.  S.        8  Carter  v.  Howe,  etc.,  Co..  51  Mel 

256;    Steamboat  Co.  v.  Brockett,  121  290,  34  Am.  Rep.  311 


236 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§235 


in  pursuance  of  a  general  authority  in  relation  to  the  subject  of 
it,  or  that  the  act  was  adopted  or  ratified  by  it."  '  The  liability 
of  a  corporation  for  the  consequences  of  acts  of  its  officers, 
done  within  the  scope  of  their  general  powers,  is  not  affected 
by  the  fact  that  the  act  which  the  officers  have  assumed  to  do 
is  one  which  the  corporation  itself  could  not  rightfully  do.  A 
corporation,  like  an  individual,  ma}T  do  wrong  through  its 
agent2  and  be  liable  for  the  wrongful  act.3  The  liability  ex- 
tends to  torts  involving  a  specific  intent,  or  the  element  of 
malice,  as  fraud,4  malicious  wrongs,5  libel,6  malicious  prosecu- 
tion 7  or  conspiracy.8 

§  235.  Liability  for  punitive  damages. — Out  of  the  supposed 
inability  of  a  corporation  to  entertain  an  evil  intent  has  grown 
the  contention  over  the  question  of  its  liability  for  exemplary 
or  punitive  damages.  As  a  general  rule  such  damages  can 
not  be  allowed  against  a  master  for  tin1  mere  negligence  of  his 
servants,  however  gross,  if  he  is  personally  free  from  fault. 
Bui   the  rule  is  subject   to   qualification  when   the  master    is  a 

1  Central  R.  Co.  v.  Brewer,  78  Md.  etc.,  R.  Co.,  148  Mass.  513,  12  Am.  St. 

394,  27  L.  R.  A.  63.  Rep.  583;    Aldrich  v.  Press  Printing 

'  Booth  v.  Bank,  60  N.Y.  396;  Nims  Co.,  9  Minn.  133,  Gil.  123, 86  Am.  Dec. 

v. Mt. Hermon Boys' Scl 1, 160 Mass.  84;  Ilussey  v.  Norfolk,  etc.,  R.  Co., 

177.  -_'   I..    K.   A.  364;   Wheeler,  etc.,  98  N.  C.  34,  2  Am.  St.  Rep.  312. 

1  .  Boyce,  36  Kan.  350.  As  to  the  8Fogg  v. Boston,  etc.,  R. Co.,  supra; 
liability  of  municipal  corporations  for  Missouri,  etc.,  R.  Co.  v.  Richmond,  7:; 
the  tortious  acts  of  its  officers  see  Salt  Tex.  568j  l">  Am.  St.  Rep.  794.  A  cor- 
Lake  City  v.  Hollister,  118  l".  8.256.  poration  can  not,  probably,  be  held 

3  V  a  in  le  rl  lilt  v.  Richmond,  etc.,  Co.,     for  Blander,  in  the  absence  of  a  stat- 

2  N  V.  179,51  Am.  I>'  !.  315;  Green  ute.  See Townsend  Slander  and  L., 
v.  Omnibus  Co.,  7  c.  B.  (N.  S.)  290;    §265.     Bui  there  are  dicta  to  the  con- 

,  p.  168.  Thai  an  action  trary.    See   Ilussey   v.  Norfolk,  etc., 

for  dec. 'it  will  lie  against  a  corporation,  R.  Co.,  98  N.  C.  34,  2  Am.  St.  Rep.  312. 

..   D  rsey,etc,  Co.  v.  McCaffery,  139  Bui  see  Behre  v.  National,  etc.,  Co., 

In. I.                 i V.Minnesota, etc., Co.,  100  Ga.  213,  62  Am.  si.  R.  320,  27  s. 

;■       .,  i    Bo  ley  v.  National,  etc.,  E.    Rep.    986,    Wilgus'    Cases;    also 

50;  Erie  City  Ironworks  Reddit  v.  Singer   Mfg.  Co.,  32  S.  E. 

v.lC'                  L06  Pa.St.  125;  Mackay  Rep.  -  V  c,  392. 

v.  Bank  of  New  Brui              iP.C.894.  7Reed    v.    Home    Sav.    Bank,    ISO 

•Abrath  v.  North   Eh  tern   R.  I  1 48,  39  Im.Rep.  168;   Indiana, 

l     R.llApp.247.  etc.,  Co  v.  Willis,  18  Ind.  App.  525   18 

-l  jpeed  \    Easl  I [addam  Bank,  N.  !•',.  Rep,  846. 

Green  v.  London,  etc.,  'FalBeimpri  onmentbyactof  agent, 

I        .  <                                    Boston,  see  ( ientral,  etc.,   R.  ( !o.  v.   Brewer 


§  236  LIABILITY    FOR   TORTS    AND    CRIMES.  237 

corporation  and  can  act  only  through  agents.  The  negligence 
of  the  superintending  agent  should  be  considered  the  negli- 
gence of  the  corporation,  and  when  exemplary  damages  could 
have  been  recovered  against  such  an  agent,  it  should  be  al- 
lowed against  the  corporation.1  A  corporation  should  be  held 
liable  for  punitive  damages  when  an  individual  would  be  lia- 
ble under  the  same  circumstances.2  The  decisions,  however, 
are  conflicting  and  may  be  divided  into  three  classes. 

( 1 )  Those  holding  that  only  actual  damages  can  be  recov- 
ered.3 

(2)  Those  allowing  punitive  damages  when  the  wrongful 
act  of  the  agent  or  employe  was  willful  and  intentional.4 

(3)  Those  allowing  punitive  damages  only  when  the 
wrongful  act  was  done  under  the  express  direction  of  the  cor- 
poration or  afterwards  ratified  by  the  corporation.5 

§  236.  The  commission  of  crime. — There  are  some  crimes 
which  a  corporation,  from  its  nature,  can  not  commit,  but 
generally  it  is  subject  to  indictment  and  punishment  by  fine 
like  a  natural  person.     The  capacity  of  a  corporation  to  com- 

78  Md.  394,  27  L.  R.  A.  63 ;  Gillinghara  etc.,  R.  Co.,  34  Cal.  594 ;  Mendelsohn 

v.  Ohio,  etc.,  R.  Co., ,35  W.  Va.  588,  v.    Anaheim,   etc.,  Co.,  40  Cal.   657; 

14  L.  R.  A.  798;  Palmeri  v.  Manhat-  Hays  v.    Houston,   etc.,   R.   Co.,   46 

tan  R.  Co.,  133  N.  Y.  261,  16  L.  R.  A.  Tex.  272;    Ackerson  v.   Erie  R.  Co., 

136,   and   note  to   Mulligan    v.   New  32  N.  J.  L.  254;  Detroit,  etc.,  Co.  v. 

York,  etc.,  R.   Co.,  14  L.   R.  A.  791.  McArthur,  16  Mich.  447. 

Conspiracy,  Buffalo,  etc.,  Co.  v.  Stand-  4  Denver,  etc.,  R.  Co.  v.  Harris,  122 

ard,  etc.,  Co.,  106  N,  Y.  669.  U.  S.  597;  Milwaukee,  etc.,  R.  Co.  v. 

'Shearman    &    Redfield   Neg.,    II,  Arms,  91  U.  S.  489;  Philadelphia, etc., 

§  749;  Denver,  etc.,  R.  Co.  v.  Harris,  R.  Co.  v.  Quigley,  21  How.  202;  New 

122  U.S.  597;  Alabama,  etc.,  R.  Co.  Orleans,   etc.,    R.   Co.  v.   Burke,    53 

v.  Sellers,  93  Ala.  9,  30  Am.  St.  Rep.  Miss.  200;  Baltimore,  etc.,  R.  Co.  v. 

17.  Boone,  45  Md.  344;  Samuels  v.  Even- 

2  Denver,  etc.,  R.  Co.  v.  Harris,  122  ing  Mail,  75  N.  Y.  604;  Jeffersonville, 
U.  S.  597;  Wheeler  &  Wilson,  etc.,  etc.,  R.  Co.  v.  Rogers,  38  Ind.  116; 
Co.  v.  Boyce,  36  Kan.  350;  Western,  Goddard  v.  Grand  Trunk  R.  Co.,  57 
etc.,  Co.  v.  Eyser,  2  Colo.  141;  New  Me.  202;  Taylor  v.  Grand  Trunk  R. 
Orleans,  etc.,  R.  Co.  v.  Bailey,  40  Co.,  48  N.  H.  304;  Belknap  v.  Boston, 
Miss.   395;    Atlantic,   etc.,  R.   Co.  v.  etc.,  R.  Co.,  49  N.  H.  358. 

Dunn,  19  Ohio  St.  162.  s Beers  v.  Hamburg- American,  etc., 

3  Wardrobe  v.  California,  etc.,  Co.,  Co.,  62  Fed.  Rep.  469;  Hagan  v.  Provi- 
7  Cal.  119;  Turner  v.  North  Beach,    dence,  etc.,  R.  Co.,  3  R.I.  88;  Nash- 


23S 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


«   23 G 


mit  a  crime  is  thus  stated  by  Bishop:1  "A  corporation  can  not, 
in  its  corporate  capacity,  commit  a  crime  by  an  act  in  the 
fullest  sense  ultra  vires  and  contrary  to  its  nature.  But  within 
the  sphere  of  its  corporate  capacity,  and  to  an  undefined  ex- 
tent beyond,2  whenever  it  assumes  to  act  as  a  corporation  it 
has  the  same  capabilities  of  criminal  intent  and  of  act — in 
other  words,  of  crime — as  an  individual  man  sustaining  to  the 
thing  the  like  relation." 

A  corporation  was  indictable  at  common  law,3  but  the  sub- 
ject is  now  largely  regulated  by  statute.4  The  better  rule  is 
that  a  corporation  is  a  "person"  within  the  meaning  of  crim- 
inal statutes,5  although  the  cases  are  not  uniform.6 

In  the  early  cases  a  distinction  was  made  between  acts  of 
nonfeasance  and  acts  of  misfeasance,  and  it  was  held  that  a 
corporation  could  be  punished  criminally  for  acts  of  nonfeas- 
ance only.7  But  this  distinction  is  now  discarded,  at  least 
where  no  criminal  intent  is  involved.8  A  corporation  is  liable 
for  keeping  a  disorderly  house,9  obstructing  a  highway,10  main- 
taining a  nuisance,  publishing  a  libel,  as  well  as  for  failing  to 


ville,  etc.,  R.  Co.  v.  Starnes,  9  Heisk. 
•"••_';  Bass  v.  Chicago,  etc.,  R.  Co.,  42 
Wis.  654;  Malecek  v.  Tower  <irove, 
etc.,  I;.  Co.,  57  Mo.  17;  Travers  v. 
Kansas  Pac  R.  Co.,  63  Mo.  12]  ; 
Galveston,  etc.,  R.  Co.  v.  Donahoe, 
56  Tex.  162;  Emerson,  etc.,  Co.  v. 
Bkidmore  (Tex.,  1894),  26  S.  W.  Rep. 
671. 

bop  New  * 'riminal   Law,  §417; 

Mc( '  I  .i » 1 1  <   riminal   l.:i\\ ,  §  L80. 

lop  V'M  ( '"nt ract  Law,  §  7 l'.t. 
v.  Birmingham,  etc.,  i.\  I  So.,  '-1 
P.  169;  State  v.  Security  Bank,  2 
I  lommonwealtb  v.    Le- 
high, etc.,   I.'.  Co.,    165   Pa.  St.   162; 
I  Commonwealth  v.  Pulaski,  ate.,  lean., 
.v.  197,  i:  B.  W.  Rep    1 1":  State  v. 
The  Morris,  etc.,  R.  Co.,  28  V  J.  L. 
Baltimore,  etc.,  R.  Co., 
15  W.  Va.  862,  >it  ing  man}  ca 
1  9ee  Statev.V  tc.,  R,  Co., 


5  McClain Criminal  Law,  §  1S1  ;  State 
v.  Baltimore,  etc.,  R.  Co.,  15  W.  Ya. 
362. 

6  State  v.  Cincinnati,  etc.,  Co  ,  24 
Ohio  St.  611;  State  v.  Field,  4!)  Mo. 
270. 

7  State  v.  Greal  Works,  etc.,  Co., 
20  Me.  II  ;  State  v.  Baltimore,  etc.,  R. 
Co.,  120  In.l.  298. 

'Pittsburgh,  etc.,  R.  Co.  v.  Com- 
monwealth, loi  Pa.  st.  192;  state  v. 
Vermont,  etc.,    R.  Co.,  27  Vt.  103; 

State  v.  The  Morris,  it. •.,  R  Co.,28  N. 
.1.  L  860;  state  v.  Railway  Co.,  L6  W. 
Va.  ■'!<i,j;  Commonwealth  v.  Pulaski, 
etc.,  Assn.,  92  Ky.  197. 

'  State  \ .  Paaaaic,  etc.,  Soc.,  ;'»i  N.  J. 
L.260. 

-.  v.creat  North, etc.,  R.  Co.,  2 
('o\  Cr,  I  'as.  7o ;    Northern,  etc.,  R 

<  "   s .  <  ni on  wealth,  mo  Pa.  st   300; 

state  v.  Chicago,  etc.,  i;.  Co.,  77  towa 
442. 


§  236  LIABILITY    FOR    TORTS    AND    CRIMES.  239 

construct  a  bridge  or  do  some  other  act  imposed  by  law.1  In  a 
prosecution  of  an  agricultural  fair  association  for  permitting 
gaming  upon  its  grounds  the  court  said  :2 

"  It  is,  therefore,  now  well  settled  in  the  courts  of  this  coun- 
try, as  well  as  in  England,  that  they  are  indictable  for  mis- 
feasance as  well  as  a  nonfeasance  of  duty  unlawful  in  itself  and 
injurious  to  the  public.  It  has,  therefore,  been  held  that  they 
may  be  indicted  for  a  nuisance,  whether  arising  from  mis- 
feasance or  nonfeasance,  or  for  an  injury  otherwise  to  the  pub- 
lic unlawful  in  itself,  and  arising  either  from  commission  or 
the  omission  to  perform  a  legal  duty.  They  may  be  indicted 
for  erecting  and  continuing  a  building,  for  leaving  railroad 
cars  in  a  street;  for  neglecting  to  repair  a  highway;  for  per- 
mitting stagnant  water  to  remain  on  their  premises;  for  libel; 
for  "Sabbath  breaking,"  by  doing  work  on  Sunday  in  viola- 
tion of  the  statute,  and  in  many  other  instances.  It  is  true 
there  are  crimes  of  which,  from  their  very  nature,  as  perjury, 
for  example,  they  can  not  be  guilty.  There  are  crimes  to 
the  punishment  for  which,  for  a  like  reason,  they  can  not  be 
subjected,  as  in  the  case  of  a  felony.  But  wherever  the  of- 
fense consists  in  either  a  misfeasance  or  a  nonfeasance  of  duty 
to  the  public,  and  the  corporation  can  be  reached  for  punish- 
ment, as  by  a  fine  and  the  seizure  of  its  property,  precedent 
authorizes,  and  public  policy  requires,  that  it  should  be  liable 
to  indictment.  Any  other  rule  would  in  many  cases  preclude 
adequate  remedy,  and  leave  irresponsible  servants,  rather  than 
those  who  are  really  most  at  fault.  If  it  be  said  that  such  a 
rule  may  subject  the  property  of  innocent  stockholders  for 
the  acts  of  the  directors,  to  which  they  are  not  actual  par- 
ties and  of  which  they  had  no  knowledge,  the  answer  is 
that  they  select  directors,  and  it  is  their  business  to  have 
those  who  will  see  that  the  corporate  business  is  so  con- 
commonwealth  v. "  Pennsylvania,  Commonwealth  v.  Pulaski,  etc., 
R.  Co.,  117  Pa.  St.  637;  State  v.  Madi-  Assn.,  92  Ky.  197.  See  an  extensive 
son,  63  Me.  546,  New  York,  etc.,  R.  review  of  the  early  eases  in  State  v. 
Co.  v.  State,  50  N.  J.  L.  303,  53  N.  J.  The  Morris,  etc.,  R.  Co.,  23  N.  J.  L. 
L.  244.  360. 


240  THE    LAW    CF    PRIVATE    CORPORATIONS.  §  237 

ducted  as  not  to  injure  others  or  infringe  upon  public  right 
and  good  order  in  the  community.  If  the  penalty  pre- 
scribed for  the  act  be  both  fine  and  imprisonment,  then,  so 
far  as  the  punishment  can  not,  from  the  nature  of  the  offender, 
be  carried  out,  the  statute  is,  of  course,  inoperative." 

§  2r,7.  Crimes  involving  intent. — The  crimes  referred  to  in 
the  preceding  section,  which  from  their  nature  corporations 
can  not  be  guilty  of,  are  those  which  involve  criminal  intent 
and  include  practically  all  the  common  law  felonies,  such  as 
murder,  assault  and  battery  and  larceny.  Such  crimes  are  the 
crimes  of  the  individual  officers  or  agents  of  the  corporation.1 
Thus,  acts  which  make  it  criminal  to  "knowingly  and  will- 
fully "  do  an  act,  such  as  employing  children  in  a  factory  who 
are  under  a  certain  age,  do  not  apply  to  corporations.2 

By  the  modern  doctrine  a  corporation  is  liable  civilly  for 
punitive  damages  caused  by  an  assault  and  battery3  or  a  mali- 
cious prosecution  and  other  torts  involving  intent,  and  there  is 
a  tendency  toward  extending  this  rule  so  as  to  include  crimi- 
nal liability  for  such  offenses.4 

"Corporations  can  not  be  indicted  for  offenses  which  derive 
their  criminality  from  evil  intention,  or  which  consist  in  a 
violation  of  those  social  duties  which  appertain  to  men  and 
subjects.  They  can  not  be  guilty  of  treason  or  felony,  or  per- 
jury or  offenses  against  the  person.  But  beyond  this  there  is 
no  good  reason  for  their  exemption  from  the  consequences  of 
unlawful  and  wrongful  acts  committed  by  their  agents  in  pur- 
Buance  of  authority  derived  from  them."8 

Contempt  of  court. — A  corporation  may  be  guilty  of  a 
•  on i cm  pi  of  court,  and  may  be  punished  therefor  by  a  fine,  as  in 

1  Cumberland,  etc.,  Co.  v.  Portland,  Harris,  L22   U.  s.  597;    McKinley  v. 

77.  Chicago,  etc.,  R.  Co.,  II  fowa  81 1,  24 

'Menson   v.   Manufacturing  Co.,  '-1  \.va.  Rep.  748. 

in,  etc.,  4  See  State  v.  Passaic  Co.  Agr.  Soc, 

I           Bethel,  etc.,  <          I   Me.  ill.  64  N.  J.  L  260. 

tern,  etc.,  R.  Co.  v.  Broom,  6  'Commonwealth  v.  Prop.  New  Bed- 

814;    Denver,  etc.,    R.  Co.  v.  ford  Bridge,  2  Gray  (Mass.)  889. 


§  239  LIABILITY    FOR    TOUTS    AND    CRIMES.  241 

the  case  of  a  natural  person.1    Contempt  proceedings  are  crim- 
inal,2 but  the  defendant  has  no  right  to  a  jury  trial.3 

§  239.  Proceedings. — The  difficulties  arising  on  the  appli- 
cation of  the  rule  that  corporations  may  be  prosecuted  for  the 
commission  of  crimes  are  principally  those  of  procedure.  In 
some  states  the  statutes  provide  in  detail  for  the  proceedings. 
The  proceeding  is  illustrated  by  the  Minnesota  statute  which 
provides  that  when  a  corporation  is  indicted  a  summons  signed 
by  one  of  the  judges  of  the  court  into  which  the  indictment  is 
returned  shall  be  issued  by  the  clerk,  commanding  the  sheriff 
to  forthwith  notify  the  accused  and  command  its  appearance 
before  the  court  within  twenty-four  hours  from  the  time  of 
such  service.  Summons  may  be  served  in  the  manner  pro- 
vided for  the  service  of  process  in  a  civil  action.  The  corpora- 
tion is  required  to  appear  within  the  time  mentioned  in  the  sum- 
mons by  one  of  its  officers  or  by  counsel;  and  the  proceedings 
thereafter  are  the  same  as  in  ordinary  cases  upon  similar 
charges.  If  the  corporation  fails  to  appear  within  the  time 
stated,  a  plea  of  not  guilty  is  entered  by  the  clerk,  and  there- 
after the  corporation  is  deemed  continually  present  in  court 
till  the  final  determination  of  the  action.  If  found  guilty,  a 
fine  is  imposed  which  is  docketed  as  a  judgment  against  the 
corporation,  and  is  enforced  like  a  judgment  in  a  civil  action.4 

Golden  Gate,  etc.,  Min.  Co.  v.  Su-  Rep.  445  (Mass.,  1899),  Wilgus'  Cases, 

perior  Court,  65  Cal.  187;  Mayor,  etc.,  2  Smith  v.  Whitfield  &  Sanders,  38 

of  New  York  v.  New  York,  etc.,  Co.,  Fla.  211. 

64  N.  Y.  622;  United  States  v.  Mem-  3  People  v.  Kipley,  171  111.  44. 

phis,  etc.,  R.  Co.,  6   Fed.  Rep.  237;  4  Gen.  Laws  Minn.,  1895,  chap.  217. 
Telegram,  etc.,  Co.  v.  Conim.,  52  N.  E. 
16 — Private  Corp. 


CHAPTER  11 


EXTRA-TERRITORIAL    POWERS  OF  CORPORATIONS STATE    CONTROL 

OVER    FOREIGN    CORPORATIONS. 


§  240.    General  statement. 

241.  The  corporate  domicile. 

242.  Laws  have  no  extra-territorial 

force. 

243.  Submission  to  state  laws. 

244.  Conflict  of  laws. 

245.  Obligations  imposed  hy  penal 

statutes. 

246.  Constitutional  rights  of  corpo- 

rations— Insolvency  proceed- 
ings. 

J.    Sight  of  'i  Corporation  to  Exercise 
its  Powers  in  a  Foreign  State. 

247.  Power  of  corporation. 

248.  Corporate  acts  out  of  state. 

//.    Power  of  the    State    Over  Foreign 
<  'orporatiotu. 

249.  Righl  to  exclude. 

250.  Limitations  on  the  power  of  the 

state. 

251.  Insurance  not  interstate  com- 

merce. 

252.  No  visitorial    power  over  for- 

eign corporations. 

253.  Righl   to  compel  issue  of  new 

Btock  certificate. 

///.    Tin    "Rules  of  i  'omity. 
L'"> I.   'I'Ih'  comity  of  -tales. 

Tin-  general  rule. 
266.   Contracts  contrary  to  the  law  of 

tie-  forum. 
257.    ru  I  die  policy,  how  determined. 
i  inatioii    against     non- 

i  authorized  by  charter. 
260.    I.'-   trictions   Imposed   by 


261 


/ 1       Statutory  /.'■  ■//  <•  Hone. 
I  n  general. 


§  262.    Conditions  which  may  be  im- 
posed. 

263.  Ketaliatory  statutes. 

264.  Waiver  of  constitutional  rights 

— Removal  of  causes. 

265.  The  granting  and  revocation  of 

a  license. 

266.  Meaning  of  "doing  business." 

267.  Contracts  made  out  of  the  state. 

V.  Effect   of  Failure   to    Comply    with 

Statutory  Requirement. 

268.  Effect    upon  validity   of    con- 

tracts. 

269.  Where  the   statute  imposes  a 

penalty. 

270.  Where   no   express  penalty    is 

provided. 

271.  Estoppel  to  allege  non-compli- 

ance. 

272.  Presumption— Burden  of  proof. 

VI.  Actions    By  and   Against  Foreign 

( 'orporations. 

i'7:;.  The  right  to  sue. 

274.  Actions  against   foreign  corpo- 

rations. 

275.  Service  upon  foreign  corpora- 

tions. 
27(i.    Must  lie  doing  business  in  the 

state. 

277.  Service  upon  officer  temporari- 

ly within  the  state. 

278.  Illustrations. 

279.  Statutory  requirements. 

280.  Designation  of  agent  to  accepl 

sen  ice. 

281.  Service  obtained  by  deception. 

282.  Proceedings    by   stale  against 

foreign  corporation. 


(242) 


§  240  EXTRA-TERRITORIAL    POWERS.  243 

§  240.  General  statement. — The  subject-matter  of  this  chap- 
ter falls  within  the  domain  of  private  international  law  and  is 
of  great  importance  by  reason  of  the  intimate  commercial  re- 
lations of  the  states  of  the  Union.  The  rights  and  privileges 
of  corporations  beyond  the  jurisdiction  of  the  sovereignty  by 
which  they  are  created  are  governed  in  part  by  the  rules  of  com- 
ity and  in  part  by  express  statutes.  For  certain  purposes 
corporations  are  recognized  as  persons,  but  they  are  not  cit- 
izens of  a  state  within  the  meaning  of  the  provision  of  the 
constitution  of  the  United  States  which  secures  to  the  cit- 
izens of  each  state  all  the  privileges  of  citizens  of  the  sev- 
eral states.1  These  artificial  persons  are  accorded  recogni- 
tion in  foreign  states  when  their  organization  and  object 
is  not  in  conflict  with  the  policy  of  the  foreign  state.  "The 
natural  persons  belonging  to  the  state,"  says  Bar,2  "are  recog- 
nized as  persons  in  every  other  state.  This  undoubted  rule  is 
a  consequence  of  the  equality  of  natives  and  foreigners  ad- 
mitted by  modern  international  law.  But  by  custom  it  is  just 
as  fully  recognized  that  legal  persons  belonging  to  another 
state  must  also  be  so  regarded.  *  *  *  Although  the  authority 
of  the  foreign  state  by  which  legal  personalities  are  either  di- 
rectly created,  or  their  creation  by  private  persons  tolerated,  has 
no  weight  in  one  state  for  itself,  yet  modern  international  inter- 
course requires  the  same  recognition  to  be  extended  even  to  the 
legal  personalities  which  may  be  capriciously  created.  *  * 
If  the  state  in  which  it  is  proposed  to  establish  the  undertak- 
ing will  not  permit  it  to  be  established,  the  object  of  the  asso- 
ciation *  *  *  can  never  be  attained.  A  foreign  state 
which  should  recognize  as  a  legal  person  what  was  not  so  rec- 
ognized in  its  own  state,  would  be  treating  as  valid  legal  facts 
directed  to  ends  that  are  either  legally  or  actually  impossible — 
a  result  at  variance  with  general  logical  principles." 

§  241.    The  corporate  domicile. — A  corporation  has  its  dom- 
icile in  the  state  by  which  it  was  created,3  but  by  acquiring  a 

1  §65,  snpra.  Story's  Conf.  of  Laws,  §  38;  Merrill, 

2Priv.  Int.  Law,  §41.  Comp.  Jur.,  80;  Westlake  Priv.  Int. 

8  Wharton's  Conf.  of  Laws,  §  489;     Law,     p.    259;     Calcutta    Jute    Co. 


244  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  242 

place  of  business  in  another  state  it  may  for  certain  purposes 
acquire  a  domicile  there  also.1 

§  242.  Laws  have  no  extra-territorial  force. — The  laws  of  a 
state  have  no  force  or  effect,  ex  propria  vigore,  beyond  the  ter- 
ritorial limits  of  the  state.  ''It  is  the  indubitable  basis  of 
universal  law,"  says  Story,  that  "laws  have  no  force  beyond 
the  territories  of  those  who  make  them.  This  is  one  of  the 
few  principles  of  universal  jurisprudence  universally  acknowl- 
edged."2 

The  same  learned  writer  says:  "The  power  of  a  corporation 
to  act  in  a  foreign  country  depends  both  upon  the  law 
of  the  country  where  it  was  created  and  on  the  law  of  the 
country  where  it  assumes  to  act.  It  has  only  such  powers  as 
were  given  it  by  the  authority  which  created  it.  It  can  not 
do  any  act  by  virtue  of  those  powers  in  any  country  where  the 
law  forbids  it  so  to  act.  It  follows  that  every  country  may 
impose  conditions  and  restrictions  upon  foreign  corporations 
which  transact  business  within  its  limits."3  Although  laws 
have  no  extra-territorial  force  the  general  rule  is  that  things 
done  in  one  state  in  pursuance  of  the  laws  thereof  are  valid 
and  binding  in  other  states.4 

§  243.  Submission  to  state  laws. — A  corporation  by  engag- 
ing in  business  in  a  foreign  state  submits  itself  to  the  jurisdic- 

v.     Nicholson,     L.     li.     1     Ex.     Div.  territorially    is  derived  from  interna- 

428.  tinnal  comity,  which  never  intervenes 

1  Smith  \.  Pilot,   etc.,  Co.,  47  Mo.  to  set  aside  either  the  written  law  or 

App.  409 ;  Yoong  v.  South  Tredegar  I.  1 1 1 * »  common   law,   it  even   the  state 

Co.,  66  Tenn.  189;    i   Am.  st.   Rep.  policy  or  state    interest    of   another 

country.     Bank  of  Augusta  v.   Earle, 

«  Story's  Conf.  of  l  a  L8  Pet.  517. 

278;  Wi  rtlake  Priv.  Int.  Law,  §  L32;  'Conflict  of  Laws,  §  106,  notea. 

Rorer    [nter-etate  Law,  p.  167;  Pen-  'American,  etc.,  Co.  v.   Farmers', 

noyer  v.  Nefl,  95  U.  8.  714.     it   ie  an  etc.,  Co.,  20  Colo.  208,  25   L.  R.  A. 

ancient  maxim  that  "beyond  hister-  888.     A  statute  providing  that  an  asso- 

ritorial   boundaries  it   is  not  safe  t<>  ciation  or  partnership  can  be  sued  in 

obey  a   party  commanding.     United    its  company  na has  uo  extra-terri- 

iv.  Bevans,  3  Wheat.  886, 8  Dall.  torial  force.    Edwards  v.  Warren,  etc., 

870 note;   Henry's   Foreign   Law,  |  1.  Wort  .  L68    Mass.  564,  88   L.   K.  A. 

The  "Hi.  force  allowed  to  laws  <  ttra-  791 ,  Wilgus'  Cases. 


§  244  EXTRA-TERRITORIAL    POWERS.  245 

tion  and  becomes  subject  to  the  laws  of  such  state.  Thus,  such 
a  corporation  becomes  subject  to  the  law  of  the  foreign  state 
which  prohibits  garnishment  or  other  proceedings  to  defeat 
the  exemption  of  the  wages  of  a  debtor  on  a  contract  to  be  per- 
formed in  that  .state.1  So,  a  foreign  insurance  corporation 
which  avails  itself  of  the  privilege  of  doing  business  under  the 
restrictions  of  a  statute  is  not  permitted  to  assert  that  the  stat- 
ute is  unconstitutional.2 

§  244.  Conflict  of  laws. — As  already  stated,  a  corporation 
submits  itself  to  the  laws  of  a  state  by  qualifying  and  engag- 
ing in  business  in  such  state.  Its  contracts,  however,  receive 
their  sanction  from  the  law  of  the  place  where  they  are  exe- 
cuted and  to  be  performed,  and  their  interpretation  is  con- 
trolled by  the  lex  loci}  The  place  of  making  a  contract  is  pre- 
sumed to  be  the  place  of  its  performance  in  the  absence  of 
anything  indicating  a  contrary  intention.4  An  express  pro- 
vision in  a  contract  that  it  shall  be  construed  in  a  certain  state, 
makes  it  a  contract  of  that  state.5  Assignments  of  personal 
property,  valid  by  the  law  of  the  domicile,  are  generally  recog- 
nized as  valid  by  the  law  of  the  state  where  the  property  is 
situated,  unless  in  violation  of  the  law  or  public  policy  of  that 
state.6  The  legality  of  a  bequest  to  a  foreign  corporation  is 
generally  governed  by  the  laws  of  the  forum,  although  it  may 
differ  from  the  law  of  the  state   by  which  the  corporation  was 

1  Singer,   etc.,   Co.   v.   Fleming,   39  Goodwin  v.  Providence,  etc.,   Assn., 
Neb.  679,  23  L.  R.  A.  210.  97  Iowa  226. 

2  Daggs  v.  Orient,  etc.,  Co.,  136  Mo.        4  Tillinghast  v.  Boston,  etc.,  Co.,  39 
382,  35  L.  R.  A.  227.  S.  C.  484,  22  L.  R.  A.  49. 

8  Heaton  v.  Eldridge  &  Higgins,  56  B Union,  etc.,  Co.  v.  Pollard,  94  Va. 

Ohio  St.  87,  36  L.  R.    A.  817;  Crum-  146,  36  L.  R.  A.  271. 

lish's   Adm'rs  v.   Central,   etc.,   Co.,  6  Vanderpool  v.  Gorman,  140  N.  Y. 

38  W.  Va.  390,  23  L.  R.  A.  120.   Exe-  563,  24  L.  R.  A.  548.     But  see  Barth 

eating  a  reinstatement   in  one  state  v.  Backus,  140  N.  Y.  230,  23  L.  R.  A. 

of  an  insurance  policy  made  in  an-  47.     A  foreign  corporation  may  make 

other  does  not  destroy  the  character  an   assignment   of    property   in    New 

of  the  policy  as  a  contract   of   the  York  if  it  could  have  done  so  in  the 

state  where  it  was  originally  issued,  state  of  its  domicile.    Rogers  v.  Pell, 

154  N.  Y.  518. 


246  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  245 

created.1  The  liability  of  stockholders  in  foreign  corporations 
is  determined  by  the  law  of  the  creating  state,2  but  there  is 
great  difficulty  in  its  enforcement.  It  is  sometimes  said  that 
it  can  only  be  enforced  at  the  domicile  of  the  corporation,3  but 
the  weight  of  authority  is  otherwise.4  In  all  cases  the  pro- 
cedure of  the  forum  must  govern,  and  if  no  procedure  or  an 
inconsistent  procedure  is  provided  by  the  law  of  the  forum,  the 
liability  can  not  be  enforced.5  Where  the  liability  is  penal 
and  not  contractual,  it  can  not  be  enforced  outside  the  state.6 
The  local  laws  governs  a  policy  of  insurance  on  real  property 
delivered  to  the  owner  in  the  state  where  the  property  is  situ- 
ated.7 When  there  is  a  failure  to  show  the  law  of  another 
state  which  governs  the  rights  of  a  foreign  corporation  the 
case  will  be  governed  by  the  law  of  the  forum.8 

§  245.  Obligations  imposed  by  penal  statutes. — Causes  of 
action  which  arise  out  of  penal  statutes  can  not  be  prosecuted 
in  a  foreign  state. 

In  a  case  which  arose  under  a  statute  which  made  directors 
personally  liable  to  creditors  for  making  and  signing  a  false 
report,  the  supreme  court  of  the  United  States  said:  9 

'Congregational,  etc.,  Boc.  v.  Ever-  it  was  held  that  the  words  "  heirs  at 

ett,  86  .M'l.   79,  35  L.  R.  A.  693.  law"  in  a  poliey  made  in   Massachu- 

1  Mandel  v.  Swan,  etc.,  Co.,  154  111.  setts,  must  be  given  the  meaning  it 

177,  27  L.  R.  A.  313.  would  have  in  Massachusetts. 

a  .Marshall  v.  Sherman,  1 18  N.  Y.  9,  8  Bath,  etc.,  Co.  v.  Claffy,  151  N.  Y. 

31  L.  R.  A.  757.  24,  36  I-.  R.  A.  664. 

•  Hale  v.  Hardin,  96  Fed. 947.  'Huntington  v.   Attrill,  L46   r.    S. 

■Rhodes   V.    U.S.Nat.    Bank,24U.  057.      Mr.     Justice    (iray  said:    "It    is 

S.  App.  607,  66  Fed.   Rep.  512,84   L.  true  that  the  courts  of  some  states,  in- 

11.   A.  7 )'_' ;    Ferguson   V.  Sherman,   116     eluding     Maryland,   have   declined    to 

Cal.   L69, 87  L    R.  A.  622.    Bee  42  L.  enforce    a    similar   liability    imposed 

I:.  ,\.  896,  and  casee  cited.  by  the  statute  of  another  state.     But 

■Tuttlev.  National  Bank  of  the  Re-  in  each   of  these  eases  it   appears  to 

public,  161   111.   197,84   L.  R.  A.  760;  have  been  assumed  to  be  a  sufficient 

•  II  v.  Pacific  R.  Co.,  113  Cal.  258,  ground  for  thai   conclusion  thai    the 

84    I.     I.'.    A.   717.     See    Marshall   v.  liability  was  nol  founded  in  contract, 

Bherman,  I  \^  N.  V.  9.  bul  was  in  the  nature  of  a  penalty  im- 

7  Daggt  \    Orient,  etc.,  Co.,  188  Mo.  posed  by  statute,  and  do  reasons  were 

882,85   I.    R.  in    Mullen  v.  given    for  considering   the   statute  a 

Reed,  (>i   Conn.  240,  24   L.  R.  A.  664,  penal  law  in  the  strict,  primary  and 

international    sense      Derrickson    v 


§245 


EXTRA-TERRITOKIAL    POWERS. 


247 


"The  provision  of  the  statute  of  New  York,  now  in  ques- 
tion, making  the  officers  of  a  corporation  who  sign  and  record 
a  false  certificate  of  the  amount  of  its  capital  stock  liable  for  all 
its  debts,  is  in  no  sense  a  criminal  or  quasi-criminal  law.  The 
statute,  while  it  enables  persons  complying  with  its  provisions 
to  do  business  as  a  corporation,  without  being  subject  to  the 
liability  of  general  partners,  takes  pains  to  secure  and  main- 
tain a  proper  corporate  fund  for  the  payment  of  the  corporate 
debts.  With  this  aim  it  makes  the  stockholders  individually 
liable  for  the  debts  of  the  corporation  until  the  capital  stock  is 
paid  in  and  a  certificate  of  the  payment  made  by  the  officers, 
and  makes  the  officers  liable  for  any  false  and  material  repre- 
sentation in  that  certificate.  The  individual  liability  of  the 
stockholders  takes  the  place  of  a  corporate  fund  until  that  fund 
has  been  duly  created,  and  the  individual  liability  of  the  officers 
takes  the  place  of  the  fund  in  case  their  statement  that  it  has 
been  duly  created  is  false.     If  the   officers  do  not  truly  state 


Smith,  3  Dutcher  (27  N.  J.  L.)  166; 
Halsey  v.  McLean,  12  Allen  438;  First 
National  Bank  v.  Price,  33  Md.  487. 
It  is  also  true  that  in  Steam,  etc.,  Co. 
v.  Hubbard,  101  IT.  S.  188,  192,  Mr. 
Justice  Clifford  referred  to  those  cases 
by  way  of  argument.  But  in  that 
case,  as  well  as  in  Chase  v.  Curtis, 
113  U.  S.  452,  the  only  point  adjudged 
was  that  such  statutes  were  so  far 
penal  that  they  must  be  construed 
strictly,  and  in  both  cases  jurisdiction 
was  assumed  by  the  circuit  court  of 
the  United  States,  and  not  doubted  by 
this  court,  which  could  hardly  have 
been  if  the  statute  had  been  deemed 
penal  within  the  maxim  of  interna- 
tional law.  In  Flash  v.  Connecticut, 
109  U.  S.  371,  the  liability  sought  to 
be  enforced  under  the  statute  of  New 
York  was  the  liability  of  a  stockholder 
arising  upon  contract,  and  no  ques- 
tion was  presented  as  to  the  nature  of 
the  liability  of  officers.  But  in  Hor- 
nor  v.  Henning,  93   U.  S.   228,   this 


court  declined  to  consider  a  similar 
liability  of  officers  of  a  corporation  in 
the  District  of  Columbia  as  a  penalty. 
See  also  Neal  v.  Moultrie,  12  Ga.  104; 
Cady  v.  Sanford,  53  Vt.  632,  639,  640 ; 
Nickerson  v.  Wheeler,  118  Mass.  295, 
298;  Post  v.  Toledo,  etc.,  R.  Co.,  144 
Mass.  341,  345;  Wolverton  v.  Taylor, 
132  111.  197;  Morawetz  on  Corpora- 
tions (2d  ed.),  §  908.  *  *  *  In  this 
view  that  the  question  is  not  one  of 
local  but  of  international  law,  we  fully 
concur.  The  test  is  not  by  what  name 
the  statute  is  called  by  the  legislature 
or  the  courts  of  the  states  in  which  it 
is  passed,  but  whether  it  appears  to 
the  tribunal  which  is  called  upon  to 
enforce  it  to  be,  in  its  essential  char- 
acter and  effect,  a  punishment  of  an 
offense  against  the  public,  or  a  grant 
of  a  civil  right  to  a  private  person." 
As  to  penalty  for  failure  to  send  a  tel- 
egraph message,  see  Carnahan  v. 
Western,  etc.,  Co.,  89  Ind.  526. 


24S  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  246 

and  record  the  facts  which  exempt  them  from  liability  they 
are  made  liable  directly  to  every  creditor  of  the  company  who 
by  reason  of  their  wrongful  acts  has  not  the  security  for  the 
pavment  of  his  debt  out  of  the  corporate  property,  on  which  he 
had  a  right  to  rely.  As  the  statute  imposes  a  burdensome  lia- 
bility on  the  officers  for  their  wrongful  act,  it  may  well  be  con- 
sidered penal,  in  the  sense  that  it  should  be  strictly  construed. 
But  as  it  gives  a  civil  remedy  at  the  private  suit  of  the  creditor 
only,  and  measured  by  the  amount  of  his  debt  it  is  as  to  him 
clearly  remedial.  To  maintain  such  a  suit  is  not  to  administer 
a  punishment  imposed  upon  an  offender  against  the  state,  but 
simply  to  enforce  a  private  right  secured  under  its  laws  to  an 
individual.  We  can  see  no  just  ground,  on  principle,  for 
holding  such  statute  to  be  a  penal  law,  in  the  sense  that  it  can 
not  be  enforced  in  a  foreign  state  or  country." 

§  246.  Constitutional  rights  of  corporations — Insolvency 
proceedings. — A  corporation  is  a  person  within  the  meaning 
of  the  first  section  of  the  fourteenth  amendment  to  the  consti- 
tution of  the  United  States,  and  may,  therefore,  invoke  the 
benefit  of  those  provisions  of  the  constitution  which  guarantee 
to  persons  the  enjoyment  of  property  or  afford  them  tin-  means 
for  its  protection  or  prohibit  legislation  injuriously  affecting 
it.1  Neither  the  provision  thai  the  citizens  of  one  state  shall 
be  entitled  to  ;ill  1 1 1  *  -  privileges  and  immunities  of  citizens  of 
the  Beveral  states,  nor,  that  no  slate  shall  deny  to  any  person 
within  its  jurisdiction  the  equal  protection  of  its  laws,  requires 
;,  state  to  recognize  the  corporation  of  another  state."  A  dis- 
charge  under  a  Btate  insolvent  law  docs  not  bar  the  claim  of  a 

1  Loui8ville,  etc.,  Co.  v.   Louisville.  181,  42  L.  R.  A.  528.    See  also  United 

etc.,  Co.,  92  Ky.  •_'::::,  M  I..  I;.  A..  579,  States  v.  Northwestern,  etc.,  <'"..  L64 

annotated;    Santa    Clara   County    v.  U. S. 686, 41 L. ed.  599.  § 68, supra.  As 

Bouthern,  etc.,  I>'.  <'".,  L18  U.  8.894,  t<>  constitutional   rights    of   corpora- 

118;  Pembina,  etc.,  Co.  tions,  see  People  v.  Fire  Assn.,  etc., 

v.  Pennsylvania,  125  U.  8.  181,  81   I..  92  V  Y.  811. 

ed.  650,  2  Inters. Com.  Rep.  24;  Min-       'Pembina,  etc.,  <'<>.  v.   Pennsylva- 

neapolis,  etc.,    R,  Co.    •■ .    Beckwith,  ma,  125  U    B.  181;  Norfolk,  etc.,  Co. 

■    i     ed    58  ■.  586;  v.  Pennsylvania,  186  U.  S.  I L4. 
I    i.  v.    I'"    t.  91   Me. 


§  246  EXTRA-TERRITORIAL    POWERS.  249 

creditor  who  does  not  voluntarily  submit  to  the  jurisdiction  of 
the  insolvency  court,   where  the  creditor  is  a  citizen   of  an- 
other state,  a  corporation  beyond  the  jurisdiction  of  the  court, 
or  a  resident  of  a  foreign  country  and  beyond  the  jurisdiction 
of  the  court.1     Hence,  a  foreign  corporation  is  not  bound  by 
the  discharge   of  its  debtor  in  state  insolvency  proceedings, 
when  it  has  not  proved  its  claim  or  accepted  a  dividend  thereon, 
although  it  has  an  established  place  of  business  in  the  state  at 
which  statutory  service  upon  it  is  made  in  such  proceedings.2 
The  court  said:    "The  defendant   concedes  that  if  the  plaintiff 
were   a  natural  person   instead   of  a  corporation,  and  in  the 
same  condition   that  the  corporation  is,  his  discharge  in  in- 
solvency could  not  be  successfully  pleaded  in  discharge  of  the 
debt.3     But  it  is  contended  that  the  same  rule  that  would  be 
applied  to  an  individual  creditor  living  in  a  state  other  than 
our  own  should  not  apply  where  the  creditor  is  a  foreign  cor- 
poration occupying  a  store  and  doing  business  in  this  state. 
We  do  not   see  that  in  principle  there  is  any  force  in  such  a 
distinction.     Creditors  without  any  corporate  authority,  who 
have   their  residence   out  of   the  state,  may  hire  and  occupy 
stores   and  sell  merchandise  within  the  state,,  and  their  debts 
contracted  here   not  be  affected  by  their  debtor's  insolvency, 
and  why  may  not  a  foreign  corporation  just  as  well  have  the 
same  immunity?"     A  foreign  corporation  which  has  complied 
with  the  statute  and  is  doing  business  in  the  state  is  not  a  resi- 
dent of  the  state  within  the  meaning  of  the  statute,4  and  is  not 
precluded  from   recovering  for  goods  sold  to  a  resident,  by  a 
discharge  of  the  debtor  in  insolvency  proceedings.5     A  foreign 
corporation  which  does  not  do  business  in  a  state  is  not  within 
the  jurisdiction  and  is  not  entitled  to  the  protection  of  its  laws. 

1  Baldwin   v.   Hale,    1    Wall.   223;  Phoenix,  etc.,  Bank  v.  Batcheller,  151 

Gilman    v.    Lockwood,  4    Wall,  409;  Mass.  589,  8  L.  R.  A.  644. 
Denny    v.    Bennett,    128    IT.    S.   489;        2  Hammond,  etc.,  Co.  v.  Best,  91  Me. 

Felch  v.  Bngbee,  48  Me.  9,  77   Am.  431,  42  L.  R.  A.  528,  Wilgns'  Cases. 
Dec.   203;    Hills  v.   Carlton,   74  Me.        "Pullen  v.  Hillman,  84  Me.  129. 
156;  Pullen  v.  Hillman,  84  Me    129;        4Mass.  Pub.  Stat.  L895,  ch.  157,  §81. 
Silverman    v.    Lessor,    88    Me.  599;        5Bergner,     etc.,    Co.     v.     Dreyfus 

(Mass.,  1899),  51  N.  E.  Rep.  531. 


250  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  247 

The  state  may,  therefore,  discriminate  against  it  in  the  distri- 
bution of  the  assets  of  another  corporation.1 


I.    Right  of  a  Corporation  to  Exercise  its  Powers  in  a 
Foreign  State. 

§  247.  Power  of  corporation, — It  follows  from  the  doctrine 
above  stated  that  a  state  can  not  empower  a  corporation  to 
exercise  its  powers  and  franchises  in  another  state  without 
the  consent  of  the  foreign  state.  It  has  been  said  that  a  cor- 
poration must  "dwell  in  the  place  of  its  creation  and  can  not 
migrate  to  another  sovereignty."2  This  is  true  only  in  the 
sense  that  it  can  not  act  as  a  corporation  beyond  the  jurisdic- 
tion of  its  creation,  but  it  may  transact  such  business  and  do  such 
acts  in  the  foreign  jurisdiction  as  a  natural  person  might  do. 
Thus  a  corporation  can  not  hold  corporate  meetings  in  a 
foreign  jurisdiction,  but  it  may,  through  its  agents,  transact 
business  there  when  not  forbidden  to  do  so  by  the  laws  of  the 
foreign  state.3  Hence,  a  corporation  may  make  valid  contracts 
in  a  foreign  state  subject  to  the  restrictive  laws  of  that  state/ 

1  Blake  v.  McClung,  172  U.  S.  239.  Priv.  Int.  Law,  §  288;  Franco-Texah, 

See  §  65.  supra.    Two  justices  dissent-  etc.,    Co.    v.    Laigle,    59   Tex.    33y; 

ing.     In    FrittS    v.    Palmer,  132  V.  S.  Ormshy    v.    Vermont,    etc.,    Co.,    5(5 

282,  a   Colorado    statute  which   pro-  N.  Y.  623.    See  the  criticism  on  the 

vided  that  a  mortgage  given  by  a  for-  dictum  of  Chief  Justice  Taney  fiat  a 

eign    corporation  on   property  in  the  corporation   can    not    migrate   t.i   an- 

Btate  for    a    debt    created    in   another  other  sovereignty,   in    Bigeloy  s  note 

state  should  not  take  effect  as  against  to  Story's  Conf.  of  haw,  p.  17», 

ons  in  that  state  until  the  liabili-       'Merrick    v.    Van    Santvoo/d,    34 

tic-  due  to  them  at  die  time  when  the  N.  V.  208;  Day  v.  Ogdensburg,  etc., 

mortgage  was  recorded  was  paid,  was  R.  Co.,  107  N.  Y.  r_".<:  Newburg,  etc, 

held  constitutional.     As  t<>  the  power  Co.  v.  Weare,  27  Ohio  St.  843;  Atchi- 

of  the  state  to  discriminate  against  son,  etc..  i;    <  !<  .  \ .  Fletcher,  36  Kan. 

non-re  idenl  creditors  in  tbe  matter  236.     In  Canada,  etc.,  R,  Co.  v.  Geb- 

ttacbmentS   upon    the    property   of      hard,     [09    U.    S.     527,     Chief    Justice 
insolvents,  Bee  Long  V.  GirdwOOd,  160      Waitc    said:      "A    corporation    'must 

P     31    i' 3  23  I..  R.   \.  •':::.  dwell  in  the  place  of  its  creation,  and 

■  nmenl  upon  this  language  in  can  not  migrate  to  another  sovereign- 

Shaw  v.  Quincy,  etc.,  <'".,   146  U.  S.  ty,'  tl gb  it  may  do  business  In  all 

it  I,  SVilgus'  t  lasea.  places  where  its  charter  allows  and  the 

1  Murfree  For.  Corps.,  f  14;  Wrier-  local  law    do  not  fori. id."     Railroad 

ton  Conf.  of  Laws,     I06o;  Westlake,  Co.  v.  Koontz,  104  U.  8.  6.  Bui  wher- 


§  247  EXTRA-TERRITORIAL    POWERS.  251 

and  governed  by  the  laws  of  the  state  which  created  the  cor- 
poration.1 A  corporation  is  clothed  everywhere  with  the 
character  given  by  its  charter,  and  the  capacity  of  corporations 
to  make  contracts  beyond  the  states  of  their  creation,  and  the 
exercise  of  that  capacity,  are  supported  by  uniform,  universal 
and  long-continued  practice.2  In  discussing  the  limitations 
upon  the  extra-territorial  acts  of  a  foreign  corporation,  Mr. 
Murfree  says:3  "The  recognition  which  is  by  comity  ex- 
tended to  foreign  corporations  does  not  vest  them  with  an  un- 
restricted faculty  of  extra-territorial  action,  even  within  the 
limits  of  their  charter  powers;  while  the  cases  are  not  uniform 
on  this  point,  yet  the  weight  of  authority  seems  to  be  that  the 
company's  power  in  the  foreign  jurisdiction  extends  only  to 
those  acts  which  may  be  done  through  the  mediation  of  agents. 
Those  corporate  acts  which  must  be  done  by  the  company 
itself,  through  the  persons  of  the  corporators  or  stockholders, 
must  be  performed  where  the  company  has  a  legal  existence. 
The  most  obvious  of  these  are  meetings  for  the  acceptance  of 
the  charter  and  organization  of  the  corporation."  Hence,  a 
legal  meeting  of  the  board  of  directors,  who  are  merely  agents, 
may  be  held  beyond  the  borders  of  the  state.4  In  order  to 
comply  with  the  requirement  of  a  foreign  state,  a  corporation 
has  power  to  deposit  securities  with  an  official  of  the  foreign 
state.5 

ever  it  goes  for  business  it  carries  its  2  Land  Grant  R.  Co.  v.  Coffey  Co., 
charter,  as  that  is  the  law  of  its  ex-  6  Kan.  245;  O'Brien  v.  Wetherell,  14 
istence,  and  the  charter  is  the  same  Kan.  616;  Cowell  v.  Springs  Co.,  100 
abroad  that  it  is  at  home.     Whatever  U.  S.  55. 
disabilities  are  placed  upon  the  cor-  3  Murfree  For.  Corp.,  §8. 
poration    at  home  it   retains  abroad,  4 Galveston,  etc.,  R.  Co.  v.  Cowdrey, 
and  whatever  legislative  control  it  is  11   Wall.  (U.  S.)  459;    Arms  v.   Con- 
subjected  to  at  home  must  be  recog-  ant,  36  Vt.  743;  Wright  v.  Bundy,  11 
nized  and  submitted  to  by  those  who  Ind.  398;  Reichwald   v.    Commercial 
deal  with  it  elsewhere."  Hotel,  106  111.  439;  Bellows  v.  Todd, 
1  Manhattan,     etc.,    Co.    v.    Fields  39  Iowa  209;    Missouri,   etc.,   Co.  v. 
(Tex.,  1894),  26  S.  W.  Rep.  280;  Rue  Reinhard,  114  Mo.  218. 
v.  Railway  Co.,  74  Tex.  474.  See  Falls  5  Lewis  v.  American,  etc.,  Assn.,  98 
v.  U.  S.,  etc.,   Assn.,  97  Ala.  417,  24  Wis.  203,  39  L.  R.  A.  559. 
L.  R.  A.  174,  decision  on  rehearing. 


252  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   24S 

§  248.  Corporate  acts  out  of  state. — A  corporation  has  no 
power,  in  the  absence  of  express  authority,  to  perform  strictly 
corporate  acts  outside  of  the  state  of  its  creation.1  No  legal 
organization  of  a  corporation  can  take  place  at  a  meeting  held 
outside  of  the  state  granting  the  charter.2  But  where  all  the 
interested  parties  acquiesce,  corporate  acts  done  beyond  the 
limits  of  the  state  may  be  binding.3  Authority  to  transact 
business  at  places  out  of  the  state  does  not  authorize  corporate 
acts,  such  as  corporate  meetings.4  In  a  leading  case  in  Maine5 
the  question  was  on  the  validity  of  a  certain  mortgage  executed 
by  the  officers  of  a  corporation,  elected  at  a  meeting  held  out 
of  the  state  for  the  organization  of  the  corporation.  The  cor- 
poration was  created  by  the  state  of  Vermont.  It  appeared 
from  the  records  of  the  corporation  that  a  meeting  of  the  cor- 
porators was  called  for  the  organization  of  the  corporation  un- 
der its  charter,  in  the  city  of  New  York,  and  that  the  charter 
was  there  accepted,  and  the  officers  of  the  corporation  elected. 
Chief  Justice  Shepley  said  :  "There  are  a  variety  of  corpora- 
tions.  It  will  only  be  necessary  on  this  occasion  to  speak  of 
one  class  of  them — corporations  aggregate  composed  of  natural 
prisons.  It  is  often  stated  in  the  books  that  such  a  corpora- 
tion is  created  by  its  charter.  This  is  not  precisely  correct. 
The  charter  only  confers  the  power  of  life,  or  the  right  to 
come  into  existence,  and  provides  the  instruments  by  which  it 
may  become  an  artificial  or  acting  entity.  Such  a  corporation 
has  been  well  defined  to  be  an  artificial  being,  invisible,  in- 
tangible, and  existing  only  in  contemplation  of  law.  The  in- 
struments provided  to  bring  the  artificial  being  into  life  and 
active  operation  are  the  persons  named  in  the  charter,  and 
those  who,  by  virtue  of  its  provisions,  may  become  associated 

1  Bastian   v.   Modem  Woodmen  of  v.  Duluth,  etc.,  El.  Co.,  W  Minn.  464, 

America,  166  III.  596.  under  Btatute, 

Machias,  etc.,  Co.,  88  'Missouri,  etc.,  Co.  v.  Reinhard,  114 

Me.  348;   Ormsby  v.  Vermont,  etc.,  Mo.  218,  Wilgus' Cai 

Mitchell  v.  Ver-  '  Franco-Texan,  etc.,  Co.  v.   I 

monl           l       67  N    Y.  280;  Smith  59Tea   839.    Bee  Hodgson  v.  Duluth, 

v  Silver  Valley,  etc.,  Co.,  64  Md.86;  etc.,  R.  Co.,  16  Minn.  164. 

Campv.  Byrne,  n  Mo.  626;  Hodgson  'Millers    Ewer,  27  Me.  609, 46  Am. 

Dec.  619,  Wilgi 


§  249  EXTRA-TERRITORIAL    TOWERS.  253 

with  them.  Those  persons  or  corporations,  as  natural  persons, 
have  no  such  power.  The  charter  confers  upon  them  a  new 
faculty  for  this  purpose;  a  faculty  which  they  can  have  only  by 
virtue  of  the  law  which  confers  it.  That  law  is  inoperative 
beyond  the  bounds  of  the  legislative  power  by  which  it  is  en- 
acted. As  the  corporate  faculty  can  not  accompany  the  nat- 
ural persons  beyond  the  bounds  of  the  sovereignty  which  con- 
fers it,  they  can  not  possess  or  exercise  it  there;  can  have 
no  more  power  there  to  make  the  artificial  being  act,  than 
other  persons  not  named  or  associated  as  corporators.  Any 
attempt  to  exercise  such  a  faculty  there  is  merely  an  usurpa- 
tion of  authority  by  persons  destitute  of  it,  and  acting  without 
any  legal  capacity  to  act  in  that  manner.  It  follows  that  all 
votes  and  proceedings  of  persons  professing  to  act  in  the 
capacity  of  corporators,  when  assembled  without  the  bounds 
of  the  sovereignty  granting  the  charter,  are  wholly  void. 
*  *  It  may  maintain  a  suit  without  those  limits,  but  that 
does  not  imply  its  existence  or  presence  there.  It  may  also 
contract  without  those  limits.  Being  within  them,  it  may, 
acting  per  se,  by  vote  transmitted  elsewhere,  propose  a  contract 
or  accept  one  previously  offered.  And  it  may,  b}r  an  agent  or 
agents  duly  constituted,  act  and  contract  beyond  those  limits. 
But  it  can  neither  exist  nor  act  per  se  without  them,  except  by 
the  existence  of  its  officers  or  agents,  duly  elected  or  appointed 
within  them."  1 

II.    Power  of  the  State  Over  Foreign  Corporations. 

§  249.  Right  to  exclude. — For  the  purposes  of  jurisdiction 
the  states  of  the  Union  are  foreign  to  each  other;2  and  as  cor- 
porations are  the  mere  creatures  of  legislation,  it  follows  that 
a  state  may  exclude  a  foreign  corporation  from  doing  business 
within  its  limits,  or  may  grant  such  corporation  a  license  to 
do  business  upon  such  terms  and  conditions  as  the  peculiar  in- 

1  As  to  the  distinction  between  cor-  Y.  (523;   Jones  v.  Pearl,  etc.,  Co.,  20 

porate  and  other  acts,  see  also  Free-  Colo.  417. 

manv.Machias,  etc.,  Co.,  38  Me.  343;  2  See  Williams  v.  Kimball,  35  Fla. 

Ormsby  v.  Vermont,  etc.,  Co.,  56  N.  49,  26  L.  R.  A.  746. 


254  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  240 

terests  and  policy  of  the  state  may  require.1  "Every  power 
which  a  corporation  exercises  in  another  state  depends  for  its 
validity  upon  the  laws  of  the  sovereignty  in  which  it  is  exer- 
cised, and  a  corporation  can  make  no  valid  contract  without 
the  sanction,  express  or  implied,  of  such  sovereignty;  unless  a 
case  should  be  presented  in  which  the  right  claimed  by  the 
corporation  should  appear  to  be  secured  by  the  constitution  of 
the  United  States."2  The  recognition  of  its  existence  "depends 
purely  upon  the  comity  of  other  states — a  comity  which  is 
never  extended  where  the  existence  of  the  corporation  or  the 
exercise  of  its  powers  is  prejudicial  to  their  interests  or  repug- 
nant to  their  policy.  Having  no  absolute  right  of  recognition 
in  other  states,  but  depending  for  such  recognition  or  the  en- 
forcement of  its  contracts  upon  their  assent,  it  follows  as  a 
matter  of  course  that  such  assent  may  be  granted  upon  such 
terms  and  conditions  as  those  states  may  think  proper  to 
impose.  They  may  exclude  the  foreign  corporation  entirely; 
they  may  restrict  its  business  to  particular  localities,  or  they 
may  exact  such  security  for  the  performance  of  its  contracts 
with  their  citizens  as  in  their  judgment  will  best  promote  the 
public  interests.  The  whole  matter  rests  in  their  discretion."8 
There  are  many  good  and  sufficient  reasons  why  a  state  should 
choose  to  modify  the  rule  of  comity,  and  impose  restrictions 
upon  a  foreign  corporation.  As  said  by  Mr.  Justice  Field, 
"it  is  not  every  corporal  ion,  lawful  in  the  state  of  its  creation, 
i  hut  other  states  may  be  willing  to  admit  within  their  jurisdic- 
tion, or  consent  thai  it  have  officers  in  them;  such,  for  exam- 
ple, as  a  corporation  for  lotteries.  And  even  when  the  busi- 
aess  of  a  foreign  corporation  is  not  unlawful  in  other  states, 
the  latter  may  wish  to  limit  the  number  of  such  corporations, 

"Wharton's  Conf.  of  Laws,  §  104a;  70  Midi.  486;  State  v.  Phoenix,  etc., 

Brices  Ultra  Vires,  p    I,  note  Co.,92Tenn.  i_i). 

a;   Paul  v.  Virginia,  8  Wall.  (TJ.  B.)  •  Runyan  v. Corter's Lessees,  14 Pet. 

imonwealth    v.  Ne*    York,  (XT.  B.)  122-129. 

i:  Co.,129Pa.  Bl    W3;  Phoenix,  »Paul   v.  Virginia,  8  Wall.  (U.  S.) 

..    Burdett,    112   tnd,  204;  168;  Wyman  v.  Kimberly-Clark  Co., 

Phoenix,  etc.,  Co.  v.  Welch,  29  Kan.  98  Wis.  664. 
;  i  mi  .1-].  etc.,  I '".  '•  ■  Raymond, 


§  250  EXTRA-TERRITORIAL    POWERS.  255 

or  subject  their  business  to  such  control  as  would  be  in  accord- 
ance with  the  policy  governing  domestic  corporations  of  a 
similar  character."1 

In  Florida  it  is  held  that  a  corporation  organized  under  the 
laws  of  another  state  must  also  become  incorporated  under  its 
laws,  and  a  failure  to  do  so  makes  the  members  liable  as  part- 
ners.2 A  state  can  not  by  mere  legislative  enactment  make 
all  foreign  corporations  domestic  corporations  of  that  state, 
and  thus  deprive  them  of  the  right  to  resort  to  the  federal 
courts.3 

§  250.  Limitations  on  the  power  of  the  state. — The  general 
rule  stated  in  a  preceding  section  that  a  state  may  entirely  ex- 
clude foreign  corporations  from  doing  business  within  its 
limits,  or  permit  them  to  do  business  upon  complying  with 
prescribed  conditions,  is,  however,  subject  to  the  limitations 
imposed  by  the  federal  constitution,  which  grants  to  congress 
exclusive  control  over  interstate  commerce.  Hence,  a  state  can 
not  exclude  or  regulate  the  business  of  a  foreign  corporation, 
which  is  engaged  in  interstate  commerce,  or  which  is  itself  an 
agency  of  the  national  government.4 

A  contract  between  a  resident  of  the  state  and  a  foreign  cor- 

1  Pembina  Mining  Co.  v.  Pennsylva-  United  States,  etc.    Commonwealth  v. 

nia,  125  U.  S.  181 ;  Paul  v.  Virginia,  8  New  York,  etc.,  R.  Co.,  129  Pa.  St.  463 ; 

Wall.  168;  Runyan  v.  Coster,  14  Pet.  St.  Clair  v.  Cox,  106  U.  S.  350. 

122;  Canada  Southern  Ry.  Co.  v.Geb-  'Taylor  v.   Branham,   35  Fla.  297, 

hard,  109 U.S.  527  ;  Demarestv.  Flack,  39  L.  R.  A.  362. 

128  N.  Y.  205;  Isle,  etc.,  Corporation  8Rece  v.   Newport  News,  etc.,   R. 

v.    Osmun,    76  Mich.  162.     A  foreign  Co.,  32  W.  Va.  164,  3  L.  R.  A.  572. 

corporation  can  exercise  its  franchises  4  Crntcher  v.  Kentucky,  141  U.  S.  47 ; 

in  Pennsylvania  only  so  far  as  it  may  Pensacola,  etc.,   Co.,  v.   Western  U. 

be  permitted  by  the  local  sovereign.  Tel.  Co.,  96  U.  S.  1;  Cooper,  etc.,  Co. 

The  right  rests  wholly  in  the  comity  v.  Ferguson,  113  U.  S.  727 ;  Pembina, 

of  states.     A  corporation  of  one  state  etc.,  Co.  v.  Pennsylvania,  125  U.  S. 

can  not  do  business  in  another  state  181;  People,  etc.,  Co.  v.  Wemple,  131 

without  the  latter's  consent,  express  N.  Y.  64;  Norfolk  R.  Co.  v.  Pennsyl- 

or  implied,  and  that  consent  maybe  vania,  136  U.  S.  114;  McCall  v.  Cali- 

accompanied  with  such  conditions  as  fornia,  136  U.  S.  104;  Gloucester,  etc., 

the  latter  may  think  proper  to  impose.  Co.  v.  Pennsylvania,  114   V.   S.    196; 

These  conditions  will  be  valid  and  ef-  Robbins  v.    Shelby  Taxing    District, 

fectual,  provided  they  are  not  repng-  120  U.  S.  489. 
nant  to  the  constitution  or  laws  of  the 


256  THE    LAW    OF    PRIVATE    CORPORATIONS.  §    251 

poration,  by  which  the  former  is  to  canvass  certain  territory 
for  the  sale  of  its  sewing  machines  which  are  to  be  sold  to 
him  on  credit,  and  a  bond  given  the  corporation  to  secure 
payment,  is  an  act  of  interstate  commerce,  and  not  affected  by 
a  statute  prohibiting  business  within  the  state  by  a  foreign 
corporation  which  has  not  complied  with  certain  require- 
ments.1 

A  law  requiring  every  foreign  building  and  loan  association 
to  pay  an  annual  tax  of  two  per  cent,  on  its  gross  receipts  is 
not  an  interference  with  commerce  among  the  states.2  The  for- 
eign corporation  can  not  complain  if  it  is  subjected  to  a  tax 
which  is  not  imposed  upon  domestic  corporations.3  The  sale 
and  setting  up  of  machinery  by  a  corporation  in  a  state  in 
which  it  has  no  agency,  is  an  act  of  interstate  commerce.* 

§  251.  Insurance  not  interstate  eoinnieree. — A  large  part  of 
the  litigation  which  has  arisen  as  a  result  of  the  foregoing  rules 
has  grown  out  of  the  business  of  insurance,  which  is  to  such 
a  greal  extent  transacted  by  foreign  corporations.  It  is  settled 
law  that  the  business  of  insurance,  when  conducted  between 
citizens  of  a  state  and  a  foreign  corporation  is  not  interstate 
commerce,5  and,  hence,  a  state  may  prescribe  the  conditions 
upon  which  insurance  companies,  created  under  the  laws  of 
other  states,  may  do  business  within  the  state.6  Thus,  a  for- 
eign  insurance  campany  may  be  required  to  make  a  deposit 
with  some  state  officer  for  the  purpose  of  securing  persons  who 
contracl  with  it.7  Soitmay  require  that  the  agent  of  a  foreign 
insurance  company  shall  retain  money  of  the  company  until 
B  loss  of  which  he  has  notice  is  paid.8    Such  corporations  have 

'(ninii    v.    White,  etc.,  Go.,  57    Ark.  ■Omtcher   V.    Kentucky,    111     P.   8. 

•  -I    is  p.  i;.  \.  206.  47;  Paul  v.  Virginia,  8  Wall.  168. 

•Southern,  etc.,  Assn.  v.  Normon,  'State  v.  Phipps,  60   Can.  609,    L8 

98  Kv.  294,  81  I-.  I:.   L  11.  L.  B.  A.-  ,i:>7- 

■Liverpool,  etc.,  Co.  v.  Massachn-  'Paul  V.Virginia,  8  Wall.  0T.  S.) 

in'  Wall.  h\  s.i  666;  Tatem  v.  L68. 

Wright,  23   N.  J.   L.  429;   People  v.  'Phoenix,  etc.,  Co.  v.  Burdett,  112 

Wemple,  181  N.  Y  84.  fad.  204. 
♦  Milan,  etc.,  I  '••  \   '  k>rten,98  Tenn. 
26  L.  B.  A. 


§  252  EXTRA-TERRITORIAL    POWERS.  257 

no  right  to  exercise  franchises  and  privileges  in  a  state  con- 
trary to  the  law  of  the  state,  and  may  be  ousted  from  the  exer- 
cise of  such  forbidden  privileges  by  quo  warranto,1  although 
it  may  have  obtained  a  license  to  do  business  in  the  state  from 
the  insurance  commissioner.2 

§  252.    No  visitorial  power  over  foreign  corporations, — The 

courts  of  a  state  will  not  exercise  visitorial  power  over  or  in- 
terfere with  the  management  of  the  internal  affairs  of  a  for- 
eign corporation.3  No  such  power  exists  unless  expressly  con- 
ferred by  statute.4  A  court  will  not  interfere  with  the  internal 
management  of  a  foreign  corporation  at  the  suit  of  a  resident 
stockholder  by  setting  aside  unwise  contracts  which  depreciate 
and  destroy  the  value  of  the  stock,  although  the  visible  and 
tangible  property  of  the  corporation,  consisting  of  conduits  in 
streets  for  electric  lighting  is  within  the  state.5  But  a  foreign 
corporation  which  does  business  in  a  state  may  be  compelled 
by  mandamus  to  produce  its  books  which  are  kept  in  another 
state,  for  inspection  by  a  stockholder.6  A  statute  granting 
powers  and  privileges  to  corporations  must  be  construed  to 
apply  only  to  corporations  over  which  it  has  the  power  of  vis- 
itation.7 

§  253.    Right  to  compel  issue  of  a  new  stock  certificate. — A 

state  may  compel  a  foreign  corporation  which  is  doing  business 
within  its  borders  to  issue  to  a  resident  shareholder  a  new  cer- 
tificate of  stock  in  place  of  one  which  has  been  lost.  In  a  case 
where   this  was  done  the   court  said:8     "The   doctrine  is  well 

1  State  v.  Fidelity,  etc.,  Co.,  49  Ohio  4  Republican,  etc.,  Mines  v.  Brown, 
St.  440, 16  L.R.  A.  611;  State  v.  West-  19  U.  S.  App.  203,  58  Fed.  644,  24 
ern,  etc.,  Co., 47  Ohio  St.  167,8  L.  R.     L.  R.  A.  776. 

A.  129.  5 Madden   v.  Penn.,   etc.,   Co.,   181 

2  State  v.  Fidelity,  etc.,  Co.,  49  Ohio    Pa.  St.  617,  38  L.  R.  A.  638. 

St.  440,  16  L.  R.  A.  611.  6  State  v.  Swift,  7  Houst.  (Del.)  137. 

3Clark  v.  Mutual,  etc.,  Assn.  (D.C.),  7Re  Prime  Estate,  136  N.  Y.  347, 
43  L.  R.  A.  390;  Guilford  v.  Western     18  L.  R.  A.  713. 

Union,  etc. ,  Co.,  59  Minn.  332;  Mining        8Guilford   v.  Western  Union,   etc., 
Co.  v.  Field,  64  Md.  151,  20  Atl.  Rep.     Co.,  59  Minn.  332,  61  N.  W.  Rep.  324= 
1039;    Smith    v.    Insurance    Co.,    14 
Allen  336. 

17 — Private  Corp. 


25S  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  253 

settled  that  courts  will  not  exercise  visitorial  powers  over  for- 
eign corporations,  or  interfere  with  the  management  of  their 
internal  affairs.  Such  matters  must  be  settled  by  the  courts  of 
the  state  creating  the  corporation.  This  view  rests  upon  a 
broader  and  deeper  foundation  than  the  want  of  jurisdiction  in 
the  ordinary  sense  of  that  word.  It  involves  the  extent  of  the 
authority  of  the  state  (from  which  its  courts  derive  all  their 
powers)  over  foreign  corporations.  The  only  difficulty  is  in 
drawing  the  line  of  demarkation  between  matters  which  do  and 
those  which  do  not  pertain  to  the  management  of  the  internal 
affairs  of  a  corporation.  To  entertain  an  action  to  dissolve  a 
corporation,  to  determine  the  validity  of  its  organization;  to  de- 
termine which  of  two  rival  organizations  is  the  legal  one,  or 
who  of  rival  claimants  are  its  legal  officers;  to  restrain  it  from 
declaring  a  dividend,  or  to  compel  it  to  make  one;  to  restrain  it 
from  issuing  its  bonds,  or  from  making  an  additional  issue  of 
stock, — would  clearly  all  be  the  exercise  of  visitorial  powers 
over  the  corporation,  or  an  interference  with  the  management 
of  its  internal  affairs.  But  the  distinction  between  any  of 
these  cases  and  the  one  at  bar  seems  to  us  very  apparent. 
We  think  there  are  cases,  and  that  this  is  one  of 
them,  where,  although  the  rights  of  a  party  grow  out  of  his 
membership  in  the  corporation,  yet,  as  the  matter  affects  only 
his  individual  rights  under  the  contract  by  which  the  stock 
was  issued,  therefore  an  enforcement  of  those  rights  will  not 
be  an  interference  with  the  internal  management  of  the  corpo- 
rate affairs  within  the  meaning  of  the  rule. 

"It',  upon  principles  of  law  or  comity,  foreign  corporations 
are  allowed  to  do  business  and  maintain  suits  in  another  state, 
the  genera]  rule  should  be  that  they  are  liable  to  he  sued  in 
the  Bame  jurisdiction.  Their  rights  and  liabilities  in  that  re- 
gard ought  to  he  reciprocal.     If  we  recognize  their  existence 

for  one  purpose,  we  ought  also  for  the  other.  1  f  on r  courts 
admit  and  vindicate  their  rights,  justice  requires  that  we  also 

enforce  their  liabilities,  and  that,  before  we  send  our  own  citi- 
zen- to  a  foreign  jurisdiction  for  redress,  it  should  be  very  cl<  ;n 
that  the  BUbject  of  the  action  is  heyond  the  limits  of  the  power 


§  254  EXTRA-TERRITORIAL    POWERS. 

or  sovereignty  of  the  state  over  the  foreign  corporation.  If  a 
citizen  of  this  state  held  a  certificate  of  stock  in  a  foreign  cor- 
poration, which  was  alleged  to  have  been  illegally  issued,  or 
to  have  for  some  cause  become  forfeited,  we  do  not  think  there 
would  be  any  doubt  but  that  our  courts  would  entertain  a  suit 
by  the  corporation  to  compel  its  surrender  and  cancellation." 

III.    The  Rule  of  Comity. 

§  254.  The  comity  of  states. — The  doctrine  of  comity  which 
is  universally  recognized  among  independent  states 1  applies 
with  peculiar  force  to  the  states  of  the  Union.  Formerly  a 
mere  matter  of  international  benevolence  and  courtesy  it  is  now 
recognized  as  an  obligation.2  The  courts  of  one  state  will  as- 
sume the  legal  existence  of  a  foreign  corporation,3  and  in  the 
absence  of  a  legislative  expression  of  a  contrary  policy  will 
recognize  the  right  of  the  corporation  to  do  business  in  the 
state.  It  is  the  comity  of  the  state  and  not  of  the  court  which 
is  awarded,  and  the  court  can  not  impose  conditions  upon  the 
corporation.4  If  the  corporation  was  legally  created  in  the 
state  of  its  origin  its  corporate  capacity  will  be  recognized 
everywhere,  but  if  not  legally  created  it  can  not  cure  the  defect 
by  migration.5  The  law  of  comity  is  a  part  of  our  common 
law.6 

1  Comity  is  the  foundation  of  private  guage  of  Davis,  J.,  in  Merrick  v.  Van 

international  law.    Dr.  Woolsey  says :  Santvoord,  34  N.  Y.208. 

"The  foundation  of  this  department,  zSeeCalvo,  LeDroit  Int.  II,  §  537 ; 

as  of  all  privileges  granted  to  Strang-  Story's  Conf .  of  Laws,  §  38 ;    Wheaton 

ers,  is  not  generally  regarded  as  being  Elem.  (Dana),  p.  134  ;   (Lawrence)  p. 

justice  in  the  strict  sense,  but  the  hu-  1C>2. 

inanity  and  comity  of  nations,  or  in  3  Statutes  extending  the  legal  exist- 
other  words,  the  recognition  of  the  ence  of  corporations  a  certain  time  af- 
brotherhood  of  men,  and  the  mutual  ter  dissolution  for  the  purpose  of  suits 
duties  thence  arising.  Justice  may  and  forbidding  the  defense  of  want  of 
close  the  avenues  of  commerce,  and  legal  organization  of  the  corporation, 
insist  that  the  most  rigid  notion  of  do  not  apply  to  corporations  of  other 
sovereignty  be  carried  out  in  practice,  states.  Marion,  etc.,  Co.  v.  Perry, 
but  good  will  grants  concessions  to  74  Fed.  Rep.  425,  41  TJ.  S.  App.  14,  33 
aliens,  and  meanwhile  enlightened  L.  R.  A.252. 
self-interest  discovers  that  the  inter-  4  Story's  Conf.  of  Laws,  §  38. 
3Sts  of  all  are  promoted."    See  Ian-  5Demarest  v.  Flack,  128  N.  Y.  205. 


Elston  v.  Piggott,  94  Ind.  14. 


260  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  255 

§  255.  The  general  rule, — By  virtue  of  the  law  of  comity- 
it  is  settled  that  where  a  state  does  not  forbid  or  its  public 
policy,  as  evidenced  by  its  laws,  is  not  infringed,  a  foreign  cor- 
poration may  transact  business  within  its  boundaries  and  be 
entitled  to  the  protection  of  its  laws.1  As  said  in  a  New  York 
case,2  unless  the  legislature  forbids  it,  foreign  corporations  can 
come  here  as  freely  as  natural  persons  and  exercise  here  all 
the  powers  conferred  upon  them  by  their  charter,  subject  to 
the  limitations  imposed  upon  natural  persons,  that  is,  they 
can  do  no  act  in  violation  of  our  laws  or  our  public  policy. 
But,  unless  prohibited  by  law,  they  can  do  here,  within  the 
limits  of  their  chartered  powers,  precisely  what  domestic  cor- 
porations can  do.  The  rule  is  thus  stated  by  Mr.  Justice  Har- 
lan:3 "  In  harmony  with  the  general  law  of  comity  obtaining 
among  the  states  composing  the  Union,  the  presumption  should 
be  indulged  that  the  corporation  of  one  state  not  forbidden  by 
the  law  of  its  being  may  exercise  within  any  other  state  the 
general  powers  conferred  by  its  own  charter  unless  it  is  pro- 
hibited from  so  doing  either  in  the  direct  enactments  of  the 
latter  state  or  by  its  public  policy  to  be  deduced  from  the  gen- 
eral course  of  its  legislation,  or  from  the  settled  adjudications 
of  the  highest  courts."  This  rule  is,  however,  subject  to  the 
following  exceptions:  A  state  will  not  permit  a  foreign  corpora- 
tion to   exercise  within   its  limits  any  extraordinary  franchise 

'People  v.  Fire  Assn.  of  Philadel-  rial  Bank,  8  Dana  (Ky.)  114,  83  Am. 

phia,  92  N.  Y.  311,  44  Am.  Rep.  380.  Dec.  481;  Santa  Clara   Female  Aead- 

1  Hollis v.  Drew Theolog.  Seminary,  emy  v.  Sullivan,  116  111.  375;  Clare- 

96N.Y.166;  Lancaster  v.  Amsterdam,  mount,  etc.,  Co.  v.  Royee,  42  Vt.  780. 

fir.,  (\,.,  I!d  N.   Y.  576,24   L  R.  A.  The  power  of  the  corporation  to  hold 

822.  real  estate  will  be  presumed,  at  least, 

'Christian  Onion  v.  Yount,  101  U.  S.  in  favor  of  its  grantee.  Tarpey  v.  Des- 

152      \  foreign  corporation  may  hold  eret,  etc.,  Co.,  6  Utah  495.     May  take 

real  estate  in  another  state  unless  the  a  lease  or  mortgage  on   real  estate, 

right  is  denied  it  by  its  charter  or  the  Lebanon   Sav.    Bank   v.  Hollenbeck, 

■  ]   such  oilier  state.    The  rfghl  iM>  Minn.  322;  Black  v.  Caldwell,  83 

will  be  granted  by  the  law  of  comity.  Fed.  Rep.  880.    The  right  of  a  foreign 

Lancaster  v.  Armstrong,  etc.,  Co.,  140  corporation    to  own   water-works   m 

N.  Y.  676,  24  L.  R.  1.  822,  annotated;  the  slate  can  only  be  questioned  by 

Bunyon  v.  ( ioster,  1 1  Pet,  (U.  8.)  122;  the  state.    United,  etc.,  Co.,  v.  Oma- 

Lumbard  v.    Ildrich,  8  N.   ll.  81,28  ha,  etc.,  Co.,  W  N.  Y    Supp.  817,  dt- 

Am    1 1                Lathrop  v.  ( iommer-  ing  ca 


§  256  EXTRA-TERRITORIAL    POWERS.  261 

or  privileges  to  which  it  may  be  entitled  under  its  charter  such 
as  exemption  from  taxation,  or  the  right  of  eminent  domain, 
or  to  do  any  acts  contrary  to  the  laws  or  public  policy  of  the 
state   or  not  authorized  by  the  charter  of  the  corporation. 

§  256.    Contracts  contrary  to  the  law  of  the  forum.— As  a 

general  rule,  a  state  will  enforce  rights  not  in  their  nature  lo- 
cal and  not  contrary  to  its  public  policy  wherever  arising. 
without  regard  to  whether  they  are  of  statutory  or  common 
law  origin.1  But  comity  does  not  require  the  enforcement  of 
contracts  which  are  against  public  policy,2  injurious  to  public 
rights,  offensive  to  morals  or  contrary  to  law.3  The  powers 
sought  to  be  exercised  must  be  in  harmony  with  the  general 
policy  of  the  state.  Hence,  a  foreign  corporation  will  not  be 
permitted  to  do  acts  within  a  state  which  are  prohibited  by  the 
law  of  the  state  to  its  own  citizens  or  to  corporations  engaged 
in  a  similar  business.  Comity  does  not  require  that  non-resi- 
dents shall  be  allowed  a  remedy  which  the  policy  of  the  state 
denies  to  its  own  citizens.4  The  law  of  the  forum  governs  in 
all  matters  relating  to  the  remedy.5  A  mercantile  corporation 
can  not  carry  on  its  business  in  a  state  which  prohibits  the 
organization  of  such  corporations.6  Special  privileges  which 
a  foreign  corporation  enjoys  under  its  charter  can  not  be  exer- 
cised beyond  the  boundaries  of  the  state  by  which  it  is  created, 
especially  when  such  privileges  are  contrary  to  the  policy  of 
the  other  jurisdiction.7     A  foreign  corporation  can  not  exer- 


1  Usher  v.  West  Jersey  R.  Co.,  126  835;    Emery  v.  Burbank,   163 
Pa.   St.    206,  4  L.  R.  A.  261 ;  Boston,  326,  28  L.  R.  A.  57. 

etc.,  Co.  v.  Coffin,  152  Mass.  95,  8  L.  « Ruhe  v.  Buck,  124  Mo.  178,  25  L. 

R.  A.  740;  Bullard  v.   Chandler,  149  R.  A.  178. 

Mass.  532,  5  L.  R.  A.  104;  Heiskell  v.  5  Eingartner  v.  Illinois,  etc.,  Assn., 

Chickasaw  Lodge,  87  Tenn.  668,  4  L.  94  Wis.  70,  34  L.  R.  A.  503. 

R.  A.  699.  e  Empire,  etc.,  Co.  v.  Alston,  etc, 

2  Faulkner  v.  Hyman,  142  Mass.  53;  Co.,  4  Tex.  App.,  Civ.  Cas.  346,  12  L. 
Beard  v.  Basye,  7B.  Mon.  133;  Fen-  R.  A.  366. 

ton  v.  Livingston,  3  Macq.  H.  L.  497.  7  Falls  v.  United  States,  etc.,  Assn., 

3  Seamans  v.  Temple  Co.,  105  Mich.  97  Ala.  417,  24  L.  R.  A.  174,  the  court 
400,  28  L.  R.  A.  430;  Jones  v.  Sur-  said:  "The  statutes  of  Minnesota  have 
prise,  64  N.  H.  243;  Pope  v.  Hanke,  155  no  binding  force  with  us,  and  any 
111.  617,  28  L.  R.  A.  568;  Gooch  v.  provision  found  in  them  which  au- 
Faucette,  122  N.  C.  270,  39  L.  R.  A.  thorizes  a  corporation  of  their  creation 


262 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§257 


cise  the  right  of  eminent  domain  unless  expressly  granted  to  it 
by  the  state  in  which  it  is  doing  business.1 

§  257.  Public  policy,  how  determined. — It  is  not  always 
easy  to  determine  when  an  act  is  contrary  to  the  public  policy 
of  the  state.  An  act  which  a  state  permits  its  own  corpora- 
tions to  do  can  not  be  considered  as  contrary  to  the  public 
policy  of  the  state.2  The  prohibition  by  the  New  York  statute 
of  assignments  by  domestic  corporations  for  the  benefit  of  cred- 
itors is  held  not  to  show  a  public  policy  of  the  state  which 
will  prevent  a  foreign  corporation  having  property  in  the  state 
from  exercising  its  common-law  right  to  make  such  an  assign- 
ment, especially  when  the  assignment  is  valid  in  the  state  of 
the  creation  of  the  corporation.3  In  order  to  discover  the  pub- 
lic policy  of  a  state  it  is  necessary  to  examine  its  constitution, 
its  laws  and  judicial  decisions.4 

§  258.  Discrimination  against  non-residents. — A  foreign 
corporation  will  not  be  permitted  by  the  law  of  comity  to  en- 
force a  contract  which  would  result  in  giving  the  citizens  of 
another  state  an  advantage  over  residents.     But  the  mere  fact 

to  contract  for  and  recover  more  than  see  why  the  provision,  with  reference 

eight    ]>er   cent,  for    the    loan    or   for-  t<>  the  rate  of  interest,  was  contrary  to 

bearanceof  money  is  obnoxious  to  our  the  law  or  public  policy  of  Alabama 

statute  for  the  prevention   of  usury,  which  authorized  the  creation  of  simi- 

We    hold     further    that    the    contract  lar  corporations  with  tlit'  same  privi- 

whichgave  rise  to  the  present  suit  is  leges.     As  to  usury   in  building  and 

an  obnoxious  contract,  ami  can  only  loan  association  contracts,  see  the  case 

be  enforced  to  the  extent  our  statute  of  Reeve  v.    Ladies',  etc.,    Assn.,  56 

permits.      Any    statute    of    this    state  Ark.  335,  18    L.  R.  A.    129,   and    cases 

wbicfa  may  be  supposed  to  confer  on  cited  in  an  extensive  note,  and  Rhodes 

building    and    loan   associations  the  v.  Missouri,  etc.,  Assn.,  173111.  621,42 

right  to  charge  more  than  eight   per  L.  R.  A..  93. 

c.nt.  interest,  even   it    we  conceded  lHolbert  v.  St.  L.,  etc.,  R.  Co.,  45 

BUCh  statutory  authority,  must  be  con- 
fined in  its  operation  to  such  corpora- 
tions as  are  chartered  in  Alabama." 
This  decision  ia  manifestly  a  wrong 
application  of  a  corred  rule.  The  con- 
i,  .,  ,  \i  tin<  ota  contract)  and 
should  have  i n  governed  by  the  Min- 


[owa  23. 

'American  Union  v.  Yount,  101  U. 
s.  362. 

1  Vanderpoel  v.  Gorman,  140  N.  Y. 
568,  24  L.  R.  A.  548. 

•Girard  Will  Case,  2  How.  (U.  8.) 
127:    Lancaster  v.    Amsterdam,  etc., 


.  laws,  it  i-,  al  o,  very  difficult  to    Co.,  l  K)  N.  Y.  676,  24  L>  U.  A 


822. 


§  258  EXTRA-TERRITORIAL    POWERS.  2G3 

that  a  foreign  corporation  has  authority  to  carry  on  a  business 
not  granted  to  domestic  corporations  will  not  prevent  the  for- 
eign corporation  from  doing  business  in  the  state.  Thus,  mul- 
tiform insurance  may  be  carried  on  by  a  foreign  corporation, 
in  a  state  whose  domestic  corporations  are  not  authorized  to  do 
so,  if  there  is  no  express  prohibition  by  statute.1  A  charter 
privilege  as  to  the  rate  of  interest  a  corporation  may  receive 
will  not  be  recognized  in  another  state  when  the  local  usury 
laws  expressly  deny  the  right  to  domestic  corporations.2  In  a 
recent  case,3  a  Missouri  corporation  loaned  money  upon  a 
mortgage  on  real  estate  situated  in  Illinois.  The  corpora- 
tion was  a  legally  organized  building  and  loan  company  under 
the  laws  of  Missouri,  and  had  authority  to  procure  money  for 
loaning  by  selling  its  paid-up  shares.  This  privilege  was  not 
granted  to  similar  corporations  organized  under  the  laws  of 
Illinois.  The  Illinois  courts  refused  to  grant  to  the  corporation 
the  rights  of  an  Illinois  building  and  loan  company,  and  treated 
it  as  an  ordinary  loan  company;  and,  as  such,  not  exempt  from 
the  usury  laws  of  Illinois.  Had  the  corporation  not  possessed 
powers  which,  in  the  judgment  of  the  Illinois  court,  deprived 
it  of  the  character  of  an  Illinois  building  and  loan  corporation, 
its  claim  of  exemption  from  the  usury  laws  would  doubtless 
have  been  admitted,  as  such  exemptions  were  granted  domestic 
building  and  loan  corporations  by  the  Illinois  law.  The  court 
said  :  "The  rules  of  comity  among  states  are  so  liberal  that  if 
it  should  appear  to  us  that  an  association  is  engaged  in 
doing  business  under  statutes  similar  in  all  respects  to 
our  own,  we  should  apply  to  it  the  same  rules  as  are  ap- 
plicable to  associations  organized  under  our  own  statutes. 
Under  the  general  rule  of  comity  existing  be- 
tween states,  we  will  allow  to  foreign  corporations  a  standing 
in  our  courts  to  enforce  the  valid  contracts  they  may  have 
made  with   our  citizens,  and  all  valid  liens  against  property 

'People  v.  Fidelity,  etc.,  Co.,  153  3  Rhodes  v.  Missouri,  etc.,  Assn., 
111.  25,  26  L.  R.  A.  295.  See  Vander-  173  111.  621,  42  L.  R.  A.  93;  Meroney 
poel  v   Gorman,  140  N.  Y.  563.  v.  Atlantic,  etc.,  Assn.,  112  N.  C.  842. 

2  Falls  v.  United  States,  etc.,  Assn., 
97  Ala.  417,  24  L.  R.  A.  174. 


264  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  259 

situated  in  this  state.  But  that  rule  of  comity  does  not  re- 
quire that  we  should  allow  foreign  corporations  to  enforce 
contracts  here  if  such  enforcement  would  be  in  conflict  with 
our  laws,  and,  being  thus  in  conflict,  the  enforcement  whereof 
would  work  against  our  own  citizens,  and  give  to  the  citizens 
of  another  state  an  advantage  which  the  resident  has  not.1  As 
has  been  said  by  this  court,2  comity  between  different  states 
does  not  require  a  law  of  one  state  to  be  executed  in  another 
when  it  would  be  against  the  public  policy  of  the  latter  state. 
No  state  is  bound  to  recognize  or  enforce  contracts  which  are 
injurious  to  the  welfare  of  its  people,  or  which  are  in  viola- 
tion of  its  own  laws.3  If,  therefore,  it  appears  that  the  state  of 
Illinois  has  granted  to  corporations  of  this  state  certain  rights 
and  privileges,  and  immunity  from  penalties  provided  in  cer- 
tain other  sections  of  our  statute,  and  a  foreign  corporation  at- 
tempts to  invoke  the  aid  of  the  courts  of  this  state  to  the  same 
extent,  it  must  affirmatively  appear  that  such  foreign  corpora- 
tion is  organized  and  doing  business  under  a  similar  statute 
before  it  will  be  entitled  to  like  consideration;  and  where  it 
clearly  appears,  as  it  does  in  this  case,  that  the  amount  re- 
ceived by  a  foreign  corporation  as  compensation  for  its  loan  or 
advancement  is  far  in  excess  of  the  legal  rate  of  seven  per  cent, 
allowed  by  our  statute,  then  it  must  affirmatively  appear  thai 
the  statute  under  which  such  corporation  is  organized  is  iden- 
tical with,  or  at  least  substantially  like,  our  own." 

59.  Ads  not  authorized  by  charter. — It  is  well  settled 
thai  the  doctrine  of  comity  does  not  require  a  state  to  permit 
a  foreign  corporation  to  exercise  powers  which  it  is  not  au- 
thorized to  exercise  by  its  charter.  "The  contracl  must  be 
..ne  which  the  foreign  corporation  is  permitted  by  its  charter 
to  make."4  Charter  restrictions  follow  a  corporation  and  are 
operative    wherever   it   does  business."    Thus,  a    corporation 


1  Walton  v.  Whitlock,  9  Fla.  86.  BON.  II  263,9   \m.  Rep.  206;  Fishei 

Pope   i     Hani  e,   166   III.  617,  -mi  v.  Lord,  68  V  II.  614. 

]      I:     \  4  Can  I   v.  Poole,  12   N.  Y.   I'.).'.;    Mfor- 

l  onfl    i  .     827;  I  aulknei  v.  lie  v.  Hall,  II   Ua.  510. 

II-.  man,  II-  BlaM.58;  Hill  9.  Spear,  'American,  etc.,  Co.  v.  Farmers', 


§  260  EXTRA-TERRITOKIAL    POWERS.  26b 

which  is  not  by  its  charter  permitted  to  hold  real  estate,  will 
not  be  permitted  to  hold  real  estate  in  a  state  other  than  that 
by  which  the  charter  was  granted.1 

§  260.  Restrictions  imposed  by  general  law. — A  distinction 
is  sometimes  made  between  limitations  upon  corporate  powers 
which  are  imposed  by  a  general  law  and  such  as  are  contained 
in  a  charter.  A  limitation  contained  in  a  charter  is  operative 
everywhere.  But  only  general  limitations  which  are  intended 
to  adhere  in  the  constitution  of  the  corporation,  and  to  apply 
to  all  acts  wherever  done,  are,  as  a  rule,  recognized  in  other 
states.2  It  has  been  said  that  a  court  would  recognize  in  a  for- 
eign jurisdiction  only  those  powers  and  capacities  which  would 
be  recognized  by  the  courts  of  the  state  incorporating  it,  if 
they  were  considering  the  particular  act  in  question.3  The 
New  York  statute  prohibiting  assignments  b}T  insolvent  cor- 
porations was  held  to  have  no  extra-territorial  force,  and  not  to 
affect  the  validity  of  an  assignment  by  an  insolvent  corpora- 
tion made  in  Ohio  of  property  situated  in  Illinois,4  In  New 
York  it  was  held  that  the  power  of  a  Pennsylvania  corporation 
to  take  under  a  New  YorK  will  was  restricted  by  a  Pennsyl- 
vania statute  which  forbade  gifts  by  a  will  executed  under  cer- 
tain circumstances.5  But  the  weight  of  authority  seems  to 
sustain  the  view  that  such  statutes  are  directed  to  the  individ- 
uals, and  not  to  corporations.  In  Ohio  it  was  held  that  a  New 
York  statutory  prohibition  against  a  devise  to  a  corporation 
did  not  prevent  a  New  York  corporation  from  taking  a  devise 
of  real  estate  situated  in  Ohio,  if  the  terms  of  its  charter  were 
broad  enough  to  authorize  it  to  hold  land.6     In  Massachusetts 

etc.,  Co.,  20  Colo.  203,  25  L.R.  A.  338;  3  Christiancy,   J.,  in  Thompson   v. 

Blair  v.  Perpetual,  etc.,  Co.,  10  Mo.  Waters,  25  Mich.  214. 

559,  47  Am.  Dec.  129;  Ohio,  etc.,  Co.  *  Warren  v.  First   Nat'l  Bank,  149 

v.  Merchants',   etc.,  Co.,    11  Humph.  111.  9.  SeePairpoint,etc,  Co.  v. Watch 

(Tenn.)  1,  53  Am.  Dec.  742.  Co.,  161  Pa.  St.  17. 

diamond,  etc.,  Co.  v.  Powers,  51  5  Kerr  v.  Dougherty,  79  N.  Y.  327. 

Mich.  145;  Hope,  etc.,  Co.  v.  Perkins,  6  American,  etc.,  Soc.  v.   Marshall, 

38  N.  Y.  404.  15  Ohio  St.  537.     See   also   White  v. 

zOhio,  etc.,  Co.  v.  Merchants',  etc.,  Howard,  38  Conn.  342;  Thompson  v. 

Co  ,11  Humph.  (Tenn.)  1,  24,  53  Am.  Swoope,  24  Pa.  St.  474;  contra,  House 

Dec.  742.  of  Mercy  v.  Davidson,  90  Tex.  529. 


266  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  261 

it  was  held  that  the  New  York  statute  which  prohibited  any 
person  from  devising  more  than  one-half  of  his  estate  to  a  re- 
ligious association  or  corporation  did  not  apply  to  a  devise  to 
such  a  New  York  corporation  by  a  non-resident  of  property 
situated  in  another  state.  The  court  said:  "It  seems  to  us 
that  the  statute  of  New  York  was  intended  to  apply  only  to  tes- 
tators who  were  inhabitants  of  that  state.  It  is  not  an  act  re- 
lating primarily  to  corporations,  or  designed  primarily  to  limit 
the  amounts  they  may  receive  ;  but  it  is  an  act  relating  to  wills, 
and  designed  for  the  protection  or  benefit  of  persons  interested 
in  the  estates  of  inhabitants  of  that  state.  There  is  nothing  in 
it  to  prevent  a  New  York  corporation  from  receiving  any  be- 
quests which  may  be  made  to  it  by  an  inhabitant  of  another 
state,  and  which  may  be  lawful  according  to  the  laws  of  the 
place  of  his  residence." 

IV.    Statutory  Restrictions. 

§  261.  In  general, — Almost  all  of  the  states  have  modified 
the  rule  of  comity  as  to  the  recognition  of  foreign  corporations, 
and  adopted  statutes  designating  the  conditions  upon  which 
such  corporations  may  transact  business.  These  statutes  con- 
tain many  features  in  common  and  have  for  their  general 
purpose  the  protection  of  the  people  of  the  state  from  the  acts 
of  irresponsible  foreign  corporations.  They  generally  provide 
for  tin'  granting  of  licenses  to  foreign  corporations  upon  their 
complying  with  prescribed  conditions;  and  require  that  the 
corporation  shall  maintain  an  ofliee  within  the  state,  and  des- 
ignate some  agenl  upon  whom  service  of  process  may  be  made.1 

'Stimeon,  Am.  St.  Law,  [I,  ch.  iv,  copies  of  their  articles  of  association 

100  3499.     As  to  such  restrictions,  and  appointing  a   resident  agenl  for 

see  People  v.  Fidelity,  etc.,  Co.  (Ill-),  Bervice  of  process,  may  carry  on  busi- 

26  I..  R.  A.  295,  and  note  to  State  v.  ness   in   the  state  and   enjoy  all  the 

rman   (Ohio),  24   L.  R.  A.  296.  rights  and  privileges  and   be  sub j eel 

The  Michigan  statute  relating  to  the  to  all  the  restrictions  and  liabilities  of 

incorporation  of  domestic  manufactur-  corporations  existing  under  said  act, 

ing  and  mercantile  corporations, whicb  dues  not  prohibit  foreign  corporal  ions 

provides  thai  foreign  corporations  or-  from  doing  business  in  the  state  until 

ganized  foi  any  of  the  purposes  con-  they  have  complied  with  such  condi* 

template. i  by  said  act,  upon  recording  tions,  01  invalidate  contracts  made  by 


§  202  EXTRA-TERRITORIAL    FOWERS.  267 

A    statute    which    admits     corporations    of    a    certain     kind 
impliedly  excludes  those  organized  for  other  purposes.1 

§  262.  Conditions  which  may  be  imposed. — From  the  gen- 
eral power  of  the  state  to  exclude  foreign  corporations,  it  fol- 
lows that,  subject  to  the  restrictions  imposed  by  the  national 
constitution,  it  is  the.  sole  judge  of  the  conditions  upon  which 
foreign  corporations  may  be  permitted  to  do  business  within 
the  state.  A  statute  imposing  conditions  must  stand  unless  it 
is  clearly  unconstitutional.2  It  is  immaterial  whether  the  con- 
ditions imposed  are  reasonable  or  unreasonable.3  It  is  no  ob- 
jection to  such  a  condition  that  it  results  in  a  discrimination 
in  favor  of  domestic  corporations.  Thus,  a  foreign  corporation 
may  be  discriminated  against  in  the  matter  of  taxation,4  and  a 
foreign  corporation  may  be  required  to  pay  a  higher  license 
than  is  required  of  domestic  corporations.5 

A  state  may  impose  a  franchise  or  a  license  tax  on  a  foreign 
corporation  for  the  privilege  of  doing  business.6  An  act  taxing 
foreign  insurance  companies  for  the  benefit  of  a  firemen's  fund  is 
constitutional.7  Foreign  corporations  selling  goods  in  Michigan 
by  traveling  salesmen  are  not  required  to  pay  the  franchise 
fee  required  of  domestic  corporations.     The  act  if  applied  to 

them.    It  simply  prescribes  the  terms  Western  Union,  etc.,  Co.  v.  Lieb,  76 

upon  which  such  corporations,  if  the}'-  111.  172;  Phoenix,  etc.,  Co.  v.  Burdett, 

so  desire,  may  become  entitled  to  the  112  Ind.  204.     The  conditions  must  be 

benefits  of  the  act  conferred  upon  do-  imposed  by  the  legislature  and  not  by 

mestic  corporations  of  similar  charac-  the   courts.     Demarest  v.  Flack,  128 

ter.  People  v.  Hawkins,  106  Mich.  479.  N.  Y.  205. 

JIsle  Royal,  etc.,  Corp.  v.  Secretary        5  Insurance   Co.    v.  New  Orleans,  1 

of  State,  76  Mich.  162.  "Woods    85;     Pembina,    etc.,    Co.    v. 

2Phomix,  etc.,  Co.  v.  Burdett,  112  Pennsylvania,  125  U.  S.  181.     When 

Ind.  204;  State  v.   Carey,  2  N.  Dak.  the  statutes   require   the    corporation 

36;    State   v.    Phoenix,    etc.,    Co.,   92  to  file   an  instrument  designating  its 

Tenn.  420.  place  of  business  within  the  state,  it 

3  Hartford,  etc.,  Co.  v.  Raymond,  70  is  sufficient  to  name  the  city  in  which 
Mich.  485.  its  office  is  located.  McLeod  v.  Ainer- 

4  Phoenix,  etc.,  Co.  v.  Com.,  5  Bush  ican,  etc.,  Co.,  100  Ala.  496,  14  So. 
(Ky.)  68,  96  Am.  Dec.  331 ;  Atty.-Gen'l  Rep.  409. 

v.  Bay  State,  etc.,  Co.,  99  Mass.  148;        6  Commonwealth  v.  Standard,  etc., 

Liverpool,  etc.,  Co.  v.  Mass.,  10  Wall     Co.,  101  Pa.  St.  119. 

566;    People   v.  Thurber,  13  111.  554;        7 Trustees  v.  Roome,  93  N.  Y.  313. 


9GS  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  263 

such  corporations  would  impose  an  illegal  restraint  upon  inter- 
state commerce.1 

§  263.  Retaliatory  statutes.— The  courts  have  generally  sus- 
tained the  validity  of  statutes  which  authorize  foreign  corpora- 
tions to  do  business  within  the  state  upon  such  terms  and 
conditions  as  are,  or  may  be,  imposed  upon  the  corporations  of 
the  enacting  state  in  the  state  of  the  domicile  of  the  foreign 
corporation  in  question.2  It  has  been  contended  that  such 
statutes  are  unconstitutional,  as  an  abdication  by  the  legisla- 
ture of  its  functions  and  a  delegation  of  its  powers  to  a  for- 
eign legislature.  But  such  a  statute  is  a  complete  law  which  is 
to  go  into  effect  upon  the  happening  of  a  contingency  and  is 
not  an  abandonment  of  the  legislative  functions.3  Such  a  pro- 
vision is  "  a  constitutional  and  valid  exercise  of  legislative  will, 
is  not  void  for  uncertainty,  is  susceptible  of  enforcement,  and 
ought  to  be  enforced  upon  the  happening  of  the  contingency 
therein  mentioned."4  Under  a  statute,  sec.  29,  chap.  73,  Rev. 
Statute  of  Illinois,  1874,  which  provides  that  its  provisions 
shall  go  into  effect  "  when,  by  the  laws  of  any  other  state,  any 
*  *  *  prohibitions  are  imposed  or  would  be  imposed  on  in- 
surance companies  of  this  state  doing  or  which  might  seek  to  do 
business  in  such  other  state,"  the  mere  existence  of  the  law  in 
another  state  is  sufficient  to  put  the  retaliatory  law  in  force.5  But 

1  Wilcox, etc.fCo.V.  MoBher  (Mich.),         4  State    v.   Insurance    Co.,    115    linl. 

72  X.  W.  117.  257. 

■State v.  Fidelity, etc., Co., 39  Minn.        5Germania,  etc.,  Co.  v.  Swigert,  128 

Home,  etc.,  Co.  v.  Swigert,  104  111.237,4    L.   R.  A.  473.     "It   is  not 

III.  653;  Germania,  etc.,  Co.  v.  Bwi-  important  nor  necessary  to  the  exist- 

gert,  128  111.237,  I  L.  R.  A.  173;  State  ence  of  the  law  here  thai  an   Iowa 

7.  Insurance  Co.,  115  ind.  257;  Phce-  company  should  goto  New    York  to 

nix,  etc.,  Co.  v.  Walch,  29  Kan.  672;  test  the  sincerity  of  the  people  in  the 

People  v.  Fire  Assn.  of  Philadelphia,  enforcement  of  her  law  :  nor  is  such 

92   N.    Y.   811;  Goldsmith  v.   Home,  a  step  necessary  to  the  enforcement  of 

62  Ga.  379;  State  v.  [nsur-  the  law  in  this  state.    A.  spirit  of  com- 

ance  Co.     1892),   19  Ohio  Bt.   140,  16  ity  between  the  states  should  induce 

i:    \  61l;Talbotl  \.  Fidelity,  etc.,  a  belief  thai  their  laws  are  made  in 

I  Md       6, 18  L.  R.   \   584.  good  faith,  and  for  observance."  State 

Home,  etc.,  Co.  v.  Swigert,  104  HI.  v.   Fidelity,  etc.,  Co.,  77   [owa  648; 

Ucora  \ .  Hamer,  88  Miss.  662;  Talbotl   v.   Fidelity,  etc.,  Co.,  74   Md. 

Btatev.  Parker,  26  Vt.  I  586,  18  L.  R.  A.  584,  22  Atl.  Rep 


§  264  EXTRA-TERRITORIAL    POWERS.  2G9 

in  Ohio  it  was  held  that  to  make  a  case  for  the  application  of 
the  retaliatory  provision  it  must  appear  that  an  Ohio  company 
had  been  formed  for  the  purpose  of  doing  substantially  the 
same  kind  of  business  in  the  foreign  state,  and  that  it  would 
then  be  subjected  to  burdens  not  imposed  by  the  laws  of  Ohio 
upon  foreign  corporations.1  Such  statutes  will  not  be  enforced 
against  a  foreign  corporation  unless  it  is  clearly  proved  that 
they  would  have  the  restrictive  effect  which  is  claimed.2 

§  204.    Waiver  of  constitutional  rights — Removal  of  causes. 

— There  has  been  some  conflict  among  the  courts  as  to  the  right 
of  a  state  to  require  of  a  foreign  corporation  as  a  condition 
precedent  to  the  right  to  do  business,  a  stipulation  not  to  re- 
move to  the  federal  courts  actions  which  may  be  commenced 
against  it  in  the  state  courts.  The  state  courts  have  generally 
sustained  such  provisions.  Under  the  decisions  of  the  federal 
courts  they  are  unconstitutional.  The  question  arose  in  Wis- 
consin, and  the  court  held  the  provision  valid.  Upon  appeal 
to  the  supreme  court  of  the  United  States,  the  decision  of  the 
supreme  court  of  Wisconsin  was  reversed.3 

Subsequently  the  supreme  court  of  Wisconsin  held  that 
although  the  provision  was  not  binding  upon  the  corporation 
the  state  might  revoke  the  license,  if  the  corporation  chose  to 
insist  upon  its  constitutional  right  to  litigate  in  the  federal 
courts.  Chief  Justice  Ryan  said:4  "The  statute  extended  to 
these  foreign  insurance  companies  the  privilege  of  doing  busi- 
ness in  this  state  on  equal  footing  with  domestic  corporations. 
Experience  showed  their  power  to  harass  the  citizens  of  the 
state  doing  business  with  them  by  removing  actions  on  their 
policies  from  courts  of  the  vicinage  to  distant  and  expensive 
tribunals.  Hence  the  provisions  of  the  statute;  and  con- 
ceding to  the  fullest  extent  the  right  of  removal  of    actions 

1  State  v.   Insurance  Co.,   49  Ohio        3  Insurance  Co.  v.  Morse,  20  Wall. 
St.  440,  1G  L.  R.  A.  611.  445.  See  Lafayette,  etc.,  Co.  v.  French, 

2  People  v.  Fidelity,  etc.,  Co.,  153  18  How.  (U.  S.)  404;  Commonwealth 
111.  25,  26  L.  R.  A.  295;  State  v.  In-  v.  Coal  Co.,  97  Ky.  238. 

surance  Co.,  49  Ohio  St.  440,  16  L.  R.        *  State  v.  Doyle,  40  Wis.  175. 
A.  611 ;  State  v.  Fidelity,  etc.,  Co.,  39 
Minn.  538. 


270  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  2 04 

commenced,  we  can  see  no  pretense  for  questioning  the  power 
of  the  state,  in  the  exercise  of  its  absolute  discretion  on  the 
subject,  to  revoke  the  license  of  the  company  exercising  the 
right.  The  state  has  the  power  to  make  its  voluntary  license 
subject  to  the  forbearance  of  a  right,  and  revokable  upon  its 
exercise.  The  right  may  survive  the  license,  but  the  license 
can  not  survive  its  exercise.  So  grants  are  sometimes  made 
upon  conditions  to  forbear  a  right.  It  was  for  the  authorities 
of  the  state  alone  to  judge  that  the  exercise  of  the  right  was  an 
abuse  of  the  privilege  of  the  license,  *  *  *  the  federal 
courts  *  *  *  have  no  jurisdiction  over  the  question 
whether  foreign  corporations,  exercising  the  right,  shall  be 
permitted  by  the  state  to  do  business  within  it.  That  is  a 
matter  of  state  policy,  state  law,  state  jurisdiction." 

This  decision  was  approved  by  the  supreme  court  of  the 
United  States,1  but  in  a  later  case2  it  was  held  that  where 
the  statute  provided  that  no  permit  should  be  granted  to  a 
foreign  corporation  until  a  stipulation  was  entered  into  that 
it  would  not  remove  actions  brought  against  it  to  the  federal 
courts,  it  was  apparent  that  the  purpose  was  to  deprive  the 
corporation  of  its  constitutional  rights  and  that  the  statute  was 
void.  In  a  still  later  case  the  court  said:  "But  that  statute 
requiring  the  corporation,  as  a  condition  precedent  to  obtain- 
ing a  permit  to  do  business  within  the  state,  to  surrender  a 
right  and  privilege  secured  to  it  by  the  Constitution  and  laws 
of  the  United  States,  was  unconstitutional  and  void,  and  could 
give  no  validity  or  effect  to  any  agreement  or  action  of  the 
corporation  in  obedience  to  its  provisions.'"  But  the  fact  re- 
mains that  the  state  may  entirely  exclude  the  corporation  if  it 
chooses  to  stand  on  its  constitutional  right.  A  person  may 
waive  a  constitutional  provision  in  his  favor.4 

1  Doyle  v.  Insurance  Co.,  94  U.  S.    which  had  nol  obtained  a  licensi 

required  by  statute  ol  1< >\\ a . 
■  Barron  v.  Burnside,  121   U.  S.  186.        "Southern,  etc.,  Co.  v.  Denton,   146 
Thiai  ration  of  an     U.  S.  202;   Texas,  etc.,  Co,  v.   VVor- 

•  oi  the  corporation  for  engaging    snam,  76  Tex.  656. 
in    the  bo  ol   the   corporation       'Embury  v.  Conner,  8  N.  V.  511; 

In  reOooper,  93  N.  Y.  .'.a?. 


§  265  EXTRA-TERRITORIAL    POWERS.  271 

§  265.  The  granting  and  revocation  of  a  license. — Statutes 
generally  provide  that  the  license  to  do  business  shall  be 
granted  by  some  state  officer,  upon  application  by  the  corpora- 
tion and  compliance  with  the  statutory  conditions.  Whether 
the  action  of  this  officer  is  judicial  or  administrative  depends 
upon  the  language  of  the  statute.1  If  it  is  apparent  that  no 
discretion  was  intended  to  be  vested  in  the  officer,  but  that  he 
should  grant  the  license  when  the  conditions  are  complied  with , 
his  acts  are  ministerial  and  subject  to  the  control  of  the  courts,2 
but  if  it  is  apparent  that  the  legislature  intended  that  the  offi- 
cer should  exercise  judgment  and  discretion,  in  granting  or  re- 
voking a  license,  his  acts  are  judicial  and  not  subject  to  the 
control  of  the  courts.3  The  state  is  not  estopped  from  insisting 
upon  compliance  with  a  condition  by  the  failure  of  its  officials 
to  require  compliance  at  the  proper  time.4  If  a  corporation  is 
so  organized  that  it  is  impossible  for  it  to  comply  with  the 
conditions  imposed  by  the  restrictive  statute,  it  can  not  com- 
pel the  issue  of  a  license  to  it.5  The  motives  which  in- 
duce a  state  to  exclude  a  foreign  corporation  or  authorize  the 
revocation  of  a  license  are  immaterial,  and  can  not  be  made  the 
subject  of  a  judicial  inquiry.6 

§  266.  Meaning  of  "doing  business." — These  words  as  used 
in  the  various  statutes  refer  to  the  general  transaction  of  busi- 
ness, and  not  to  an  isolated  transaction,  without  the  intention 
of  continuing  business.7   Thus,  it  does  not  include  a  mere  con- 

1  Lafayette,  etc.,  Co.  v.  French,  18  Royal,  etc.,  Co.  v.  Ostium,  76  Mich. 

How.  404;  Ducat  v.  Chicago,  10  Wall.  162. 

410;  Insurance  Co.  v.  Morse,  20  Wall.  4Travelers,      etc.,     Co.     v.    Fricke 

445;   St.  Clair  v.  Cox,  106  U.  S.  350;  (Wis.),  41  L.  R.  A.  557. 

Philadelphia,  etc.,  Assn.  v.  New  York,  5  Mutual,    etc.,    Co.    v.    House,   89 

119  U.  S.  110.  Tenn.  438;  Mutual,  etc.,  Co.  v.  Swig- 

2Statev.Fidelity,etc.,Co.,39Minn.  ert,    120   111.  36,  11  N.   E.   Rep.  410; 

538.  Isle  Royal,  etc.,  Co.   v.   Osmun,    76 

3  Travelers,     etc.,     Co.     v.     Fricke  Mich.  162. 

(Wis..  1898),  41  L.  R.  A. 557;  State  v.  6 Doyle  v.  Continental,  etc.,  Co.,  94 

Doyle,  40  Wis.  175,  22  Am.  Rep.  692;  U.  S.  535. 

State  v.  Carey,  2  N.  Dak.  36,  49   N.  'Cooper,  etc.,  Co.  v.  Ferguson,  113 

W.    Rep.    164;  Dwelling-House,  etc.,  U.  S.  727;  Tabor  v.  Goss,  etc  ,  Co.,  11 

Co.  v.  Wilder,  40  Kan    561  ;  Kansas,  Colo.  419;  Farmers',  etc.,  Co.  v.  Lake, 

etc.,  Co.  v.  Wilder,  43  Kan.  731  ;   Isle  etc.,  R.  Co.  (111.),  51  N.  E.  Rep.  55. 


979 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  266 


signment  of  goods  by  a  foreign  corporation  to  a  citizen  of  the 
state,1  nor  the  purchase  of  an  article  of  machinery  within  the 
state,2  nor  the  sale  of  milling  machinery  and  placing  it  in  a 
mill  by  a  corporation  which  has  no  office  in  the  state,3  nor  so- 
liciting subscriptions  to  a  newspaper  published  in  a  foreign 
state.4  nor  selling  goods  by  a  traveling  salesman,5  nor  the  fre- 
quent purchase  of  material  within  the  state,6  nor  the  investing 
in  the  securities  of  a  domestic  corporation,7  nor  soliciting  sub- 
scriptions to  the  stock  of  a  foreign  corporation,8  nor  the  ap- 
pointment of  agents  who  are  to  transact  the  business,9  nor  the 
bringing  of  a  suit.10  The  mere  collection  of  a  debt  after  the 
passage  of  an  act  imposing  certain  conditions  upon  the  right 
to  do  business  is  not  within  the  prohibition  where  the  debt 
was  due  before  the  passage  of  the  act."  The  single  act  by  a 
foreign  mortgage  loan  corporation  of  lending  money  upon 
mortgage  security,  in  Alabama,  is  held  to  be  "doing  business" 
within  the  meaning  of  the  law,12  although  the  supreme  court  of 

1  Bertha,  etc.,  Co.  v.  Clute  (X.  Y.),     &  Johnson,  etc.,  Co.  v.  Foster,  etc., 


27  N.  V.  Supp.  342;  Cooper,  etc.,  Co. 
v.  Ferguson,  113  U.  S.  727. 

2  Colo.  I.  Works  v.  Sierra  Grande, 
etc.,  Co.,  15  Colo.  499;  Graham  & 
Anderson  v.  Hendricks,  22  La.  Ann. 
523. 

3  Milan,  etc.,  Co.  v.  Gorten,  93 
Twin.  590,  26  L.  R.  A.  135. 

4  Beard  v.  Union,  etc.,  Co.,  71  Ala. 
60. 

5  Ware  v.  Hamilton  Brown,  etc., 
Co.,  92  Ala.  1  15. 

■  ( lommonwealth  v.  Standard,  etc., 
Co.,  101  Pa  St.  119. 

7  Gilchrist  v.  Helena,  etc.,  R.  Co.,  47 
Fed.  Rep.  598. 

■  Payson  v.  Withers,  5  Bias.  C.  C. 
269 

D   -    Morgan  <S  Co.  v.  White,  L01 
[nd.  H3. 


Co.,  4  Dak.  329,  30  N.  W.  Rep.  166. 
Upon  a  contract  made  out  of  the  state, 
Barse,  etc.,  Co.  v.  Kong,  etc.,  Co.,  J 6 
Utah  59. 

11  Pioneer,  etc.,  Assn.  v.  Cannon,  96 
Tenn.  599,  33  L.  R.  A.  112. 

12Ginnv.  New  Eng.,  etc.,Co.,92  Ala. 
135 ;  Farrior  v.  New  Eng.,  etc.,  Co.,  88 
Ala.  275.  See  People  v.  Am.  Hell, 
etc.,  (V).,  117  N.  Y.  I'll.     In  Reeves  v. 

Harper,  13  La.  Ann.  516,  ii  was  held 
that  the  constitution  of  Louisiana 
does  nut  deny  to  a  citizen  <>!'  Louis- 
iana the  privilege  of  borrowing  money 
from  foreign  corporations,  nor  does  it 
prohibit  such  corporations  from  loan- 
ing money  to  our  citizens,  provided 

only    that    such    transactions   are    not 

done  in  the  course  of  business  carried 

on     by  the    corporation    in    this    state, 

w  St.  Louis,  etc.,  R.  Co.v.  Phila.  Fire  without  complying  with  the  require- 

i..  I;.  A.  88;  merits  of  the  constitution.    The  single 

Utley  v.  Clark,  etc.,  Co.,  I  Colo.  869;  act  of  loaning  monej  within  the  state 

lei  River,  etc.,  Co.  v.  Custer  Co.,  Is  not  a  doing  of  business. 

■  Pac.  Rep.  383;  lull'  i        A  lite  Insurance  company  chartered 


267 


EXTRA-TERRITORIAL    POWERS. 


273 


the  United  States  has  held  otherwise.1  So  in  Arkansas  it  is 
held  that  the  taking  of  a  single  mortgage  for  a  past  due  debt 
for  goods  sold  at  the  demand  of  the  corporation  is  not  doing 
business  in  the  state.2 

But  a  corporation  "does  business"  in  a  state  in  which  it 
has  an  office  and  sells  goods.8  A  corporation  which  lends 
money  to  a  resident  of  the  state  through  a  broker  domiciled  in 
the  state,4  or  in  another  state,5  is  not  doing  business  in  the 
state. 


§  267.    Contracts  made  out  of  the  state. — These  restrictive 
statutes  do  not  affect  the  right  of  a  citizen  of  a  state  to  enter 


in  the  state  of  Illinois  carried  on 
business  in  the  state  of  Missouri 
through  an  agent  appointed  for  that 
purpose.  The  agent  in  Missouri 
would  solicit  and  receive  from  citizens 
in  that  state  applications  for  insur- 
ance, which  he  would  forward  to  the 
home  office  of  the  company  in  Chi- 
cago. When  the  application  was  ap- 
proved the  policy  was  rilled  in,  dated 
and  signed  by  the  officers  of  the  com- 
pany in  Chicago,  and  transmitted  by 
mail  to  the  agent  of  the  company  in 
Missouri,  who,  upon  the  payment  to 
him  by  the  applicant  of  the  first  pre- 
mium, called  in  this  case  an  entrance 
fee,  delivered  the  policy  to  the  as- 
sured. In  Berry  v.  Knights  Templar, 
etc.,  Co.,  46  Fed.  Rep.  439,  it  was  held 
that  the  company  was  doing  business 
in  the  state  of  Missouri. 

The  signing  of  a  policy  in  Phila- 
delphia by  a  company  located  and  do- 
ing business  there  and  the  sending  it 
to  the  applicant  or  the  attorney  of  the 
applicant  in  New  York  is  not  a  viola- 
tion of  the  New  York  statute.  People 
v.  Imlay,  20  Barb.  68.  A  foreign  cor- 
poration organized  to  act  as  the  gen- 
eral agent  of  its  members  in  the  selling 
of  goods  produced  by  them,  and  having 
18 — Private  Corp. 


and  employing  no  capital  stock  in  the 
state,  is  not  subject  to  the  provision 
of  the  statute  requiring  a  statement 
showing  its  title,  object,  location  of 
its  offices  and  names  of  its  agents  in 
the  state.  Kilgore  v.  Smith,  122  Pa. 
St.  48. 

hooper,  etc.,  Co.  v.  Ferguson,  113 
U.  S.  727;  and  see  Caesar  v.  Capell,  83 
Fed.  Rep.  403;  Pioneer,  etc.,  Co.  v. 
Cannon,  96  Tenn.  599,  33  L.  R.  A.  112. 

2Florsheim,  etc.,  Co.  v.  Lester,  60 
Ark.  120,  27  L.  R.  A.  505.  A  foreign 
corporation  which  has  obtained  no 
permit  authorizing  it  to  do  business  in 
the  state  may  maintain  an  action  in 
the  state  court  against  a  non-resident 
to  recover  damages  under  a  contract 
executed  and  to  be  performed,  exceptas 
to  the  delivery  of  the  property  in  ques- 
tion, in  another  state.  Ware,  etc.,  Co. 
v.  Anderson,  etc.,  Co.  (Iowa,  1899), 
77  N.  W.  Rep.  1026. 

3  People  v.  Wemple,  131  N.  Y.  64; 
People  v.  Silver,  etc.,  Co.,  105  N.  Y. 
76. 

4  American,  etc.,  Co.  v.  Peirce,  49 
La.  Ann.  390. 

5  American,  etc.,  Co.  v.  Ogden,  49 
La.  Ann.  8. 


274  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   2G7 

into  a  contract  with  a  foreign  corporation.1  Tims,  when  the 
statute  prohibited  any  person  or  persons  from  "paying,  receiv- 
ing or  forwarding  any  premium  or  application  for  insurance, 
or  in  any  manner  aiding  or  helping  in  the  securing  or  placing 
of  any  insurance"  with  any  foreign  insurance  company  not 
authorized  to  do  business  in  the  state,  it  was  held  that  the 
statute  applied  to  persons  who,  as  insurance  agents  or  brokers, 
do  business  with  unauthorized  foreign  insurance  companies, 
or  agents  of  other  parties,  but  not  to  persons  who,  as  owners, 
make  single  contracts  of  insurance  with  such  companies  or 
associations  upon  their  own  property.  Mr.  Justice  Mitchell 
said  :  "It  may  be  readily  conceded  that  an  act  which  should 
attempt  to  prevent  a  non-resident  owner  of  property  in  this 
state,  or  a  resident  owner  not  at  the  time  within  its  territory, 
from  insuring  his  property  in  any  manner  lawful  in  the  place 
of  the  contract,  would  be  void  as  extra-territorial.  So,  also,  it 
may  be  conceded  that  if  a  citizen  of  Pennsylvania  has,  by  a 
contract  validly  made  outside  of  its  boundaries,  incurred  a 
liability,  no  law  of  this  state  can,  under  the  constitution  of  the 
United  States,  prevent  his  fulfilling  that  obligation,  even  by 
an  act  done  within  the  state.  But  beyond  the  limitations  im- 
posed by  the  constitution,  the  power  of  the  legislature  to  de- 
clare any  acts  done  within  the  territory  of  the  state  unlawful 
or  criminal  can  not  be  questioned;  and  all  considerations  of 
wisdom,  of  policy,  or  hardship,  of  difficulty  or  even  impossibility 
of  general  enforcement  must  be  addressed  to  the  law-making 
branch  of  the  government.  We  entertain,  therefore,  no  doubt 
of  the  power  of  the  legislature  to  make  the  insurance  of  his 
property  in  an  unauthorized  foreign  company  by  an  owner 
criminal,  if  done  in  this  state;  but  such  a  statute  would  be 
nol  only  an  unusual,  but  a  very  harsh  and  extreme  interfer- 
i  with  He'  genera]  right  of  a  citizen  to  manage  his  private 
affaire  in  bis  own  way.  We  should  not  attribute  sueli  an  in- 
tention to  the  ad  in  question  unless  its  terms  be  plain  or  the 
implicai  ion  unavoidable. "  2 

»M.  r.   Faxon  Oo.  v.  LovettCo.,  60       »Oom.  v.   Biddle,  139  Pa.  St.  806; 
N..J.I..  i  Columbia,  etc., 'Co.  v.  Kinton,  37  N.  J. 


§  268  EXTRA-TERRITORIAL    POWERS.  275 

A  contract  with  a  foreign  corporation  stipulating  that  it 
shall  not  be  valid  until  approved  at  the  principal  office  of  the 
company,  in  another  state,  is  not  a  contract  made  in  the  state 
within  the  meaning  of  a  statute  invalidating  contracts  made 
by  foreign  corporations  which  have  not  filed  their  articles  of 
association  and  paid  the  franchise  tax.1 

V.     Effect  of  Failure  to  Comply  With  Statutory  Requirements. 

§268.  Effect  upon  validity  of  contracts.— The  validity  of 
contracts  entered  into  between  citizens  of  a  state  and  a  foreign 
corporation  which  has  not  complied  with  the  conditions  prece- 
dent to  the  right  to  do  business  in  the  state  is  determined  by 
the  language  of  the  particular  statute.  Where  the  statute  ex- 
pressly declares  that  such  contracts  can  or  can  not  be  enforced 
there  can  be  no  question.2  Thus,  where  the  statute  makes  it 
"unlawful"  for  an  insurance  company  to  do  business  it  can 
not  collect  insurance  premiums.3  Generally  the  statute  simply 
prohibits  such  corporations  from  doing  business  within  the 
state  and  imposes  a  penalty  upon  the  corporation  or  some  offi- 
cer or  agent  thereof  for  a  violation  of  this  prohibition. 

Where  the  statute  provides  that  a  foreign  corporation  which 
has  not  complied  with  statutory  conditions  can  not  maintain 
an  action  within  the  state,  a  motion  to  dismiss  will  not  be 
granted  where  there  has  been  compliance  between  the  time  of 
commencing  the  action  and  the  hearing  of  the  motion.4 

The  fact  that  the  corporation  has  not  complied  with  the  qual- 
ifying statute  is  not  available  as  a  defense  when  the  corporation 
is  sued  by  a  citizen  of  the  state  upon  a  contract  entered  into 
by  the  corporation.     The  statutes  are  intended  for  the  protec- 

L.  33;  Lamb  v.  Bowser,  7  Biss.  C.  C.  2Nenchatel,  etc.,  Co.  v.  The  Mayor, 

372;  Huntley  v.  Merrill,  32  Barb.  626;  30  N.  Y.  Sup.  252,  155  N.  Y.  373;  Sel- 

Hyde  v.  Goodnow,  3  N.  Y.  266.     In  ser  v.  Potter,  etc.,  Co.,  30  N.  Y.  Sup. 

Hooper  v.  California,  155  U.  S.  648,  on  294;  Hartford,  etc.,  Co.  v.  Matthew  s, 

656,  Mr.  Justice  White  says:  The  state  102  Mass.  221;  Conn.  River,  etc.,  Co. 

of  California  has  the  right  "to  prohibit  v.  Way,  62  N.  H.  622. 

a  citizen  from  contracting  within  her  'Insurance Co. v. Kennedy, 96 Tenn. 

jurisdiction  with  any  foreign  company  711 ;  Hartford,  etc.,  Co.  v.  Raymond, 

which  has  not  acquired  the  privilege  70  Mich.  485. 

of  engaging  in  business  therein,  either  4  Carson-Rand  Co.  v.  Stern,  129  Mo. 

in  his  own  behalf  or  through  an  agent  381,  32  L.  R.  A.  420.     After  compli- 

empowered  to  that  end."     But  com-  ance    the    corporation    may    enforce 

pare  dissenting  opinion  of  Harlan,  J.  a  contract  previously  made.     Neucha- 

1  Holder  v.  Aultman,  etc.,  Co.,  169  tel,  etc.,  Co.  v.  The'Mavor,  155  N.  Y. 

U.  S.  81.  373. 


276 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  269 


tion  of  the  people  and  not  to  enable  the  corporation  to  defraud 
them.1 

The  courts  will  not  hold  contracts  made  by  a  foreign  corpo- 
ration which  has  not  complied  with  an  enabling  statute  void 
unless  the  legislative  intention  is  clearly  expressed  in  the  stat- 
ute. It  will  not  do  so  by  implication  from  loose  and  indefi- 
nite language.2 

§  269.  Where  the  statute  imposes  a  penalty. — The  decisions 
are  not  uniform,  but  it  seems  that  the  weight  of  authority  sup- 
ports the  proposition  that,  where  a  state  prohibits  a  foreign 
corporation  from  doing  business  within  its  limits,  without 
having  first  complied  with  certain  conditions,  and  imposes  a 
penalty  for  the  violation  of  the  statute,  the  penalty  is  the  sole 
means  contemplated  for  compelling  obedience,  and  the  con- 
tract is  valid  and  enforcible.3  But  the  provision  for  a  penalty 
has  been  held  equivalent  to  an  express  prohibition  of  doiii^- 
business  in  the  state,  and  to  a  declaration  that  contracts  made 

'Pennypacker  v.  Insurance  Co  ,  80  Lauter  v.  Jarvis-Conklin,  etc.,  Co.,  85 
Iowa  56;  Union,  etc.,  Co.  v.  McMil-  Fed.  Rep.  894,  29  C.  C.  A.  473;  Fritts 
len,  24  Ohio  St.  67.  v.   Palmer,    132  U.  S.   282;  Utley  v. 

'Elstonv.  Piggott,94  End.  14;  Ca?sar  Clark-Gardner,  etc.,  Co.,  4  Colo.  309; 
y.Capell,  83  Fed.  Rep.403.  The  Indiana  Russell  v.  Jones,  101  Ala.  261,13  So. 
statute  against  the  enforcement  in  the     Rep.  145;  Toledo,  etc..  Co.  v.  Thomas, 

33  W.  Va.  5(56;  Whitman,  etc.,  Co. 
v.  Strand,  8  Wash.  647;  Edison,  etc., 
Co.  v.  Canadian,  etc.,  Co.,  8  "Wash. 
370;  Dearborn,  etc.,  Co.  v.  Augus- 
tine, 5  Wash.  t>7 ;  Northwestern,  etc., 
Co.  v.  Overholt,  4  Dillon  (C.C.)  287; 
Am.  L.,  etc.,  Co.  v.  East,  etc.,  Co 
Fed.  Rep.  242;  Union,  etc.,  Co.  v.  Mc- 
Millen,  24  I  >hio  St.  67  ;  Pennypacker 
v.  Insurance  Co.,  80  towa66;  Colum- 
bus, etc.,  Co.  v.  Walsh,  is  Mo.  229; 
< 'lay,  etc.,  < 'o.  v.  Huron,  etc.,  Co.,  31 
Mich.  346;  Clark  v.  Middleton,  19 
Mo.  58;  Ehrmann  v.  Teutonia,  etc., 
Co.,  i  McCrary'e  123;  Brooklj  □,  etc., 
Co.  v.  Bledsoe,  52  Ala.  538;  King  v. 
National,  etc.,  Co.,  4  Mont.  I  ;  Wright 
\.  Lee,  i  8.  Dak.  237;  Washburn,  etc., 
Bartlett,  S  N.  Dak.  138. 


courts  of  the  state  of  a  contract  made 
by  a  foreign  corporation  which  does 
not  comply  with  such  statutes  does  not 
apply  to  a  suit  brought  in  a  federal 
curt  to  foreclose  a  mortgage  taken 
upon  real  estate  in  Indiana  by  a  build- 
ing and  loan  corporation  which  has 
,,,,i  complied  with  the  law.  Sullivan 
v.  Beck,  79  Fed.  Rep.  200;  Hervey  v. 
Railroad  Co.,  28  Fed.  Rep.  169;  Far- 
,,,,•!  v.  Chicago,  etc.,  R.  Co., 

68  Fed.  Rep.  112.  The  [ndiana  statute 
prohibited  the  enforcemenl  of  the  con- 
tract until  compliance.  The  contract 
vnli'l  when  made  and  could  be 
enforced  after  compliance.  Maine, 
,.(,-.,  (  .1 16  Ind.  107. 

•  Eindel  v.  Beck,  etc.,  Co.,  19  C 

HO,  85  Pac,  Rep  '  kmklin, 

etc., Go.  v.  Willhoit,84  Fed.  Rep,  514; 


§  209 


EXTRA-TERRITORIAL    TOWERS. 


277 


in  violation  thereof  are  void.1  Thus  it  is  held  in  Pennsylvania 
that  a  bond  insuring  a  foreign  corporation  against  the  dishon- 
esty of  its  manager  in  Pennsylvania  is  void,  and  there  can  be  no 
recovery  thereon  where  the  corporation  has  not  complied  with 
the  statute  requiring  the  filing  of  a  statement  and  declaring 
that  any  person  transacting  business  for  the  corporation  with- 
out compliance  shall  be  guilty  of  a  misdemeanor.2  If  the  con- 
tract has  been  fulhy  executed  its  validity  is  in  no  way  affected 
by  the  failure  of  the  corporation  to  qualify  to  do  business  in 
the  state.3  There  are  many  cases  holding  that  such  con- 
tracts are  void,  on  the  theory  that  all  acts  in  violation  of  a  pro- 
hibition are  void,  notwithstanding  the  provisions  for  a  penalt}'.4 
The  failure  to  pay  a  tax  imposed  by  a  statute,  not  by  its 
terms  prohibitory,  does  not  affect  the  validity  of  contracts 
made  by  the  corporation.5  So  where  the  statute  requires  cer- 
tain acts,  such  as  filing  a  certificate,  to  be  done  within  a  cer- 
tain time  after  commencing  business,  the  only  penalty  for  a 
failure  is  that  imposed  by  the  statute  upon  the  officers.6 


1  J±)tna,  etc.,  Co.  v.  Harvey,  11  Wis. 
412;  Thome  v.  Travelers,  etc.,  Co.,  80 
Pa.  St.  15;  Mutual,  etc.,  Co.  v.  Bales, 
92  Pa.  St.  352. 

2McCanna,  etc.,  Co.  v.  Citizens', 
etc.,  76  Fed.  Rep.  420,  39  U.  S.  App. 
332,  35  L.  R.  A.  236.  In  Longworthy, 
Receiver,  v.  Carding  (Minn.),  77  N. 
W.  Rep.  207,  the  court  said  "that 
plaintiff  can  not  recover  in  this  pro- 
ceeding unless  the  company  he  rep- 
resents has  complied  with  the  require- 
ments of  the  statute  regulating  foreign 
insurance  companies,  is  not  ques- 
tioned." Citing  Seamans  v.  Christian 
Bros.,  etc.,  Co.,  66  Minn.  205.  In  the 
latter  case  it  is  said  "this  decision 
does  not  conflict  with  Ganser  v.  Fire- 
men's Fund  Ins.,  34  Minn.  372,  where 
it  was  held  that  the  insured  can  re- 
cover the  loss,  even  though  the  in- 
surer has  not  complied  with  the  stat- 
utory requirements  so  as  to  do  busi- 
ness in  this  state.    The  very  object  of 


these  statutory  provisions  is  the  pro- 
tection of  the  insured,  and  the  parties 
are  not  in  pari  delicto." 

3 Gamble  v.  Caldwell  (Ala.),  12  So. 
Rep.  424. 

4  Cary,  etc.,  Co.  v.  Thomas,  92  Tenn. 
587;  Jones  v.Smith,  3 Gray  500;  Bux- 
ton v.  Hamblen,  32  Me.  448;  Thome 
v.  Insurance  Co.,  80  Pa.  St.  15;  Bar 
bor  v.  Boehm,  21  Neb.  450;  Dudley 
v.  Collier,  87  Ala.  431,  13  Am.  St. 
Rep.  55;  Farrior  v.  New  Eng.,  etc., 
Co.,  88  Ala.  275;  Christian  v.  Ameri- 
can Freehold,  etc.,  Co.,  89  Ala.  198; 
Union  Central,  etc.,  Co.  v.  Thomas, 
46  Ind.  44;  Cassaday  v.  Amer.,  etc., 
Co.,  72  Ind.  95;  Bank  v.  Young,  37 
Mo.  398;  Stewart  v.  Northampton, 
etc.,  Co.,  38  N.  J.  L.  436. 

5  Lamed  v.  Andrews,  106  Mass.  435. 

6  Northwestern,  etc.,  Co.  v.  Over- 
holt,  4  Dill.  (C.  C.)  287;  Kindel  V6 
Lithograph  Co.,  19  Colo.  310. 


278 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  270 


§  270.  Where  no  express  penalty  is  provided. — Where  no 
penalty  is  provided,  it  is  generally  held  that  such  contracts 
are  not  enforcible,  unless  the  conditions  are  such  as  to  give 
rise  to  an  estoppel.  These  cases  hold  that  the  contract  is 
ralid,  and  that  the  only  penalty  for  the  non-compliance  is  ex- 
clusion from  the  state,1  but  in  other  jurisdictions  it  is  held 
that  all  contracts  entered  into  in  violation  of  such  a  statute  are 
unenforcible.2  "The  general  rule  is  that  a  contract  in  viola- 
tion of  law  is  void.  The  only  exception  is  that  when  the  law 
imposes  a  penalty  for  a  prohibited  act,  and  it  clearly  appears 
that  the  legislature  intended  no  more  than  to  impose  a  penalty 
for  the  violation  of  the  law,  a  contract  made  in  violation  of 
3uch  a  statute  is  not  void.3  We  do  not  think  that  this  statute 
belongs  to  the  excepted  class.  The  legislature  has  prohibited 
the  contract  and  has  provided  no  penalty  for  its  violation.  Un- 
less the  contract  shall  be  held  void,  the  statute  is  of  no  effect." 
A.  mortgage,  taken  before  compliance  with  the  statute,  was 
held  void,  at  least  as  to  all  but  the  mortgagor.4  In  a  West 
Virginia  case5  the  court  said:  "We  are  aware  that  the  courts 
t>f   Indiana,6  Illinois,7  Wisconsin,   ami  perhaps  in  some  other 

1  Wright  v.  Lee,  4   S.    Dak.   237,  55     held  that  a  premium  note  given  to  a 


N.  W.  Bep.  931  ;  Washburn,  etc.,  Co. 
v.  Bartlett,  3  N.  Dak.  138;  Slauson  v. 
gchwabacher,  etc.,  Co.,  4  Wash.  783. 
1  hi  re  Comstock,  3  Sawyer  V .  S.) 
218;  Cincinnati,  etc,  Co.  V.  Rosen- 
thal, 65  Hi.  85;  Lycoming,  etc.,  Co.  v. 
Wright,  55  Vt.  526;  /Etna,  etc.,  Co.  v. 


foreign  insurance  corporation,  which 
had  nut  complied  with  the  statute, 
could  not  be  enforced.  Such  a  note 
is  without  consideration.  Haverhill, 
etc.,  Co.  v.  Prescott,  42  N.  H.  547.  If 
the  contract  is  void  by  the  law  of  the 
state  \\  lien  made  it  can   not   be  en- 


Harvey,  11  Wis.  412;  Barborv.Boehm,    forced  iii  the  courts  of  another  state. 


.1  Neb.  450. 

•Hester   v.    Howard     Hank,    33    Md. 

668;  Watrous  &  Bnouffer  v.  Blair,  32 
Iowa  68;  Mowing,  etc.,  Co.  v.  Cald- 
well,  54  hid.  '_'7o. 

4  Watson,  .1,  in    Hank    of    Columbia 

v.  Page,  8  ( >!'■  131  ;  Lycoming,  etc., 
('..  v.  Wright,  55  VI  526;  Mowing, 
etc.,  Co  Caldwell,  54  Ind.  270; 
Lj  Howard   Bank,  38  Md 

Hstional  B  ink  v.  Matthews,  98  U.  B. 
fi'ji  I  n  Reliance,  etc.,  <  !o.  v.  8a*  yei . 
L60  Ma   •    113,  86  N    E   Rep  59,  il  was 


Ford    v.    Buckeye,   etc.,  Co.,  (i   Bush 
(Ky.)  L33. 

"Toledo,  etc.,  Co.  v.  Thomas,  S3  W 
Va.  566. 

6The  note  is  nol  void,  but  the  rem- 
edy i1-  suspended.  American,  etc., 
Co.  v.  Welhnaii,  69  Ind.  418.  This  is 
true    under    the    New     York     statute. 

Goddard  v.    Crefeld    Mills,  45   U.  S. 
App.  B4, 
7  ( lincinnati,  etc.,  Co.  v.  Rosenthal, 

55  111    -  • 


§  271  EXTRA-TERKITORTAL    POWERS.  279 

states,  hold  a  different  doctrine.  In  Vermont  and  Oregon 
it  has  been  held  that  a  non-compliance  with  the  precedent 
conditions  of  the  statutes  of  those  states  by  foreign  corpora- 
tions renders  their  contracts  void.  But  it  will  be  observed 
that  these  statutes  imposed  no  penalty  for  the  failure  to  comply 
with  their  provisions,  and  it  is  principally  upon  this  ground 
that  the  contracts  are  held  void,  because  otherwise  the  statute 
might  be  evaded  with  impunity."  Construing  the  Oregon 
statute  the  federal  court  held  that  a  mortgagor  could  recover 
back  land  taken  under  foreclosure  of  a  mortgage  given  to  a  for- 
eign corporation  which  had  not  complied  with  the  statute.1 

§  271.  Estoppel  to  allege  non-compliance. — In  some  cases 
it  is  held  that  a  party  who  has  contracted  with  a  foreign  cor- 
poration is  estopped  to  question  its  right  to  do  business  in  the 
state.2  The  corporation,  if  it  had  power  under  its  charter  to 
enter  into  the  contract  in  question,  is  to  be  regarded  as  a  de 
facto  corporation,  and  a  person  dealing  with  it  is  estopped  to 
deny  its  authority.3  But  if  the  contract  is  regarded  as  illegal 
and  prohibited,  a  person  dealing  with  the  corporation  should 
be  permitted  to  plead  its  illegality  as  a  defense.4  The  weight 
of  authority  in  the  state  courts  supports  this  rule,  although 
the  supreme  court  of  the  United  States  has  held  that  the  fail- 
ure to  comply  with  a  statute  which  declared  that  no  foreign 
corporation  should  hold  real  estate  except  as  provided  by  stat- 
ute did  not  render  a  conveyance  void.  The  transaction  could 
not,  therefore,  be  attacked  by  a  private  person.3 

In  a  suit  against  the  corporation  there  are  still  stronger  rea- 
sons for  holding  that  the  corporation  can  not  be  heard  to  deny 
its  qualification.  There  are  other  cases  holding  that  after  en- 
joying all  the  benefits  of  the  business  and  receiving  the  money 
of  the  assured,  a  corporation  will  not  be  heard  to  say  that  it 

'Semple   v.    Bank   of  Columbia,   5  3  Sherwood   v.    Alvis,   83  Ala.  115; 

Sawyer  (IT.  S.)  88.  Wright  v.  Lee,  2  S.  Dak.  596. 

2Rathbone  v.   Frost,  9  Wash.  162;  4 In  re  Comstock,  3  Sawyer  (U.  S.) 

Le  France,  etc.,  Co.  v.  Mt.  Vernon,  9  218. 

Wash.  142 ;  Dearborn,  etc.,  Co.  v.  Au-  5  Fritts  v.  Palmer,  132  U.  S.  282. 
gustine,  5  Wash.  67. 


2S0  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  272 

never  submitted  to  the  jurisdiction  of  the  state.  It  can  reap 
no  advantage  from  its  own  wrong.  To  sustain  this  defense 
would  be  to  give  judicial  sanction  to  business  methods  much 
below  the  standard  of  common  honesty.1 

§  272.  Presumption — Burden  of  proof. — When  the  com- 
plaint of  a  foreign  corporation  is  silent  on  the  subject  it  will 
be  presumed  on  demurrer  that  it  has  complied  with  the  re- 
quirements of  the  statute  enabling  it  to  do  business  in  the 
state.2  In  an  action  brought  by  such  a  corporation  it  is  not 
incumbent  upon  it  to  show  that  it  has  complied  with  the 
statute  and  obtained  a  certificate  of  authority  to  do  business. 
Non-compliance  with  the  law  is  a  matter  of  defense.3 

VI.    Actions  By  and  Against  Foreign  Corporations. 

§  273.  The  right  to  sue. — By  the  rule  of  comity  a  corpora- 
tion may  sue  in  a  foreign  jurisdiction  upon  complying  with 
such  conditions  as  are  required  of  non-residents  generally,  and 
without  complying  with  the  conditions  imposed  upon  foreign 
corporations  doing  business  within  the  state.*  The  statutes  of 
a  state  often  grant  to  foreign  corporations  the  power  to  sue  in 
its  courts.  Thus  in  Minnesota  it  is  provided  that  a  foreign 
corporation  may  prosecute  in  the  courts  of  the  state  in  the 
-.line  manner  as  domestic  corporations,  subject  to  the  limita- 
tion that  it  can    not   maintain   an  action    upon  an   obligation 

'Ehrman  v.  [nsurance  Co.,  1  Fed.  3  T.untrwortliy  v.  Garding  (Minn.), 

Rep.  171  :  Fletcher  v.  [nsurance  Co.,  77  X.  W.  Rep.  207. 

13  Fed.  Rep.  526;  Insurance  Co.  v.  El-  *Cone,  etc.,  Co.  v.  Poole,   H   8.0. 

liott,5Fed.  Rep.  225;  Wall  v.  Society,  70,  24    I..    R.    A.   289;    Benriques   v. 

etc.,  32  Fed.  Rep.  273;  [nsurance  Co.     Dutch,    etc.,    ('<>.,    i'    Ld.    Rayi id 

v.  McMillen,24 Ohio St.67;  Clay,etc.,  L582;  Spanish  Ambassador  v.  Bun- 
Ins.  Co.  v.  Huron,  etc.,  Co.,  31  Mich.  iisliJ5ulsi.pt.  'J,  p.  :vi-J:  Dutch,  etc., 
346;  [nsurance  Co  v.  Walsh,  18  Mo.  Co.  v.  Muses,  i  Str.  612;  Christian  v. 
229;  Lamb  v.  Bowser,  7  Biss.  815, 872;  The  American,  etc.,  Co.,  89  Ua  198; 
Insurance  Co.  v.  Matthews,  102  Mass.  McCall  v.  American, etc.,  Co., 99  ai.-i. 
•_'•_'!  ;   Kilgore  v.  Smith,  L22  Pa.  St.  is.  Il'7,  [2  So.  Rep.  806;    CTtley  v.  Clark, 

'Sprague  v.  Cutler,  etc.,  <'■>.,  106  etc.,  Co.,  4  Colo.  369;  Reedv.  Walker 

[nd.242;  Cassaday  v.  American,  etc.,  (Tex.,  L893),  21  S.  W.  Rep.  687;  Pow- 

i              ;         •      Nickels  v.  Building  der   Mill,  <•!<-.,  <'".   v.  Custer  < 

Mont.  I  i' ;  Christian  Union  \ .  fount, 


§  274  EXTRA-TERRITORIAL    POWERS.  281 

arising  out  of,  or  in  consideration  of,  an  act  which  is  contrary 
to  the  law  or  policy  of  the  state  or  which  is  thereby  forbidden 
to  domestic  corporations  engaged  in  a  similar  business.1 

The  failure  of  a  corporation  to  comply  with  a  statute  regu- 
lating the  right  to  do  business  in  a  state  will  not  preclude  it, 
or  an  insurance  company  subrogated  to  its  rights,  from  main- 
taining an  action  to  recover  for  negligent  injuries  to  its  prop- 
erty within  the  state.2  A  foreign  corporation  will  not  be  denied 
the  right  to  sue  in  the  courts  of  a  state  merely  because  its  mem- 
bers are  all  its  own  citizens.3 

The  courts  of  equity  are  not  open  to  a  foreign  corporation  in 
strict  right  but  as  a  matter  of  comity.  Jurisdiction  will  not  be 
taken  on  service  by  publication  of  an  action  by  a  foreign  cor- 
poration having  a  place  of  business  in  the  state  to  recover  a 
debt  contracted  in  another  state  and  not  reduced  to  judgment, 
from  a  non-resident  whose  only  property  in  the  state  consists 
of  his  interest  as  partner  in  a  firm  whose  property  is  practi- 
cally all  in  another  state  where  the  principal  business  is  carried 


§  274.    Actions  against  foreign  corporations.5 — Every  state 
may  determine  for  itself  whether  it  will  entertain  an  action 

101  U.  S.  352;   Charter  Oak,  etc.,  Co.  *    *    *     But  as  regards  procedure  and 

v.  Sawyer,  44  Wis.  387 ;  The  American,  parties  to  actions,  the  law  of  the  coun- 

etc,  Co.  v.  Moore,  2  Dak.  280;  Dia-  try  in  which  the  action  is  brought  pre- 

mond,  etc.,  Co.  v.  Roeber,  106  N.  Y.  vails."    Lindley  Partnership,  App.,  p. 

473;  Day  v.  Essex  Bank,  13  Vt.  97;  1483;  Westlake  Priv.  Int.  Law.  §286. 

Newburg,  etc.,  Co.  v.  Weare,  27  Ohio  See  Bar's  Priv.  Int.  Law.  §  41,  note  D. 

St.  343;  Bank  v.  Montgomery,  3  111.  2  St.  Louis,  etc.,  R.  Co.  v.  Philadel- 

422;    St.  Louis,  etc.,  R.  Co.  v.  Fire  phia,  etc.,  Assn.,  60  Ark. 325,  28  L.  R. 

Assn.,  55  Ark.  163;    Jewelers',  etc.,  A.  83. 

Agency  v.  Douglass,  35  111.  App.  627 ;  s  Oakdale,  etc.,  Co.  v.  Garst,  18  R.  I. 

British,   etc.,  Co.  v.  Ames,   6   Mete.  484,  23  L.  R.  A.  639. 

(Mass.)  391 ;    Libbey  v.  Hodgdon,  9  *  National,  etc.,  Co.  v.  Du  Bois,  165 

N.  H.  394;  Story  Conf.  Laws,  p.  175,  Mass.  117,  30  L.  R.  A.  628. 

and  note;  Dicey  on  Domicile,  198.  5  As   to  citizenship   for  purpose  of 

lGen.  St.  1878,ch.76,  §§2,  3.    "Itis  suit,   see  St.   Louis,   etc.,    R.  Co.   v. 

an  established  rule  of  private  interna-  James,  16,1   U.S.  545,  Wilgus'  Cases; 

tional  law  that  a  corporation  duly  ere-  Shaw  v.  Quincy  Mining  Co.,  L45  U.  S. 

ated  according  to  the  laws  of  one  state  444,  Wilgus'  Cases  :   Barrow  S.  S.  Co. 

may  sue  and  be  sued  in  its  corporate  v.  Kane,  170  U.  S.  100,  Wilgus'  (. 
name  in  the   courts  of  other  states. 


2S2  THE    LA.W    OF    PRIVATE    CORPORATIONS.  §  275 

against  a  foreign  corporation.  The  conditions  upon  which 
this  will  be  done  are  generally  determined  by  statute.  Ordi- 
narily such  actions  will  be  entertained  if  the  subject  of  the 
litigation  is  such  that  the  court  may  do  complete  justice  in  the 
matter.1  A  resident  stockholder  may  maintain  an  action 
against  a  foreign  corporation  to  compel  it  to  issue  a  certificate 
of  stock  in  lieu  of  one  that  has  been  lost.2  But  a  court  will 
not  entertain  a  suit  which  involves  the  internal  management 
of  foreign  corporations.3  One  foreign  corporation  may  sue 
another  foreign  corporation  in  a  state  where  the  cause  of  action 
arose  and  both  are  doing  business.4  A  non-resident  may  sue 
a  foreign  corporation  doing  business  in  Massachusetts  upon  a 
contract  made  in  another  state  where  its  subject-matter  is 
located,  and  make  service  upon  the  insurance  commissioner, 
which  the  company  has  under  the  law  appointed  as  its  agent 
to  accept  service.5  The  relations  between  a  corporation  and 
its  shareholders  are  to  be  determined  by  the  law  of  the  creating 
state  which  will  be  recognized  and  applied  in  the  court  of  a 
foreign  state  which  has  jurisdiction  over  the  action.6  In  Ala- 
bama it  is  held  that  its  courts  will  not  take  jurisdiction  of  an 
action  for  personal  injuries  caused  by  a  Georgia  corporation 
in  that  state,  although  part  of  railroad  was  operated  in  Ala- 
bama.7 

§  275.  Service  upon  foreign  corporations. — Most  of  the 
Mai<s  have  provided  statutory  methods  for  service  of  process 
upon  foreign  corporations.8  At  common  law  service  upon  a 
corporation  was  made  by  serving  upon  the  principal  oilim-,'' 
but  the  English  courts  have  held  thai  when  a  foreign  corporation 

1  Kansas, etc., R.  Co. v.Topeka, etc.,  "Johnston   v.  Trade,  etc.,  Co.,  132 

I:    •'•..,    1 35  Ma       34;   Ne«   Orleans,  Mass.    432;    Desper    v.    Continental 

R.  Co.  v.  Wallace,  50   Miss.  244.  Water,  etc.,  Co.,  137  Mass.  252;  A.bell 

'Guilford  v.  Western   Union,  dr.,  v.  Pennsylvania,  etc.,  Co*.,  is  W.Va. 

Co.,  59  Minn.  3  i'»<». 

•Wilkina   v.  Thome,  80   Md.  253;  ■Bishop  v.  Globe  Co.,185Ma88.1S2. 

Madden  v.  Electric  Light  Co.,  L81  Pa.  'Central  R.  Co.  v.  Carr,  76  Ala. 388. 

617.  i  he  righl  t<>  do  so  is  unquestioned. 

'Emerson  'I'.,  etc.,  Co.  v.  McCor-  Sparks  v.    Masonic,  etc.,  Assn.,   loo 

mirk,  etc.,  Co., 51  Mich.  5,  construing  towa  158. 

a  statutei  '  Did    s  Prac.  (1st  Am.  ed.),  p.  19. 


§275 


EXTRA-TERRITORIAL    POWERS. 


283 


establishes  a  branch  office  in  England,  service  upon  the  agent 
in  charge  of  such  office  is  good  service  upon  the  corporation.1 
In  certain  early  cases  it  was  held  that  a  corporation  could  only 
be  sued  in  the  state  by  which  it  was  created  by  service  upon 
its  principal  officer  within  that  state,  and  that  statutes  pro- 
viding for  service  upon  corporations  have  no  application  to 
foreign  corporations.2  This  rule  rested  on  the  theory  that  serv- 
ice could  only  be  made  on  the  superior  officers  of  the  corpora- 
tion and  they  could  not  carry  their  official  capacity  with  them 
out  of  the  state.3  But  in  other  states  they  are  treated  as  nat- 
ural non-resident  persons,  and  if  proper  service  can  be  ob- 
tained there  is  no  objection  to  the  court  proceeding  and  deter- 
mining their  rights  and  liabilities.4  Service  may  be  made 
upon  the  representative  of  the  corporation  in  the  state.5 

Where  a  foreign  corporation  has  an  office  in  the  state,  serv- 
ice may  be  made  upon  the  head  officer  in  charge  of  the  office 
when  the  cause  of  action  arose  in  the  state.6  But  under  many 
of  the  statutes  this  can  not  be  done  if  the  cause  of  action  arose 
in  another  state.7 


1  Newby  v.  Colts,  etc.,  Co.,  L.  R.  7 
Q.  B.  293 :  La  Burgogne,  79  L.  T.  Rep. 
331  (1898-9). 

2  Peckham  v.  North  Parish,  16  Pick. 
274;  Middlebrooksv.  Springfield,  etc., 
Co.,  14  Conn.  301;  McQueen  v.  Mid- 
dleton,  etc.,  Co.,  16  John.  (N.  Y.)  5. 
"A  foreign  corporation  can  only  be 
sued  in  this  commonwealth  by  means 
of  an  attachment  of  its  property ;  un- 
less, as  in  the  case  of  a  foreign  insur- 
ance company,  by  virtue  of  an  express 
statute."  Crafts  v.  Belden,  99  Mass. 
535. 

3  See  comment  by  Justice  Field  in 
St.  Clair  v.  Cox,  106  U.  S.  350. 

*Libbey  v.  Hodgdon,  9  N.  H.  394; 
Railroad  Co.  v.  Harris,  12  Wall.  65, 
81  ;  North  Mo.  R.  Co.  v.  Akers,  4 
Kan.  453. 

5  A  foreign  corporation  which  en- 
ters a  state  for  the  transaction  of  busi- 
ness may  be  sued  by  serving  process 
upon  its  representatives  in  the  state. 
Van    Dresser    v.    Oregon,  etc.,    Co., 


48  Fed.  Rep.  202;  Nortin  v.  Berlin 
Bridge,  51  N.  J.  Law  442.  See  note  to 
Foster  v.  Betcher  Lumber  Co.  (S. 
Dak.),  23  L.  R.  A.  490.  Statutes  often 
name  the  character  of  agents  upon 
whom  service  may  be  made.  As 
to  who  are  "managing  agents"  see 
Foster  v.  Betcher  Lumber  Co.  (S. 
Dak.),  23  L.  R.  A.  490;  as  to  "local 
agents,"  Mexican  Central  R.  Co.  v. 
Pinkney,  149  U.  S.  194. 

6  Touchband  v.  Chicago,  etc.,  R.  Co., 
115  N.  Y.  437;  Newby  v.  Colts,  etc., 
Co.,  L.  R.7  Q.  B.  293. 

7Bawknight  v.  Liverpool,  etc.,  Co., 
55  Ga.  194;  .Etna,  etc.,  Co.  v.  Black, 
80  Ind.  513;  Parke  v.  Comw.,  etc., 
Co.,  44  Pa.  St.  422.  The  relation  of 
attorney  and  client  does  not  make  the 
attorney  a  managing  agent.  Taylor  v. 
Granite,  etc.,  Assn.,  136  N.  Y.  343. 
The  captain  of  a  steamboat  owned  by 
a  foreign  corporation  is  not  a  manag- 
ing agent.   Upper  Miss.  Tr.   Co.    v. 


284  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  276 

§  276.  Must  be  doing  business  ill  the  state. — According  to 
the  general  rule,  the  service  upon  a  foreign  corporation  can 
only  be  made  upon  an  agent  who  is  representing  a  corporation 
which  is  engaged  in  business  in  the  state.  The  corporation 
must  be  in  the  state  for  the  purpose  of  doing  business,  and  it 
is  not  enough  that  the  agent  or  representative  of  the  corpora- 
tion is  simply  within  the  limits  of  the  state.  "We  are  of  the 
(Opinion,"  says  Mr.  Justice  Field,1  "  that  when  service  is  made 
within  the  state  upon  the  agent  of  a  foreign  corporation,  it  is 
essential,  in  order  to  support  the  jurisdiction  of  the  court,  to 
render  a  personal  judgment  that  it  should  appear  somewhere 
upon  the  record,  either  in  the  application  for  the  writ,  or  ac- 
companying its  service,  or  in  the  pleadings  or  findings  of  the 
court,  that  the  corporation  was  engaged  in  business  in  the 
state.  The  transaction  of  business  by  the  corporation  in  the 
state,  general  or  special,  appearing,  a  certificate  of  service  by 
the  proper  officer  on  a  person  who  is  its  agent  there  would,  in 
our  opinion,  be  sufficient  prima  facie  evidence  that  the  agent 
represented  the  company  in  the  business.  It  would  then  be 
open,  when  the  record  is  offered  in  evidence  in  another  state, 
to  show  that  the  agent  stood  in  no  representative  character  to 
the  company,  that  his  duties  were  limited  to  those  of  subordi- 
nate employe  or  to  a  particular  transaction,  or  that  his  agency 
had  ceased  when  the  matter  in  suit  arose."'     The  agents  of  a 

Whittaker,  16Wis.  220;  a  clerfc  in  a  Co.,  37  Fed.    Rep.  660.    See   many 

store  belonging  t<>  a  Foreign  mining  cases  digested  in  a  »"/'  to  23  I..  R.  A. 

corporation  is  nol  a  managing  agent.  I'.ic. 

Blanc  v.  Paymaster  Min.  Co.,  95Cal.  i  st.  Clair  v.  Cox,  106  U.  S.   :  »0. 

624.     Ii  baa  been  heldtbal  an  agent  "Freeman   v.    Alderson,  119  U.  B. 

of  a   railway  corporation    \\li"  deall  L85;  Fitzgerald,  etc.,  ('<>.  v.    Fitzger- 

only  with  its  p                               was  aid,  137  I'.  S.  98;  Bociete  Foncier  v. 

nol   'in  general    agent.     Brewster  v.  Millikin,    135    U,  B.   304;   Firemen's, 

Michigan  C.  R.  Co.,  5  How.  Pr.  L83.  etc.,  Co.  v.  Thompson,  155    111.   204; 

Bol    latei               extend    the    rule.  Blancv.  Paymaster,  etc., Co.,  95 Cal. 

•  lit  inthep  524;   Moore  v.  Wayne  Ct.  Judge,  55 

department    is    a    managing    agent.  Mich.  84;    Phillips   v.    Library    ('<>., 

Tuchband   v.  Chicago,  etc.,   R,  »'•'..  in  Pa.  St.  462;  Camden,  etc.,  Co.  v. 

li".  v.  V.  i.';:.    Service  may  be  made  Bwede,  etc.,  <'"..  32  N.  J.  I..  i">;  Mid- 

upon  a  division  superintendent  in  an  land,  etc.,  R.  (.'<>.  v.    McDermid,  '.'l 

action  for  injuries  received  on  the  di-  III.  170. 
Richmond,  etc.,  R, 


§  277  EXTRA-TERRITORIAL    POWERS.  285 

corporation  are  therefore  not  its  agents  for  the  purpose  of 
service  in  a  state  where  the  corporation  does  not  transact  busi- 
ness.1 

§  277.    Service  upon  officer  temporarily  within  the  state. — ■ 

By  the  rule  above  stated  a  corporation  which  does  not  enter  a 
foreign  state  for  the  purpose  of  doing  business  can  not  be  sub- 
jected to  the  jurisdiction  of  the  foreign  state.  "Statutory  pro- 
visions for  the  service  of  process  upon  a  foreign  corporation 
must  rest  upon  the  fact  of  the  foreign  corporation  doing  busi- 
ness, or  in  some  way  exercising  its  corporate  franchise,  within 
the  jurisdiction.  A  law  which  went  beyond  this  would  be  be- 
yond the  power  of  any  sovereign  to  enact."  Service  can  not 
be  made  upon  an  officer  of  a  corporation  who  is  in  the  state 
upon  personal  and  not  corporate  business,  and  it  has  been  held 
that  this  is  true  when  he  is  temporarily  there  for  the  purpose 
of  transacting  a  particular  item  of  business  for  the  corpora- 
tion,3 although  the  contrary  rule  prevails  in  New  York.  It  is 
there  held  that  "any  service  must  be  deemed  sufficient  which 
renders  it  reasonably  probable  that  the  party  proceeded  against 
will  be  apprised  of  what  is  going  on  against  him,  and  have  an 
opportunity  to  defend."4 

In  another  case,5  where  the  president  of  a  corporation  which 

1  State  v.  District  Court,  26  Minn.  Rep.    112,   156  U.  S.  518;  Latimer  v. 

233 ;  Phillips  v.  Library  Co.,  141  Pa.  St.  Railway   Co.,   43   Mo.    105;    Camden 

462;  Moulin  v.  Ins.  Co.,  24  N.  J.   L.  etc.,  Co.  v.   Iron  Co.,  32  N.  J.  L.  15; 

222;  Newell  v.  Great,  etc.,  R.  Co.,  19  St.  Clair  v.  Cox,  106  U.  S.350.  Service 

Mich.  336.     To  constitute  a  person  an  maybe   made  on    the   president  of  a 

agent  of  a  foreign  corporation  upon  corporation   who  is  in   the  state   but 

whom  service  of  a  summons  may  be  not  on  official  business  if  the  cause  of 

made  he    must    be  one   actually  ap-  action   arose   in  the  state.     Shickle, 

pointed  by  and  representing  the  cor-  etc.,  Co.  v.  Wiley,  etc.,  Co.,  <>1  Mich, 

poration,    and    not    one    created    by  226;    Carsten    v.  Leidigh,   etc.,    Co., 

mere  construction  or  implication  con-  18    "Wash.     450,    39   L.    R.    A.    548; 

trary  to  the  intention  of  the   parties.  Phillips  v.  Library,  141  Pa.  St.  462; 

Mikolas    v.  Hiram   Walker    &    Sons  Rust  v.  United,  etc.,  Co.,  70  Fed.  Rep. 

(Minn.),  76  N.  W.  Rep.  36.  129,  17  C.  C.  A.  16. 

2Murfree  For.  Corp.,  §  208.  4Hiller  v.  Burlington,  etc.,  R.  Co., 

3  Fitzgerald  Const.  Co.  v. Fitzgerald,  70  N.  Y.  223. 

137  IT.  S.  98;  Good  Hope  Co.  v.  Rail-  5  Pope  v.  Terre  Haute,  etc.,  Co.,  87 

way,  etc.,  Co.,  22  Fed.  Rep.  635.     See  N.  Y.  137;  Gibbs  v.  Queen,  etc.,  Co.. 

also  Golden  v.  Morning  News,  42  Fed.  63  N.  Y.  114. 


286  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   27S 

had  transacted  no  business  in  the  state  was  served  with  a 
summons  when  passing  through  the  state  on  his  way  to  a  sum- 
mer resort,  a  judgment  rendered  on  this  service  was  held  good 
for  every  purpose  within  the  state.  The  court  said:  "The 
object  of  all  service  of  process  for  the  commencement  of  a  suit, 
or  any  other  legal  proceeding,  is  to  give  notice  to  the  party 
proceeded  against,  and  any  service  which  reasonably  accom- 
plishes that  end  answers  the  requirements  of  natural  justice 
and  fundamental  law,  and  what  service  is  to  be  deemed  suf- 
ficient for  that  purpose  is  to  be  determined  by  the  legislative 
power  of  the  country  in  which  the  proceeding  is  instituted, 
subject  only  to  the  limitation  that  the  service  must  be  such  as 
may  reasonably  be  expected  to  give  the  notice  aimed  at." 

Such  service  would  certainly  not  be  recognized  in  the  courts 
of  other  states.1 

In  New  York  service  on  an  officer  or  director  who  is  tempo- 
rarilv  in  the  state  on  his  own  business  is  good  if  the  corporation 
has  property  in  the  state  or  the  cause  of  action  arose  there.2 

§  278.  Illustrations. — A  certain  firm  in  business  in  the 
state  of  Wisconsin  filed  their  complaint  in  a  Minnesota 
court  against  a  Wisconsin  corporation  having  no  agent  or 
place  of  business  in  Minnesota.  The  action  was  upon  con- 
tracts made  and  to  be  executed  in  Wisconsin.  A  summons 
was  issued  and  was  served  by  the  sheriff  in  Minnesota,  by  de- 
livering a  copy  thereof  to  the  president  of  the  company,  who 
was  then  within  the  stale  of  Minnesota,  not  on  any  business 
of  the  company,  but  for  his  own  persona]  business  and  pleas- 
ure, and  who  had  no  authority  from  the  company  to  receive 
such  service.  Tie'  couri  Baid:1  "The  question  sough!  to  be 
raised  in  this  proceeding  is,  can  the  courts  of  this  state  ac- 
quire jurisdiction  over  (he  person  of  a  corporation  created 
under  the  laws  of  another  state,  where  (he  cause  of  action 
arose  oul   of  this   Btate,  and   the  corporation  has  no  property 

1  Golden  v.  Morning  News,  156TJ.8.       8st:ttr  v.  District  Court,  26  Muni 
M-  233;   Latimer  v.  Railway  ('•>.,  48  Mo 

Hillei        Burlington,  etc.,  R.  Co.,     105,  97  Am.  Dec.  876 
70  N.    V.  228;  Childa  v.    I  l;irriH,  etc., 
Mil  N.  Y.  177. 


§  279  EXTRA-TERRITORIAL    POWERS.  287 

therein,  and  never  transacted  any  business,  nor  had  any  office 
or  agency,  or  officer,  or  agent  therein,  and  the  only  ground  for 
asserting  such  jurisdiction  is  that  the  summons  was  served 
within  the  state  upon  an  officer  of  the  corporation,  who  was 
in  the  state,  not  upon  any  business,  nor  by  any  authority  of 
the  corporation,  but  solely  in  a  private  capacity  and  for  his 
own  private  business  or  pleasure?  The  relator  first  raised  the 
question  in  the  district  court,  by  a  motion,  upon  affidavits 
showing  the  facts,  to  set  aside  such  a  service  of  the  summons, 
which  motion  being  denied,  it  procured  this  writ  of  prohibition 
to  issue.  We  have  very  little  doubt  that  if  the  questions  were 
properly  before  us  for  decision,  we  should  sustain  the  objection 
to  the  jurisdiction.  The  facts  in  Guernsey  v.  American  Ins. 
Co.1  were  sufficient  to  sustain  the  jurisdiction,  but  the  reason- 
ing of  the  court  goes  further  than  we  can  approve.  But  the 
writ  of  prohibition  is  not  the  proper  remedy." 

A  statute  which  authorizes  service  upon  an  officer  who  is  ac- 
cidentally within  the  jurisdiction  when  the  corporation  does 
no  business  in  the  state  is  said  to  be  so  contrary  to  all  ideas  of 
justice  that  the  courts  of  other  states  ought  not  to  sanction  it.2 
A  provision  for  service  on  the  officers  of  "any  incorporated  com- 
pany "  does  not  apply  to  a  foreign  corporation  doing  no  busi- 
ness in  the  state,  but  whose  officer  is  served  while  passing 
through  the  state.3 

§  279.  Statutory  requirements. — In  all  the  states  statutory 
methods  are  now  provided  for  service  of  process  upon  foreign 
corporations  which  are  doing  business  in  the  state.  When  a 
corporation  complies  with  such  provisions  as  to  service  and  ac- 
cepts them  as  a  condition  upon  which  it  may  do  business  in 
the  state,  the  court  acquires  complete  and  perfect  jurisdiction 
over   it  and    may  render  a  judgment  in  personam  against  it;4 

'Guernsey  v.   American,  etc.,  Co.,  language  used  in  Hesterv.  Rasin,  etc., 

13  Minn.  278  (Gil.  256).  Co.,  33  S.  C.  609,  would  seem  to  author- 

2  Moulin  v.  Trenton,  etc.,  Co.,  24  N.  ize  service  upon  an  officer  of  the  cor- 

J.  L.  222.  poration  temporarily  within  the  state 

a  Midland,  etc.,  R.  Co.  v.  McDermid,  when  the  cause  of  action  arose  else- 

91111.170.     See  Shickle.  etc.,  Co.  v.  where. 

Wiley,  etc.,  Co.,  61  Mich.  226.    The  4Ex  parte  Schollenberger,  96  U.  S. 


288  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  280 

and  such  a  judgment  is  entitled  to  full  faith  and  credit  in 
other  jurisdictions.1  The  statutes  generally  require  the  corpo- 
ration to  designate  some  one  upon  whom  service  may  be  made 
in  the  state. 

"If  a  state  permits  a  foreign  corporation  to  do  business 
within  her  limits,  and  at  the  same  time  provides  that  in  suits 
against  it  for  business  there  done  process  shall  be  served  upon 
its  agents,  the  provision  is  to  be  deemed  a  condition  of  the 
permission;  and  corporations  that  subsequently  do  business  in 
the  state  are  to  be  deemed  to  assent  to  such  conditions  as  fully 
as  though  they  had  specially  authorized  their  agents  to  receive 
service  of  the  process."2 

§  280.  Designation  of  agent  to  accept  service. — Foreign  cor- 
porations are  sometimes  required  or  permitted  to  name  some 
state  official  as  their  agent  to  accept  service  of  summons. 
Service  on  the  insurance  commissioner,  who  has  been  desig- 
nated as  prescribed  by  statute,  is  sufficient.3  Such  statutes 
apply  only  to  companies  doing  business  in  the  state.4  The 
fact  that  the  plaintiffs  are  the  agents  of  the  corporation  does  not 
deprive  them  of  the  statutory  right  to  serve  summons  upon  the 
state  auditor.5  When  the  statute  authorizes  service  upon  the 
secretary  of  state,  service  on  the  deputy  of  the  secretary  is  de- 
fective.6 But  it  is  held  that  a  superintendent  of  insurance 
may  designate  a  clerk  to  accept  service  for  him.7  Service  by 
mail  is  sufficient  when  there  is   a  written  admission  of  the  re- 

369;  Wilson  v.  Martin-Wilson  F.  A.  poration  where  the  cause  of  action  did 

•      .  149  Mass.  24;  Reyer  v.  Odd  Fel-  not  accrue  within  the  stale     Grand 

lows  Assn.,  167  Mass.367;  Benwood,  Trunk  R.  Co.  v.  Wayne  Circuit  Judge, 

etc.,  Works  v.  Hutchinson  &  Bro.,  L01  106  Mich.  248. 

Pa    5t     369;  Firemen's,  etc.,  Co.  v.  'Osborne  v.  Shawmut,  etc.,  Co.,  51 

Thompson,  L65  III.  204  Vt.  278. 

•    Clair  v.  Cox,  106  U.  8.  350;  La-  •Hazeltine  v.    Mississippi    Valley, 

fayette,  etc.,  Co.  v.  French,  18  How.  etc.,  Co.,  55  Fed.  Rep.  748. 

104.  BRehm   v.  German,  etc.,  Co.,  L25 

Clair  v.   Cox,    106   U.  B    850;  End.  185. 

Gibbs  v.  Queen,  etc.,  Co.,  68   N.  V.  eLonkey  v.  Keyes,etc.,Oo.,2]  Nev. 

in.  20  \m    Rep  513.  Thereisno  rtat-  312,  L7  I..  R.  A.  851. 

ate    in    Michigan   providing  for  the  7Suutii,  etc.,  Co.  v.   Fire  Assn.  of 

service  of  process  upon  a  foreign  cor-  Philadelphia,  87  Hun  (  N.  Y .)  41. 


§281 


EXTRA-TKR TUTORIAL    POWERS. 


289 


ceipt  of  the  summons.1  A  summons  served  on  the  insurance 
commissioner  must  be  directed  to  him,  but  otherwise  it  must 
be  in  the  usual  form.2  When  a  corporation  has  designated  an 
agent  as  required  by  law,  service  thereafter  upon  a  mere 
solicitor  of  the  company  is  invalid.3 

The  agent  so  appointed  need  not  be  a  person  authorized  to 
exercise  any  of  the  contractual  powers  of  the  corporation.4 
A  certificate  appointing  the  managing  agent  residing  at  a 
designated  place  is  valid,  although  not  naming  the  agent.5  If 
a  corporation  fails  to  appoint  an  agent,  as  required,  service 
may  be  made  upon  the  agent  in  the  state  who  transacted  the 
business  out  of  which  the  suit  grew,6  or  upon  any  agent  who 
can  be  found  in  the  state.7 

§  281.  Service  obtained  by  deception. — On  grounds  of  pub- 
lic policy  it  is  held  that  service  of  a  summons  upon  a  defendant 
who  has  been  induced  to  come  within  the  jurisdiction  of  the 


1  Farmer  v.  National,  etc.,  Assn.,  50 
Fed.  Rep.  829.  See,  also,  67  Hun 
(N.  Y.)  119. 

2  Westchester,  etc.,  Co.  v.  Cover- 
dale,  48  Kan.  446. 

3  Liblong  v.  Kansas,  etc.,  Co.,  82 
Pa.  St.  413;  Thayer  v.  Tyler,  10  Gray 
(Mass.)  164. 

4Nehns  v.  Edinburg,  etc.,  Co.,  92 
Ala.  157. 

5  Goodwin  v.  Colo.,  etc.,  Co.,  110 
U.  S.  1 ;  Lafflin  v.  Travelers,  etc.,  Co., 
121  N.  Y.  713. 

6  Funk  v.  Anglo-American,  etc.,  Co., 
27  Fed.  Rep.  336. 

7  Hagerman  v.  Empire  Slate  Co.,  97 
Pa.  St.  534.  In  Foster  v.  Charles  Bet- 
cher,  etc.,  Co.  (S.  Dak.),  23  L.  R.  A. 
490,  the  court  said:  "The  failure  of 
the  appellant  to  comply  with  the 
laws  of  the  state  can  not  be  taken 
advantage  of  by  itself,  nor  in  fact  by 


any  private  person  in  a  collateral  pro- 
ceeding. The  state  only  in  its  sov- 
ereign capacity  can  take  advantage  of 
such  a  failure  of  a  foreign  corporation 
to  comply  with  the  law.  "Wright  v. 
Lee,  4  S.  Dak.  237,  51  N.  W.  Rep.  706, 
55  N.  W.  Rep.  931.  If  a  foreign  cor- 
poration is  engaged  in  business  in 
this  state,  though  failing  to  comply 
with  the  law  by  filing  a  copy  of  its 
articles  of  incorporation  and  a  certifi- 
cate of  the  appointment  of  an  agent, 
it  is  still  subject  to  the  laws  of  the 
state,  and  amenable  to  its  process, 
until  its  right  to  so  continue  to  do 
business  within  this  state  is  declared 
forfeited  by  the  courts  of  the  state. 
The  person  transacting  the  business 
of  the  corporation  in  this  state,  as 
managing  agent,  must  be  presumed  to 
be  the  agent  of  the  corporation  and 
subject  to  the  service  of  process." 


19 — Private  Cor. 


290 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§282 


court  for  that  purpose  by  the  fraud  of  the  plaintiff  confers  no 
jurisdiction.1 

§  2S2.    Proceedings  by  state  against  foreign  corporation. — 

A  foreign  corporation  which  is  exercising  its  powers  and  fran- 
chises in  a  state  without  authority  of  law  may  be  ousted  there- 
from by  a  proceeding  in  quo  warranto.'  Under  certain  circum- 
stances the  remedy  may  be  by  injunction.3 


Columbia,  etc.,  Co.  v.  Bucyrus, 
etc.,  Co.,  60  Minn.  142. 

2  In  State  v.  Insurance  Co.,  49  Ohio 
440,  31  X.  E.  Rep.  658,  the  court  said  : 
"It  is  claimed  that,  as  the  defendant 
is  a  foreign  corporation,  it  can  not 
be  affected  by  a  proceeding  in  quo  war- 
ranto in  the  courts  of  the  state.  That 
it  can  not.  be  ousted  of  the  right  to  be 
a  corporation  or  of  any  of  the  fran- 
chises conferred  on  it  by  the  laws  of 
New  Yurk  is  not  doubted;  but  as  to 


such  franchises  and  privileges  as  are 
derived  from  the  laws  of  the  state  of 
Ohio  it  is  as  much  amenable  to  the 
courts  of  this  Btate  as  an  Ohio  corpora- 
tion, and,  when  found  exercising  such 
franchises  without  authority  of  law,  it 
may  be  ousted  therefrom."  state  v. 
Insurance  Co.,  47  Ohio  St.  167;  State 
v.  Fidelity,  etc.,  Co.,  39  Minn.  538,  41 
N.  W.  Rep.  108. 

'Employers',    etc.,   Corp.    v.    Em- 
ployers', etc.,  Co.,  16  X.  Y.  Supp.  397. 


CHAPTER  12. 


THE    ACQUISITION    AND    LOSS  OK  MEMBERSHIP  IN  A  CORPORATION. 


§  283.    Non-stock  corporations. 

284.  Corporations     having    capital 

stock. 

285.  Who  can  be  members. 

286.  Method  of  obtaining  shares. 

287.  Effect  of  delivery  of  stock  cer- 

tificate. 

288.  Compliance  with  conditions. 

289.  Estoppel  to  deny  membership. 

290.  The  holder  of  illegally  issued 

shares. 


§  291.    Disfranchisement — Joint  stock 
companies. 

292.  Disfranchisement  in  non-stock 

corporations. 

293.  Nature  of  membership  in  non- 

stock corporations. 

294.  Grounds  for  expulsion  . 

295.  The  proceedings. 

296.  Notice. 

297.  Incorporate      and    unincorpo- 

rated societies. 

298.  Review  by  the  courts. 


§  283.  Non-stock  corporations. — The  method  by  which 
membership  in  a  corporation  without  capital  stock  may  be 
acquired  must  be  determined  from  the  charter  or  by-laws.  If 
no  restrictions  are  found  in  the  charter,  the  admission  of  mem- 
bers is  under  the  control  of  the  corporation.  Statutes  author- 
izing and  regulating  the  organization  of  such  corporations  al- 
ways provide  for  the  original  membership  and  subsequent 
members  are  usually  admitted  upon  an  application  and  vote 
of  approval  by  the  existing  members.1 

§  284.  Corporations  having  capital  stock. — Membership 
in  a  joint-stock  corporation  consists  simply  in  the  ownership 
of  one  or  more  shares  of  the  stock.2   The  stock  need  not  neces- 


1  State  v.  Sibley,  25  Minn.  387.  In 
Am.,  etc.,  Co.  v.  Chicago,  etc.,  Exch., 
143  111.  210,  the  court,  after  referring 
to  a  rule  or  by-law  regulating  admis- 
sion to  membership  in  a  non-stock 
corporation,  said:  "Said  association 
had  an  undoubted  right  to  adopt  this  ton  v.  Hansbrough,  3  Bias.  417 
rule,  and  as  it  prescribes  the  mode, 

(291) 


and  the  only  mode,  in  which  mem- 
bership in  the  exchange  can  be  ob- 
tained, no  one  can  justly  claim  to  be 
a  member  who  has  not  been  admitted 
in  the  mode  thus  prescribed." 

State  v.  Ferris,  42  Conn.  560;  Up- 


292  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  285 

sarily  have  been  paid  for.1  The  possession  of  a  stock  certificate 
is  not  essential  to  membership,  as  it  is  merely  evidence  of  the 
ownership  of  shares.2  Nor  does  membership  necessarily  fol- 
low from  the  possession  of  the  stock  certificate  alone,  without 
participation  in  the  business  of  the  corporation.3  But  the 
party  in  whose  name  the  stock  appears  on  the  books  of  the 
corporation  is  presumed  to  be  the  owner  and  a  member,  and 
the  burden  rests  on  him  to  show  the  contrary  when  it  is 
attempted  to  hold  him  to  the  liabilities  of  membership.4 

§  285.  "Who  can  be  members. — Every  person  who  is  capa- 
ble of  contracting  is  capable  of  becoming  a  member  of  a  cor- 
poration. A  corporation  may  be  formed  on  terms  which 
expressly  exclude  certain  persons  or  classes  of  persons  from 
becoming  members  of  it,5  but  regulations  to  this  effect  do  not 
affect  the  legal  capacity  of  the  persons  excluded.  Such  ca- 
pacity depends  on  the  general  law  of  the  country,  not  on  the 
regulations  of  any  particular  corporation.  There  is  no  gen- 
eral principle  of  law  which  prevents  a  corporation  from  hold- 
ing stock  in  another  corporation  except  the  principle  that  a 
corporation  can  not  lawfully  employ  its  funds  for  purposes  not  au- 
thorized  by  its  charter.6 

§  280.  Method  of  obtaining  shares. — The  shares  of  a  corpo- 
ration may  be  acquired  either  by  subscription  before  or  after 
incorporation,  or  by  acquiring  them  from  one  to  whom  they 
have  already  been  issued  and  having  them  transferred  on  the 
books  of  the  corporation.  The  mere  fact  of  subscription  does 
not  make  the  subscriber  a  stockholder,  as  acceptance  of  the 
offer  is  necessary,  but  such    acceptance  will   be  presumed  from 

i "Wheeler  v.  Millar,  90  N.Y.353;  •Holland   v.   Daluth,  etc.,  Co.,  65 

Waukon,   etc.,   R.    Co.  v.   Dwyer,  49  Minn.  824;   Barron  v.  Burrill,  86  Me. 

121;  Downing  v.  Potta,  23  N.J.    72,  29  A  tl.  Rep.  988;  Grindlev.S ■ 

I.  66  78  Me.  176;  Turnbull  v.  Payaon,  96  I '. 

1  ( iolnmbia,  etc.,  Co.  v.   I  tixon,   W  B.  1 18. 

Minn.  463;  Ratter  v.Kilpatrick,  63  N.  »Blien  v.  Rand  (Minn.),  79  N.  \\\ 

i :  Hawley  v.  Upton,  102  D.  B.  Rep.  606. 

814  •Lindley  Law  of  Companies,  86, 43 ; 

1  Baker  v.  Woolston,  27  Kan.  L85.  Pearson  v.  Concord  R.  Co.,  62  V  n. 

537,  Wilgu  '  •  .i  i 


§  286  THE    ACQUISITION    AND    LOSS    OF    MEMBERSHIP. 


293 


very  slight  circumstances.1  Hence,  membership  in  the  cor- 
poration dates  from  the  time  the  offer  contained  in  the  subscrip- 
tion is  accepted.2  The  actual  taking  of  shares  of  stock  is  equiva- 
lent to  subscription  for  and  an  agreement  to  take  them.8  A 
completed  transfer  of  shares  transfers  the  membership  in  the 
corporation.4  The  books  of  the  corporation  are  the  primary  evi- 
dence of  membership,5  and  until  a  transfer  is  made  on  the  cor- 
porate books  the  party  there  registered  remains  a  member,  al- 
though he  may  have  pledged  the  stock  certificates,6  or  author- 
ized their  transfer  on  the  books  of  the  company.7 


1  Barron  v.  Burrill,  86  Maine  72,  29 
Atl.  Rep.  938. 

2McClure  v.  People's,  etc.,  Co.,  90 
Pa.  St.  269;  Busey  v.  Hooper,  35  Md. 
15. 

3  Barron  v.  Burrill,  82  Me.  72. 

4  Supply,  etc.,  Co.  v.  Elliott,  10 
Colo.  327 ;  Hawkins  v.  Glenn,  131  U. 
S.319. 

5  In  re  St.  Lawrence,  etc.,  Co.,  44  N. 
J.  L.  529. 

6  Vail  v.  Hamilton,  85  N.  Y.  453; 
Merchants'  Bank  v.  Cook,  4  Pick.  405 ; 
Hoppin  v.  Buffum,  9  R.  I.  513;  Mc- 
Daniels  v.  Flower,  etc.,  Co.,  22  Vt. 
274. 

7  McNeil  v.  Tenth  Nat'l  Bank,  46  N. 
Y.  325,  Wilgus'  Cases. 

In  Bissell  v.  Heath,  98  Mich.  472,  57 
N.  W.  Rep.  585,  the  court  said:  "It 
is  claimed  by  appellant  that  he  was 
not  a  stockholder.  It  appears  by 
the  record  that,  about  the  time  the 
bank  was  organized,  the  defendant 
negotiated  with  one  Solon  H.  Wil- 
helm,  who  became  cashier  of  the 
hank,  for  the  purchase  of  stock.  It 
appears  by  the  stock  ledger  that  un- 
der date  of  January  3,  1887,  there  was 
issued  to  defendant  a  certificate  of 
stock,  the  stock  ledger  stating  that  the 
stock  was  transferred  from  subscrip- 
tions of  S.  S.  W.  It  further  appears 
that  a  certificate  was  in  fact  issued  to 
the  defendant,  and  that  he   received 


dividends  for  several  years.  It  is 
urged  that  the  only  way  in  which  the 
defendant,  not  being  an  original  sub- 
scriber to  the  capital  stock,  could  be- 
come a  stockholder,  was  by  securing 
a  transfer  of  some  of  the  stock  sub- 
scribed for  by  others,  and  that  no 
formal  transfer  appears  upon  the 
bank  books,  and  hence  that  he  never 
legally  become  a  stockholder.  The 
answer  to  this  is,  that  the  evidence  of 
the  transfer  was  sufficient  to  satisfy 
the  corporators.  The  stock  was,  in 
fact,  issued  and  the  books  of  the  com- 
pany showed  it  sufficiently.  Bank  v. 
Warren,  52  Mich.  557,  18  N.  W.  Rep. 
356.  The  corporation  was  bound  by 
the  issue  of  stock.  It  could  waive  the 
formality  of  any  assignment  by  S.  S. 
W.,  and,  having  done  so,  could  not 
thereafter  deny  defendant's  rights  on 
the  ground  that  he  had  failed  to  pro- 
duce evidence  of  an  assignment  from 
an  original  subscriber  to  the  capital 
stock." 

A  corporation  may  waive  formali- 
ties prescribed  by  its  charter  or  by- 
laws in  making  an  original  subscrip- 
tion or  a  transfer  of  shares.  And  if 
a  person  has  been  received  as  a  share- 
holder, and  has  acted  as  shareholder, 
and  enjoyed  the  privileges  of  a  share- 
holder he  will  be  estopped  from  de- 
nying that  he  agreed  to  become  a 
shareholder  and   to  assume  the  inci- 


2!»4  *THE    LAW    OF    PRIVATE    CORPORATIONS.  §  287 

§  287.  Effect  of  delivery  of  stock  certificate. — Where  the 
stock  of  a  corporation  is  by  the  terms  of  the  charter  or  by-law 
transferable  only  on  its  books,  the  purchaser  who  receives  a 
certificate,  with  power  of  attorney,  gets  the  entire  title,  legal 
and  equitable,  as  between  himself  and  his  seller,  with  all  the 
rights  the  latter  possessed.1  But  as  between  himself  and  the 
corporation  he  acquires  only  an  equitable  title,  which  they  are 
bound  to  recognize  and  permit  to  ripen  into  a  legal  title  when 
he  presents  himself,  before  any  effective  transfer  on  the  books 
has  been  made  and  offers  to  do  the  acts  required  by  the  char- 
ter or  by-laws  in  order  to  make  a  transfer.  Until  those  ads 
be  done  he  is  not  a  stockholder,  and  has  no  claim  to  act  as 
such,*  but  possesses,  as  between  himself  and  the  corporation, 
by  virtue  of  the  certificate  and  power,  the  right  to  make  him- 
self, or  whomsoever  he  chooses,  a  stockholder  by  the  prescribed 
transfer.  The  stock  not  having  passed  by  the  delivery  of  the 
certificate  and  power  of  attorney,  the  legal  title  remains  in  the 
seller,  so  far  as  affects  the  company  and  subsequent  bona  fide 
purchasers,  who  take  by  transfer  duly  made  on  the  books. 
And  hence  a  buyer,  in  good  faith,  from  the  person  in  whose  name 
the  stock  stands  on  the  books,  who  takes  a  transfer  in  the 
manner  provided  in  the  by-laws,  becomes  vested  with  a  com- 
plete title  to  the  stock,  which  cuts  off  all  the  rights  and  equities 
of  the  holder  of  the  certificate.  What  other  rights  and  equities 
he  may  possess  is  another  question;  but  if  the  transferee  has 
taken  in  good  faith,  and  for  value,  the  stock  is  beyond  his 
reach,  and  beyond  recall  by  the  corporation.3 

§  288.  Compliance  with  conditions. — A  person  can  not, 
properly  Bpeaking,  be  said  to  be  a  member  of  or  shareholder 
in  ;i  corporation  so  long  as  he  has  only  a  right  to  become  such; 
nor  can  a  person  who  has  become  a  member  or  a  shareholder 

dental  liabilities  both  to  the  company    outside  of  the  parties  to  Buch  trans- 
and     it-    creditors.      Morawetz,    II,    fer."   People  v.  Robinson,  64  Cal.  378. 

"New  York  &  V  ll    l.\  Co.  r.Schuy- 

•  Ch.  16.  ler,  34   N.  V.  30,  per  DaviB,  J.j  *i<-\>- 

'"\    transfer    nol   entered   on   the    bins   v.    insurance  Co.,  3  Paige  850; 

of  the  ( ipany  has  no  validity     Bank  v.  Laird,  2  Wheat  390;   Bargate 

v.  Bhortridge,  5  II.  I..  Cms.  297. 


§  289  THE    ACQUISITION    AND    LOSS    OF    MEMBERSHIP.  295 

be  properly  said  to  have  ceased  to  be  one  so  long  as  he  has 
only  a  right  to  retire.  If  a  person  who  is  not  a  shareholder 
omits  to  do  what  is  necessary  to  render  himself  a  shareholder, 
he  remains  a  non-shareholder,  although  very  little  may  be 
wanting  to  render  him  a  shareholder.  On  the  other  hand,  if 
a  person,  who  is  a  shareholder  already,  omits  to  do  what  is 
necessary  to  retire,  he  continues  to  be  a  shareholder  whatever 
intention  he  may  have  had  of  withdrawing  from  the  company, 
and  whatever  preliminary  steps  he  may  have  taken  for  that 
purpose.  In  these  cases,  that  which  is  necessary  to  change  an 
existing  state  of  things  has  not  happened;  the  right  to  enter 
or  leave  the  company  has  not  been  exercised;  and  until  such 
right  has  been  exercised,  membership,  in  the  proper  sense  of 
the  word,  has  not  been  created  in  the  one  case,  and  has  not 
ceased  in  the  other.1 

§  289.  Estoppel  to  deny  membership.2 — A  person  may  some- 
times be  treated  as  a  member,  although  he  has  not  complied 
with  the  necessary  preliminary  conditions.  The  performance 
of  certain  conditions  and  the  observance  of  formalities  may 
sometimes  be  waived  and  irregular  acts  may  be  confirmed. 
Hence  if,  notwithstanding  the  failure  to  comply  with  condi- 
tions, or  the  existence  of  irregularities  in  the  issue  of  the 
shares,  the  party  has  been  treated  as  a  shareholder  by  the 
corporation,  and  has  acted  as  a  stockholder,  both  he  and  the 
corporation  will  be  estopped  to  deny  the  relation.  So,  if  a 
shareholder,  who  has  a  right  to  retire,  has  in  fact  retired  and 
been  treated  by  the  corporation  as  if  he  was  no  longer  a  mem- 
ber, both  he  and  the  company  will  be  estopped  to  deny  that 
he  has  ceased  to  be  a  member,  although  he  may  not  have  re- 
tired regularly  and  properly.3     The  corporation    will  not  be 

1  Lindley   Law   of   Companies,    44.  these    circumstances    are    combined, 

"The   type   then   of  a   member  of  a  there   is   membership   in   the  fullest 

company,"  says  this  learned  writer,  and  most  accurate  sense." 

"is  a  person  who  has  agreed  to  be-  2  McCarthy  v.  La  Vasche,  89  111.  270, 

come  a  member,  and  with  respect  to  Wilgus'  Cases. 

whom  all  conditions  precedent  to  the  3  Lindley    Law    of  Companies,  48 ; 

acquisition  of  the  rights  of  a  member  Jewell  v.  Rock  River,  etc.,  Co.,  101 

have  been  duly  observed.    Where  all  111.  57 ;    Union,  etc.,  Assn.  v.  Selig- 


296  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  290 

permitted  to  take  advantage  of  the  non-observance  of  formali- 
ties which  it  has  tacitly  waived,  and  a  person  who  has  acted 
as  and  received  the  benefits  of  membership  will  not  be  heard 
to  say  that  he  has  neglected  to  comply  with  certain  formali- 
ties or  conditions  when  called  upon  to  assume  the  burdens 
incident  to  membership.1  Thus,  where  it  did  not  appear 
that  the  defendant  had  ever  had  a  certificate  of  stock  in  his 
possession,  but  did  appear  that  he  authorized  a  share  to  be  is- 
sued to  him,  that  a  certificate  had  actually  been  issued,  that 
only  stockholders  are  eligible  to  office,  that  he  was  upon 
the  organization  of  the  company  elected  its  president  and 
served  for  a  long  time  in  that  capacity,  and  that  he  had  paid 
a  number  of  installments  upon  a  share  of  stock,  it  was  held 
sufficient  to  charge  him  as  a  member  and  that  he  was  estopped 
to  deny  his  subscription.2  The  right  to  membership  in  a 
corporation  was  restricted  to  persons  of  a  certain  nationality, 
and  the  defendants  subscribed  and  paid  for  stock,  and  ac- 
cepted certificates  therefor,  and  appeared  as  stockholders  on 
the  books  of  the  corporation  for  a  period  of  three  years,  dur- 
ing which  time  debts  were  contracted  and  the  corporation  be- 
came insolvent.  In  an  action  to  enforce  the  statutory  liability 
for  the  benefit  of  creditors  they  were  held  to  be  estopped  to  as- 
sert that  they  were  not  stockholders  because  they  were  not  of 
the  required  nationality.3 

I  290.    The  holder  of  illegally  issued  shares. — There  can  be 
no  membership  acquired   through   the  holding  of  shares  of 

man,  92  Mo.  636;  Griswold  v.  Belig-  Co.  v.  Lacey,3  V.  &  J.  79;  Murray  v. 

,n;m.  72   Mo.   110;    Bi8sell   \.   Beath  Bush,    L.   R.  6  II.   L.   .".7,  and   cases 

(Mich.,  1894),  57  N.W.  Rep. 586;  York  cited  in  preceding  note. 

Park,  etc.,  Assn.v.  Barnes  (Neb.,  1894),  'York   Park,  etc.,  Assn.  v.  Barnes 

140;  Sanger  v.Upton,  (Neb.,  1894),  58  N.  W.  Rep.  440 ;  San- 

91  U.  S.66;   Mosgrave v. Morrison, 64  gerv.  [Jpton,  91   0*.  S.  66.    One  who 

M,l.  [61;  Boston,  etc., R.  Co.  v.  Well-  subscribes  for  stock  in  a  corporation, 

ington,  LIS  Mass.  79;  Chafflnv.  Cum-  acts  as  an  officer  thereof,  and 

mings,  87  Me.  76.  pari   in   its  management  can  nol  dis- 

1  Burnea  v.  Pennell,  2  ll.  L.  0.  196;  pute  the  validity  of  the  corporation. 

Cheltenham,  etc.,  R.  Co.  v.  Daniel,  2  Warehousing  Co.  v.  Badger,  67  N.  V. 

Q    B     vi    ■••    l  .  281,   12   Eng.  0.    L.  294. 

ii7.".;  Sheffield,  etc.,  Co.  v.  Woodcock,  •Blien   v.    Rand  (.Minn.,  June  22, 

7  M.   &  W,  071 1  Oromford,  etc.,  R,  1899),  79  N.  W.  Rep.  606. 


§  291  THE    ACQUISITION    AND    LOSS    OF    MEMBERSHIP.  297 

stock  which  under  no  circumstances  could  legally  exist,1  but 
if  the  corporation  had  power  to  issue  the  shares,  the  corpora- 
tion and  the  holder  of  the  shares  may- be  estopped  from  deny- 
ing their  existence,  although  they  were  issued  irregularly  and 
improperly.2 

§  291.  Disfranchisement  —  Joint  stock  companies. — Mem- 
bership in  a  joint  stock  corporation  consists  in  the  ownership 
of  its  stock,  and  is  therefore  lost  by  a  transfer  of  the  stock  in 
due  form.  Although  the  title  to  corporate  property  is  in  the 
corporation  and  not  in  the  stockholder,  the  latter  has  what 
may  be  called  the  ultimate  ownership,  and  of  this  he  can  not 
be  deprived  by  any  act  of  the  corporation.  It  follows  that  the 
power  to  disfranchise  or  expel  a  member  of  such  a  corporation 
never  exists  unless  expressly  conferred  by  the  charter.3  The 
same  rule  is  held  to  apply  to  every  corporation  or  'society 
formed  primarily  or  exclusively  for  gain,4  or  which  holds 
property.5 

§  292.  Disfranchisement  in  non-stock  corporations. — A  non- 
stock corporation,  not  organized  exclusively  for  the  purpose  of 
gain,  has  implied  power,  unless  restrained  by  its  charter,  to 
expel  a  member  for  cause.6  In  England  it  is  held  that  in  the 
absence  of  a  grant  an  incorporated  voluntary  association  has 
no  inherent  power  to  expel  a  member.7  The  questions  com- 
monly arise  in  connection  with  social  clubs  and  such  organi- 

'Bank  of  Hindustan  v.  Alison,  L.  In  re  Long  Island  R.  Co.,  19  Wend. 

R.  6  C.  P.  54.  37,  32  Am.  Dec.  429,  Wilgus'  Cases. 

2  Campbell's  Case,  9  Ch.  App.  Cases        4  In  re  Long  Island  R.  Co.,  19  Wend. 

1.   InNenney  v.  Waddill  (Tex.,  1894),  37,  32  Am.  Dec.  429;  Evans  v.  Phila- 

25  S.  W.  Rep.  308,  it  was  held  that  delphia  Club,  50  Pa.  St.  107,  Wilgus' 

the    constitutional    provision    forbid-  Cases. 

cling  the  issue  of    stock    except  for        5  Bagg's  Case,  11  Co.  93.     See  note 

value  received,  and  avoiding  all  ficti-  to  Hiss   v.  Bartlett,  3   Gray  468,   in 

tious  issues  of  stock,  can  not  be  in-  63  Am.  Dec.  772. 
voked    by    stockholders     who    have        6As  to  expulsion  of  members  of  a 

knowingly  accepted  "paid  up"  stock  subordinate  lodge  of  a  beneficial  or- 

to  twice  the  amount  of  their  subscrip-  der,  see  opinion  of  Judge  Thompson, 

tions.  Mulroy   v.   Supreme  Lodge,  etc.,   28 

3Edgerton    Tobacco,    etc.,   Co.    v.  Mo.  App.  463. 
Croft,  69  Wis.  256,  34  N.  W.  Rep.  143 ;        7  Dawkins  v.  Antrobus,  L.  R,  17  Ch. 


298  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  292 

zations  as  boards  of  trade  and  chambers  of  commerce.     The 
power  to  expel  a  member  is  usually  conferred  in  general  lan- 
guage by  the  charter,  and  the  particular  grounds  of  expulsion 
and  procedure  is  provided  for  in  the  by-laws  or  rules  of  the 
corporation.     In    the    leading   English   case,1   decided   before 
joint-stock  business  corporations  became  common,  Lord  Mans- 
field said  that  there  were  three  sorts  of  offenses  for  which  an 
officer  or  corporator  might  be  expelled:      ( 1 )   Such  as  have  no 
immediate  relation  to  his  office,  but  are  in  themselves  of  so  in- 
famous a  nature  as  to  render  the  offender  unfit  to  execute  any 
public  franchise.      (2)  Such  as  are  only  against  the  oath  and 
the  duty  of  his  office  as  a  corporator,  and  amount  to  a  breach 
of  a  tacit  condition  annexed  to  his  franchise  or  office.    (3)  The 
third  sort  of  offense  for  which  an  officer  or  corporator  may  be 
displaced   is  of  a  mixed  nature,  as  being  not  only  against  the 
duties  of   his  office,  but  also  a   matter   indictable  at  common 
law.      For  the  first  sort  of  offenses  there  must  be  a  previous 
conviction  upon  an  indictment.     When  the  offense  is  merely 
against  his  duty  as  a  corporator  he  can  only  be  tried  for  it  by 
the  corporation.     Generally  the  offense   must  be  of   an   infa- 
mous character,  and  have  some  relation  to  the  duties  which  at- 
tach to  membership  in  the  corporation.    "When  a  corporation 
i-    duly    organized    it    has  power  to   make    by-laws  and   expel 
members,  though   the  charter  is  silent   upon  the  subject.     Tf 
the  power  is  expressly  grunted  in  general  terms,  it  is  conferred 
to  enable  the  corporation  to  accomplish  the  objects  of  its  crea- 
tion, and  is  limited  to  such  objects  or  purposes.     It  appears  to 
be  well  settled  thai  when  the  charter  of  a  corporation  is  Bilenl 
upon  the  subject  of  expulsion,  or  grants  the  power  in  general 
terms,  there  are  bul  three   legal  causes  of  disfranchisement: 
1.    Offenses  of  an  infamous  character,  indiotable  at  common 

l»iv.  815,    11    La*  'l'.    lie,,.   (N.   s  i    (Pa.)  141,  I    im.  Dec.  163;  People  v. 

Medical,  etc.,  32  N.  v.  187.     Notes  i<> 

'  |;,.X   v.    Richardson,  i   Burr.  517.     Hiss  v.    Bartlett,  68   Am.  Dec.  772; 

,\  of  English  cases  in  Rich-    Austin  v.  Bearing,  69  Am.  Dec   865; 

l      |        .:_..  go   w.   Va.   191;    Bociety  v.  Comw.,62  Pa.  Bt.   125,91 

, .  -t.  p  etc.,  2  Binn.     am.  Dec.  L89 


§  293  THE    ACQUISITION    AND    LOSS    OF    MEMBERSHIP.  299 

law.  2.  Offenses  against  the  corporator's  duty  to  the  corpora- 
tion as  a  member  of  it.    3.  Offenses  compounded  of  the  two."1 

§  293.    Nature  of  membership  in  non-stock  corporations. — 

Membership  in  certain  non-stock  corporations,  such  as  boards 
of  trade  and  chambers  of  commerce,  is  valuable  property 
which  may  be  sold  and  transferred  subject  to  the  restrictions 
imposed  by  the  rules  and  by-laws  of  the  corporation.  But  it 
is  property  in  a  restricted  sense  only,  and  is  always  held  in- 
cumbered by  the  conditions,  without  which  it  could  not  have 
been  obtained.2  In  a  recent  New  York  case3  it  is  said:  "When 
membership  and  the  rights  belonging  to  that  status  were  con- 
ferred upon  him  the  gift  was  accompanied  by  the  condition 
that  the  rights  of  whatever  nature  should  revert  to  the  associa- 
tion upon  the  happening  of  certain  events;  and  he  can  not  be 
heard  to  complain,  nor  can  third  persons  claiming  to  derive 
under  him.  He  should  be  held  to  a  contract  which  was  reason- 
able when  entered  into,  which  prejudiced  no  rights  of  persons 
and  were  in  conflict  with  no  statutory  or  common  law  right. 
A  person  acquires  by  membership  in  the  association  only  such 
rights  as  the  constitution  and  by-laws  give  him."  Hence,  the 
corporation  may  provide  that  membership  can  not  be  trans- 
ferred without  the  consent  of  the  other  members  or  until  all 
contracts  entered  into  with  the  other  members  are  fulfilled.4 

1  State  v.  Chamber,  etc.,  20  Wis.  68.  which   measures  their  rights,   duties 

2  Hyde  v.  Ward,  94  U.  S.  23;  In  re  and  liabilities  as  members.  Weston 
Haebler,  149  N.  Y.  414,  44  N.  E.  Rep.  v.  Ives,  97  N.  Y.  222 ;  Belton  v.  Hatch, 
87.  109  N.  Y.  593;  O'Brien  v.  Grant,  146 

3  Belton  v.  Hatch,  109  N.Y.  593, 17  N.  N.  Y.  163.  A  member  of  a  corpora- 
E.  Rep.  225.  The  rule  is  that  members  tion  may  so  hedge  himself  in  by  agree- 
are  bound  by  the  by-laws  of  the  cor-  ment  as  to  yield  the  protection  which 
poration.  See  Green  v.  Board  of  Trade  one  seeks  in  the  ordinary  affairs  of 
(111.),  51  N.  E.  Rep.  99 ;  In  re  Haebler,  life,  and  to  enlarge  the  authority  that 
149  N.Y.  414, 44  N.  E.  Rep.  87,  the  court  may  be  used  against  him.  People  v. 
said:  "The  relator  had  a  right  to  be-  New  York,  etc.,  Exchange,  8  Hun 
come  a  member  of  this   corporation  216,  220." 

and  to  agree  to  be  governed  by  its  *  American,  etc.,  Com.  Co.   v.  Chi- 

charter  and   by-laws;    and  they    ex-  cago,    etc.,    Exchange,  143    111.   210; 

press  the  contract  by  which   he  and  Board  of  Trade,  etc.,  v.  Nelson,  162 

every  other  member  is  bound,   and  111.  431,  53  Am.  S.  R.  312. 


300 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  294 


§  294.  Grounds  for  expulsion. — When  authority  is  conferred 
to  expel  a  member  for  reasonable  cause  or  for  a  designated  of- 
fense, the  corporation  has  the  right,  through  its  proper  officers 
or  bodv,  to  determine  the  sufficiency  of  the  cause  and  what 
constitutes  the  offense,1  subject  to  the  power  of  the  courts  to 
restrain  arbitrary  and  illegal  action.2  A  member  of  a  society 
maybe  expelled  for  conduct  calculated  to  bring  the  society 
into  disrepute.3  Under  a  by-law  which  makes  "slander  against 
the  society"  an  offense,  it  was  held  that  a  member  could  be 
expelled,  but  there  must  be  a  written  charge  entered  upon  the 
books  of  the  corporation.1  One  member  of  a  corporation  can 
not  be  expelled  for  villifying  another  member,  as  such  an  of- 
fense'is  said  not  to  affect  the  interest  or  good  government  of 
the  corporation  or  be  indictable  at  common  law.5  An  incor- 
porated board  of  trade  may  suspend  a  member  under  a  by-law 
which  provides  that  "when  a  member  shall  be  guilty  of  any 
act  of  bad  faith  or  any  attempt  at  extortion,  or  any  other  dis- 
honorable or  dishonest  conduct,  he  shall  be  censured,  sus- 
pended or  expelled  by  the  board  of  directors  as  they  may 
determine.  " 6  A  mere  breach  of  contract  without  moral  delin- 
quency on  the  part  of  a  member  is  not  within  a  by-law  au- 
thorizing the  board  <>f  managers  to  expel  a  member  for  "fraudu- 
lent  breach   of  contract,  or  any  proceeding  inconsistent  with 

1  Inderwick  v.  Bnell,  '_'  Mac.  &  <;.  of  the  society  and  its  members:  Peo- 
'_']»;;  I'.,  cv  s.  Smith  Society  v.  Van-  plev.  Mechanics'  Aid  Society,  22  Mich, 
dyke,  2  Whart.  (Pa.)  809, 30  Am.  Dec.  86.  Publication  of  a  libelous  pamphlet 
263,  on  another  member :   Hawkins  v.  An- 

2  People  v.  Higgina,  15  111.  i  L0.  trobus,  l..  R.  it  Ch.  Div.  615.    Bui  Bee 
•Burton   v.  St.  George  Society,  28    Beesley  v.  Chicago,  He.    \ssn..    n 

Mich.  261.  [11.  App.  278.  Moral  delinquency :  Peo- 

•Rohlerv.  Mechanics  Aid  Society,    plev.  Bt.  Stephen's  Church,  68  N,  V. 

22  Mich.  86.    The  offense  must,  how-     103.    The  following  are  insufficient  to 
he  analogous  to  the  common  law     justify    expulsion:     "Unprofessional 

offense  of  slander. 

.mm.  v.  St.  Patrick  Ben.  A'-sn.,:.' 

Hi. in.  (Pa.]  in. 
•  Board  of  Trade  v.  Nelson,  162  111. 

i:i.  1 1  v  i:   Rep.  748.    Expulsion  may 

i„-   for  uon-pei fonnance  of  Hi«-  con- 
trad  :    White  v.  Brownell,  2   Daly's 


conduct  in  advertising":  People  v. 
Med.  Boc.,82  N.Y.  187.  "Doing  busi- 
ness at  less  than  the  established  tat  iff 
of  the  society  "  :  People  v.  Med.  Soc, 
24  Barb.  (N.  Y.i  570.  A.s  to  whether 
a  member  of  a  club  <-in  be  expelled 
for    striking    another    member 


N.Y.)829.  Insolvency ;  Slander    Evans  v.  Phila.  Club,  60  Pa  St.  107. 


§  295  THE    ACQUISITION    AND    LOSS    OF    MEMBERSHIP.  301 

just  and  equitable  principles  of  trade."1  The  charter  stated 
that  the  object  of  a  corporation  was  "to  inculcate  just  and 
equitable  principles  of  trade,  to  establish  and  maintain  uni- 
form and  commercial  usages  *  *  *  and  to  adjust  mis- 
understandings between  persons  engaged  in  business;"  A 
member  of  a  produce  exchange  may  be  expelled  for  unjusti- 
fiable breach  of  a  contract  not  made  on  the  floor  of  the  ex- 
change,2 or  for  obtaining  goods  from  one  not  a  member  under 
false  pretenses.3  But  a  by-law  made  under  general  authority 
must  be  reasonable,4  and  it  has  been  held  that  there  can  not 
be  expulsion  for  violation  of  an  unenforcible  by-law  when  the 
offense  is  in  no  way  injurious  to  the  corporation.5 

§  295.  The  proceedings. — The  proceedings  for  the  expul- 
sion of  a  member  of  a  non-stock  corporation  may  be  provided 
for  by  the  by-laws.6  In  such  cases  they  must  be  strictly  ob- 
served  or  the  conviction  can   not  be  sustained.7      Generally 

1  People  v.  N.  Y.  Produce  Exchange,  a  member  has  no  right  to  notice  of 
149  N.  Y.  401.  such  preliminary  investigation. 

2  In  re  Haebler,  149  N.  Y.  414,  44  N.  7  Fisher  v.  Keane,  L.  R.  11  Ch.  Div. 
E.  Rep.  87.  As  to  jurisdiction  of  353;  Greene  v.  Board,  etc.  (111.),  51  N. 
stock  exchange  arbitration  commit-  E.  Rep.  599;  Commonwealth  v.  Union 
tee,  see  Cochran  v.  Phila.  Stock  League,  135  Pa.  St.  301,  19  Atl.  Rep. 
Exch.,  180  Pa.  St.  289.  1030,  is  an  elaborate  consideration  of 

8 People  v.   N.   Y.  Com.  Assn.,   18  the  powers  of  a  social  club  to  expel 

Abb.  Pr.  271.  members  for  acts  which  are  deemed 

4Hibernia  Ins.  Co.  v.  Comw.,19Pa.  prejudicial    to    the   organization.     It 

St.  267.   A  by-law  limiting  the  number  was  held  that  where  the  trial  was  con- 

of  solicitors  that  a  member  of  a  stock  ducted  in  due  form  and  in  good  faith 

exchange  may  employ  with  penalty  of  by  the  club,  the  courts  would  not  in- 

expulsion   is  illegal,   because    in  re-  quire  into  the  question  of  guilt.    The 

straint  of  trade.    People  v.   Chicago  only  question  in  the  case  as  stated  by 

Live  Stock  Ex.,  170  111.  556,  39  L.  R.  the  court  was   one    of    power.     The 

A.  373.  case  was  distinguished  from  Evans  v. 

5  Evans  v.  Phil.  Club,  50  Pa.  St.  107.  Philadelphia  Club,  50  Pa.St.107,  on  the 
See  cases  collected  in  note  to  63  Am.  ground  that  in  that  case  there  was  no 
Dec.  772.  express  power  of  expulsion  conferred 

6  State  v.  Trustees,  5  Ind.  77;  Comw.  by  the  charter  and  the  case  rested 
v.  German  Society,  15  Pa.  St.  251.  A  upon  the  ground  that  the  offense  was 
rule  that  when  any  member  commits  a  not  such  as  to  fall  within  the  inherent 
grave  offense  or  act  of  dishonesty  in-  powers  of  the  corporation  at  common 
volving  the  association,  a  committee  law.  It  was  said  that  the  common 
shall  be  appointed  to  make  a  prelimi-  law  power  of  expulsion  as  declared 
nary  investigation,  is  reasonable  and  in    that    case    may  be    thus    stated. 


302 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§295 


there  must  be  a  provision  for  a  hearing  with  an  opportunity  to 
offer  testimony  and  examine  witnesses,  although  it  has  been 
held  that  on  a  hearing  before  a  committee  of  the  membership  of 
a  board  of  trade  the  accused  is  not  entitled  to  professional  coun- 
sel.1 If  there  is  no  provision  to  the  contrary  the  power  of  dis- 
franchisement rests  in  the  whole  body  of  membership,8  but  it 
may  be  conferred  upon  the  board  of  directors  by  a  by-law  reg- 
ularly passed  by  the  members.3  In  corporations  such  as  social 
clubs  and  boards  of  trade  it  may  be  exercised  by  a  body  pro- 
vided for  by  the  charter  or  the  by-laws.  But  as  said  in  one 
case:  "The  transfer  from  the  body  of  the  society  where  it 
properly  belongs,  to  a  small  fraction  of  its  members  of  so  large 
and  dangerous  a  power  as  that  of  expulsion,  must  appear,  if  it 
be  claimed  to  exist,  by  the  plainest  language.  It  can  not  be 
established  by  inference,  or  presumption,  for  no  such  pre- 
sumption is  to  be  made  in  derogation  of  the  right  of  the  whole 
body,  nor  is  it  to  be  supposed,  unless  it  appears  by  the  most 
express  and  unambiguous  language,  that  the  members  of  the 
society  have  consented  to  hold  their  rights  and  membership  by 


"First,  the  power  of  disfranchisement 
must  in  general  be  conferred  by  the 
charter.  It  is  qo1  sustained  as  an  in- 
cidental power,  excepting  (1)  when 
the  member  lias  been  legally  con- 
victed of  an  infamous  offense,  and  (2) 
when  he  has  committed  some  act 
tending  to  the  destruction  or  injury 
of  the  society.  Second,  the  power  to 
m:ik <■  by-laws  is  incidental  to  corpora- 
tions, bat  is  generally  conferred  by 
charter.     By-laws,    however,    which 

I  in  a  majority  the  |><>\\  er  of  expul- 
for  minor  offenses,  are  void,  and 
expulsion  ander  them  will  nol  be  sus- 
tained. Third,  in  joint  stork  com- 
panies or  corporations  owning  prop- 
no  power  of  expulsion  can   be 

rcised  unless  conferred  by  statute." 
i  I,.-  \  Board,  etc  (111.),  51  N. 
I-..  Rep.  699;  Haasler  v.  Philadelphia, 
etc.,  ii  Phila.  288. 


2  State  v.  Chamber  of  Commerce,  20 
Wis.  08;  Medical  ami  Surgical  Society 
v.  Weatherly,  75  Ala.  248;  Gray  v. 
Christian,  etc.,Soc,  137  Mass.  329,  50 
Am.  Rep.  310;  Commonwealth  v. 
Union  League  Club,  L35  Pa.  St.  301. 

B State  v.  Chamber  of  Commerce, 
17  Wis.  670.  "Expulsion  by  the  action 
of  the  directors  is  one  mode  or  manner 
of  expulsion  ;  expulsion  by  a  majority 
vote  of  all  the  corporators  is  another 
mode  or  manner  of  expulsion.  A  rule 
prescribing  the  former  mode  is  as 
much  authorized  and  justified  by  the 
language  of  the  charter  as  a  rule  pre- 
scribing the  latter  mode."  The  charter 
provided  thai  the  corporation  "shall 
have  the  righl  to  admit  or  as  p<  l  such 
members  as  they  may  see  fit,  in  the 
mannei  to  be  prescribed  by  the  rules, 
regulations  and  by-laws  there 
Pitcher  v.  Board,  etc.,  i-'i  III.  412. 


§  296 


THE    ACQUISITION    AND    LOSS    OF    MEMBERSHIP. 


303 


so  frail  a  tenure  as  the  judgment  of  a  small   portion  of  their 
own  number."  ' 

§  29G.  Notice. — It  is  necessary  to  the  validity  of  the  sus- 
pension or  expulsion  of  a  member  of  an  incorporated  society, 
that  the  accused  should  be  notified  of  the  charge  against  him 
and  of  the  time  and  place  set  for  the  hearing;  that  the  accus- 
ing body  should  proceed  upon  inquiry  and  consequently  upon 
evidence,  and  that  the  accused  should  have  a  fair  opportunity 
of  being  heard  in  his  defense.2  Notice  is  not  rendered  un- 
necessary by  an  express  grant  of  power  to  expel.3  A  by-law 
which  authorized  expulsion  without  notice  is  void.'  When 
property  rights  are  involved  and  no  other  method  is  provided 
by  the  by-laws  notice  must  be  personal,5  and  merely  posting  a 
notice  in  the  club  house  is  not  sufficient.6  Lack  of  notice  is 
waived  by  a  general  appearance,7  but  not  by  an  appearance 
and  objection  to  proceeding  without  the  presence  of  the  prose- 
cutor.8 Service  of  a  notice  is  not  excused  by  the  insanity  of 
the  member.9     The   notice   must  contain   a   statement  of   the 


1  Hassler  v.  Philadelphia,  etc.,  14 
Phila.  233.  As  to  power  to  revise  a 
membership  list  of  a  lodge  and  drop 
members  for  non-payment  of  assess- 
ments, see  Knights  of  Honor  v. 
Mickser,  72  Texas  257 ;  Medical  and 
Surgical  Society  v.  Weatherly,  75  Ala. 
248. 

2Thomp.  Corp.,  §  881;  People  v. 
New  York  Com.  Assn.,  18  Abb.  Pr. 
271;  Bagg's  Case,  11  Co.  93;  Fisher 
v.  Keane,  L.  R.  11  Ch.  Div.  353; 
Wachtel  v.  Society,  84  N.  Y.  28;  Dili- 
gent, etc.,  Co.  v.  Comm.,  75  Pa.  St. 
291.  The  corporation  acts  in  a  quasi 
judicial  capacity.  See  Otto  v.  Union, 
75  Cal.  308;  Burt  v.  Lodge,  66  Mich. 
85,  33  N.  W.  Rep.  13. 

3DeLacy  v.  Neuse  Riv.,  etc.,  Co.,  1 
Hawks  274,  9  Am.  Dec.  636. 

4Erd  v.  Bavarian,  etc.,  Assn.,  67 
Mich.  233.  But  it  has  been  held  that, 
when  no  property  rights  are  involved 
and  the  by-laws  do  not  provide  for  no- 


tice, no  notice  is  necessary.  Manning 
v.  San  Antonio  Club,  63  Tex.  166,  51 
Am.  Rep.  639. 

5  Wachtel  v.  Society,  84  N.  Y.  28; 
People  v.  Med.  Soc,  32  N.  Y.  187: 
Service  of  notice  is  not  excused  by  a 
change  of  residence.  Wachtel  v.  So- 
ciety, 84  N.  Y.  28. 

6  Sibley  v.  Carteret  Club,  40  N.  J.  L. 
295. 

7  Comm.  v.  Pennsylvania,  etc.,  Soc, 
2  Serg.  &  Rawl.  141 ;  Sperry's  App.,  116 
Pa.  St.  391;  Burton  v.  St.  George 
Soc,  28  Mich.  261. 

8  People  v.  Mus.,  etc.,  Union,  101 
N.  Y.  680.  It  has  been  held  that  no- 
tice is  not  waived  by  appearing  and 
entering  upon  the  defense.  Downing 
v.  St.  Columba's,  etc.,  Soc,  10  Daly 
(N.  Y.)  282;  Labouchere  v.  Earl,  etc, 
L.  R.  13  Ch.  Div.  346. 

9  Supreme  Lodge  v.  Zuhlke,  129  111. 
298. 


304  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  297 

charge1  and  the  trial  be  fair  and  open2  before  an  unprejudiced 
body.3  This  does  not,  however,  require  the  impartiality  of  a 
judicial  tribunal,  and  it  has  been  held  that  it  is  no  objection 
that  one  of  the  trial  body  was  related  to  one  of  the  parties,  and 
that  the  proceedings  are  not  affected  by  the  fact  that  two  mem- 
bers thereof  were  prejudiced.4  "The  principle  to  be  deduced 
from  all  these  cases  is,  that  in  every  proceeding  before  a  club, 
societv  or  association  having  for  its  object  the  expulsion  of  a 
member,  the  member  is  entitled  to  be  fully  and  fairly  informed 
of  the  charge  and  to  be  fully  and  fairly  heard."5  This  rule 
requiring  notice  and  a  hearing  does  not  apply  to  mutual  bene- 
fit corporations  whose  charters  provide  that  non-payment  of 
assessments  after  notice  shall  ipso  facto  work  a  forfeiture  of  mem- 
bership.6 In  such  cases  the  right  to  notice  has  been  waived 
or  parted  with  by  contract.7  But  when  there  is  no  rule  pro- 
viding for  such  a  forfeiture,  there  must  be  an  adjudication  of 
forfeiture  by  the  corporation  after  notice  to  the  member  and  a 
hearing  upon  the  issue. 

§  297.  Incorporated  and  unincorporated  societies. — In  some 
of  the  decisions  no  distinction  is  made  between  incorporated 
and  unincorporated  societies.  In  speaking  of  an  unincorpo- 
rated voluntary  association,  the  supreme  court  of  Pennsylvania8 
said :  "These  associations  have  some  elements  in  common 
with  corporations,  joint-stock  companies  and  partnerships; 
:h  us  association  and  being  governed  by  regulations  adopted 
by  themselves  Eor  that  purpose.  *  *  *  1  have  very  little 
doubt,  therefore,  that  the  Bame  rules  of  Law  and  equity,  bo  Ear 
as  regards  the  control  of  them  and  the  adjudication  of  their  re- 
served  and  inherent  powers  to  regulate  the  conduct  and  to  ex- 

'Mardock'fl  Case,    7  Pick.  (Mass.)  "Hutchinson  v.  Lawrence,  67 How. 

103;  Sleeper  v.  Franklyn  Lyceum,  7  Pr.  38. 

i;    |  '  Thorn.  Priv.Oorp.,  §§  881,898.  Bee 

•.  v.  \ .1  :in i-.  ii  Mm.  :,7o.  Bcheufler  v.  Grand  Lodge,  45  Minn. 

•  Smith  v.  Nelson,  L8  \'t.  .Ml.  266. 

«  Loubal  ■. .  LeBoy,  15  Lbb.  N.  0.1.  ~  Blisset  v.  Daniel,  10  Hare  478. 

H  Leech  v.  Harris,  '2  Brewst. 571. 


§  298  THE    ACQUISITION    AND    LOSS    OF    MEMBERSHIP.  305 

pel  their  members,  apply  to  them  as  to  corporations  and  joint- 
stock  companies."1 

Greater  power  with  reference  to  making  rules  for  the  gov- 
ernment of  members  is  sometimes  recognized  as  belonging  to 
unincorporated  associations,  and  they  are  placed  under  no 
restrictions,  so  long  as  they  do  not  conflict  with  general  laws.2 

§  298.  Review  by  the  courts. — The  power  of  expulsion  is 
vested  in  the  corporation,  and  when  it  is  exercised  by  the 
proper  body  in  good  faith  the  court  will  not  review  the  pro- 
ceedings.3 Where  there  has  been  a  trial  after  due  notice,  and 
a  conviction,  the  proceedings  will  not  be  inquired  into  collat- 
erally.4 In  a  case  where  the  plaintiff  had  been  expelled  from 
a  benevolent  society,  Chief  Justice  Gibson  said:5  "Into  the  reg- 
ularity of  these  proceedings  it  is  not  permitted  us  to  look.  The 
sentence  of  the  society,  acting  in  a  judicial  capacity,  and  with 
undoubted  jurisdiction  of  the  subject-matter,  is  not  to  be  ques- 
tioned collaterally  while  it  remains  unreviewed  by  superior 
authority.  If  the  plaintiff  has  been  expelled  irregularly,  he 
has  his  remedy  by  mandamus  to  restore  him,  but  neither  by 
mandamus  nor  action  can  the  merits  of  the  expulsion  be  re- 
examined.'" Under  this  rule  the  courts  will  investigate  the 
proceedings  in  order  to  determine  whether   they  are   regular, 

1Gormon   v.  Russell,   14  Cal.  532;  party  an  opportunity  to  make  defense 

Babb  v.  Reed,  5  Rawle's  Rep.  151,  28  if  he  has  any.      I  remember  to  have 

Am.  Dec.  650;  Otto  v.  Union,  75  Cal.  heard   it  observed  by  a  very  learned 

308;  People  v.  Board  of  Trade,  80  111.  man  upon   such  an  action  that  even 

137;  Anacosta  Tribe  v.  Murbach,  13  God    himself    did  not  pass   sentence 

Md.  91.  upon  Adam  before   he  was  called  on 

2  White  v.  Brownell,  2  Daly  329;  to  make  his  defense.  Adam,  says 
State  v.  Williams,  75  N.  C.  134;  Daw-  God,  where  art  thou?  Hast  thou  not 
kins  v.  Antrobus,  L.  R.  17  Ch.  Div.  eaten  of  the  tree  whereof  I  com- 
615 ;  Labouchere  v.  Earl  of  Wham-  manded  thee  that  thou  shouldst  not 
cliffe,  L.  R.  13  Ch.  Div.  346.  eat?     And  the  same  question  was  put 

3  Illinois,  etc.,  Soc.  v.  Baldwin,  86  to  Eve  also." 

111.   479;    Olmstead    v.   Farmer,  etc.,  4  Otto  v.  Union,  75  Cal.  308. 

Co.,  50  Mich.  200.     In  the  celebrated  5Black,  etc.,  Society  v.  Vandyke,  2 

Bently  case,  2   Lord    Raymond  1334,  Whart.  309. 

Mr.    Justice    Fortescue    says:    "The  6  Lewis  v.  AVilson,  121  N.  Y.  284.  24 

laws   of  God   and   man  both  give   a  N.  E.  Rep.  474;  People  v.  N.  Y.,  etc., 

20— Private  Corp.  Exch.,  149  N.  Y.  401. 


306 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  29S 


and  whether  the  cause  is  one  for  which,  under  the  charter, 
there  can  be  a  legal  expulsion,  or  whether  the  act  complained 
of  comes  within  the  by-laws.1  Subject  to  these  limitations  the 
corporations  are  left  to  enforce  their  own  rules  with  reference 
to  expulsion,  and  generally  the  courts  will  interfere  only  when 
a  clear  case  of  injustice  is  made  out.2  The  remedy  for  wrong- 
ful expulsion  is  generally  mandamus  to  compel  reinstatement,3 
and  not  by  injunction,4  although  this  remedy  is  permitted  in 
some  cases.6  The  right  of  a  member  to  be  reinstated  may  be  lost 
through  his  laches.6 

'  Laboueherev.  Earlof  Wharncliffe,     736,   and  Society   v.  Commonwealth, 
I.     R.    13   Ch.   Div.    346;     People   v.     91  Am.  Dec.  139. 
board  of  Trade,  80  111.  137.  *Greggv.  Mass. Med.  Soc,  Ill  Mass. 

2  state  v.  Georgia  Med.  Soc,  33  Ga.     185 ;  Sturges  v.  Board  of  Trade,  86  111. 
608. 

8 Evans  v.  Phila.  Club,  50  Pa.  St. 
107;  State  v.  Cham,  of  Com.,  47  Wis. 
670;  Otto  v.  Union,  75  Cal.  308;  Sib- 
ley  v.  Carteret  Club,  40  N.  J.  L.  295; 
Notes  to  Dane  v.  Derby,  89  Am.  Dec. 


441. 

501ery  v.  Brown,  51  How.  Pr.  (N. 
Y.)  92.  " 

6  Meberin  v.  San  Francisco,  etc., 
Exch.,  117  Cal.  215. 


CHAPTER   13 


CAPITAL    STOCK. 


¥99.   Capital. 

500.  Capital  stock. 

501.  Shares  of  stock. 

502.  Amount  of  capital  stock. 

303.  Dividend  stock. 

304.  Stock  certificates. 

305.  Not  negotiable  instruments. 

/.    Classes  of  Stock. 

306.  Different  kinds  of  stock. 

307.  Preferred  stock. 

308.  Power  to  issue  preferred  stock. 

309.  Power  of  majority. 

310.  Under  legislative  authority. 
811.   Estoppel. 

312.  Status  of  holders  of  preferred 

stock. 

313.  Rights  of  holders  of  preferred 

stock. 

314.  Accumulative  dividends. 
II.   Nature  of  Capital  Stock. 

315.  Personal  property. 

316.  Statute  of  frauds. 

317.  The  trust  fund  theory. 

318.  Meaning  of  the  doctrine. 

319.  Criticisms. 

III.   Fraudulently  Issued  Stock. 

320.  Overissue  of  stock. 

321.  Bona  fide  holders  of  fraudu- 

lently issued  stock. 

322.  Estoppel    by   recital   in   stock 

certificate. 

323.  Liability  for  fraudulent  acts  of 

agents. 


§  324.    Fraudulent  acts  of  agents,  con- 
tinued. 

325.  Liability  to  innocent   purchas- 

ers only. 

326.  Recovery   of  money   paid  for 

void  shares. 

327.  Payment  for  stock. 

IV.    Watered  Stock. 

328.  Meaning  of  phrase. 

329.  Issue  of  shares  below  par — The 

common  law  rule. 

330.  As   between  stockholder    and 

creditor. 

331.  Recital   that   shares    shall    be 

deemed  fully  paid  up. 

332.  Bona  fide  purchaser  of  shares. 

333.  Who  may  complain. 

334.  Liability  is  to  subsequent  cred- 

itors only. 

335.  Bonus  stock  given  to  "sweet- 

en" bonds. 

336.  Construction  bonds  and  bonus 

shares. 

337.  Stock  issued  by  a  going  con- 

cern with  impaired  capital. 

338.  Shares  accepted  as  a  gratuity. 

339.  Illustrations. 

340.  Payment  in  property. 

341.  Remedy   where  there  is  over- 

valuation. 

342.  Constitutional    and     statutory 

provisions  as  to  payment  of 
shares. 


§  299.  Capital. — The  capital  of  a  corporation  is  the  fund 
with  which  it  transacts  its  business,  and  embraces  all  its  prop- 
erty, real  and  personal.    It  is  the  property  or  means  contributed 

(307) 


30S 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§   300 


by  the  stockholders  as  the  fund  or  basis  for  the  business  en- 
terprise, for  which  the  corporation  was  formed.1  It  signifies 
"the  actual  estate,  whether  in  money  or  property,  which  is 
owned  by  an  individual  or  a  corporation.  In  reference  to  a 
corporation,  it  is  the  aggregate  of  the  sum  subscribed  and  paid 
in,  or  secured  to  be  paid  in,  b}T  the  shareholders,  with  the  addi- 
tion of  all  gains  or  profits  realized  in  the  use  and  investment  of 
those  sums,  or,  if  losses  have  been  incurred,  then  it  is  the  resi- 
due after  deducting  such  losses."2 

§  300.  Capital  stock. — There  is  a  distinction  between  the 
capital  and  the  capital  stock  of  a  corporation,  although  the 
terms  are  often  used  interchangeably.3 

The  word  capital  when  properly  used  refers  to  the  property 
of  the  corporation    while  the  capital   stock  represents  the  in- 


1  Iron  R.  Co.  v.  Lawrence,  etc.,  Co  , 
49  Ohio  St.  102,  30  N.  E.  Rep.  616. 

z  People  v.  Commissioners,  23  N.  Y. 
192  on  219;  Bailey  v.  Clark,  21  Wall. 
284;  Christensen  v.  Eno,  106 N.  Y.  97. 

3  San  Francisco  V.  Spring  Valley 
Water  Works,  63  Cal.  529;  Christen- 
Ben  v.  Eno,  106  N.  Y.97.  In  Williams 
V.  Western  I'nion,  efe.,  Co.,  93  N.  V. 
L62,  in  considering  a  statute  which 
provided  that  the  directors  should 
not  withdraw  or  in  any  way  pay  to 
tli'-  stockholders  any  pari  of  the  capi- 
tal -lock  of  tin-  corporation,  or  reduce 
tin-  capital  stock  without  theassent  of 

the  legislature,  the  court  said :     "The 

'capital  stock'  in  this  Section  dors  not 

mean  shares  of  stock,  but  it  means  the 
property  of  tin-  corporation  contrib- 
uted by  it-  stockholders  or  "otherwise 
obtained  by  it  to  the  extent  required 
by  it-'  charter.  While  tic-  term  'cap- 
ital :  requenl  ly  used  in  a  loose 
and  indefinite  ction 

an.!  in  legal  phia-e  general]}   il  1 1 1  ■  • .  1 1 1  - 

thai  and  nothing  more.     1  n  state-  v. 

Moi  1 1  t..v.  M,   etc.,    \     ii  .  28   V  l .    1.. 

;i,    (  '.  .1.,    said  :      The    pin  B   6 


'capital  stock'  is  generally,  if  not  uni- 
versally, used  to  designate  the  amount 
of  capital  to  be  contributed  for  the 
purposes  of  the  corporation.  The 
amount  thus  contributed  constitutes 
the  capital  stock  of  the  company."  In 
Burrall  v.  Railroad  Co.,  75  N.  Y.  211, 
Folger,  .1.,  defined  "capital  stock"  as 
that  money  or  property  which  is  put 
in  a  single  corporate   fund   by   those 

who  by  Subscription   therefor  be< ic 

members  of  a  corporate  body.  Sec 
to  same  effect  Harry  v.  Exchange  Co., 
I  Sandf.  Ch.  (N.  Y.)  280.  "The  cap- 
ital stock  is  to  he  clearly  distinguished 
from  the  amount  of  property  possessed 
by  the  corporation.    Occasionally  it 

happens  that  under  the  terms  of  stat- 
utes   relating    to    slock,    which     have 

been  drawn  without  regard  to  the  tech- 
nical meaning  of  words,  the  court  will 

const  rue  the  capital  stock  to  mean  all 
the  actual  property  of  a  corporation." 

Cook  I.  §  '.i,  citing  <>hio  R.  Co.  v. 
Weber,    96   III.    148;  Philadelphia  v. 

Ridge  Avenue  R.  Co.,  102  I'a.St.  UK); 
Security   <'".   v.    Hartford,  (il  Conn. 

\ti.  hep.  699. 


§  301  CAPITAL    STOCK.  309 

terest  of  the  stockholders  in  the  corporation.  The  amount  of 
the  capital  stock  is  determined  hy  the  charter  and  remains 
fixed  except  as  increased  or  decreased  in  the  manner  provided 
by  law,  while  the  amount  of  capital  which  a  corporation  may 
acquire  is  limited  only  by  its  success  in  acquisition  and  ac- 
cumulation.1 The  value  of  the  capital  stock  is  measured  by 
the  value  of  the  corporate  property.2  The  capital  stock  deter- 
mines the  amount  of  the  capital  which  must  be  kept  unim- 
paired for  the  benefit  of  creditors  while  the  corporation  exists. 
Whatever  is  acquired  in  excess  of  this  is  surplus  and  may  be 
distributed  as  profits,  but  until  divided  such  surplus  belongs 
to  the  corporation,  and  in  a  general  sense  may  be  regarded  as 
a  portion  of  its  capital.3 

§  301.  Shares  of  stock, — A  share  of  stock  is  an  incorporeal, 
intangible  thing.4  It  is  a  right  to  a  certain  proportion  of  the 
capital  stock  of  the  corporation — never  realized  except  upon 
the  dissolution  and  winding  up  of  the  corporation — with  the 
right  to  receive  in  the  meantime  such  profits  as  may  be  made 
in  the  shape  of  dividends.5  In  other  words,  it  is  the  "  right  to 
partake  according  to  the  amount  put  into  the  fund  in  the  sur- 
plus profits  of  the  corporation,  and  ultimately  on  the  dissolu- 
tion of  it  in  the  assets  remaining  after  the  payment  of  its 
debts."6 

"The  expression,  shares  of  stock,  when  qualified  by  words 
indicating  number  and  ownership,  expresses  the  extent  of  the 
owner's  interest  in  the  corporation   property.     The  interest  is 

1  Farrington  v.  Tennessee,  95  U.S.  sNeiler  v.  Kelley,  69  Pa.  St.  403 ; 
686 ;  Wetherbee  v.  Baker,  35  N.  J.  Eq.  Wilkesbarre  Bank  v.  City  of  Wilkes- 
501;  People  v.  Coleman,  126  N.  Y.  barre,  148  Pa.  601,  24  Atl.  Rep.  Ill; 
433,  Wilgus'  Cases.  Fisher  v.  Essex  Bank,  5  Gray  373. 

2  Raleigh,  etc.,  R.  Co.  v.  Wake,  87  6Burrall  v.  Railroad  Co.,  75  N.  Y. 
N.  C.  414.  211 ;  Ohio,  etc.,  Co.  v.  Merchants,  etc., 

3  Williams  v.  Western  Union,  etc.,  Co.,  11  Humph.  (Tenn.)  1;  Fisher  v. 
Co.,  93  N.  Y.  162;  Farrington  v.  Ten-  Essex  Bank,  5  Gray  (Mass.)  373; 
nessee,  95  U.  S.  689;  Phelps  v.  Farm-  Plimpton  v.  Bigelow,  93  N.  Y.  592; 
ers'  Bank,  26  Conn.  279.  Payne  v.  Elliott,  54  Cal.  339;  Field  v. 

4Jermain  v.  Lake  Shore,  etc.,  R.  Pierce,  102  Mass.  253;  Spalding  v. 
Co.,  91  N.Y.  483;  Payne  v.  Elliott,  54  Paine,  81  Ky.  416;  Jones  v.  Davis, 
Cal.  339,  Wilgus'  Cases.  35  Ohio  St.  474. 


310  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  302 

equitable,  and  does  not  give  him  the  right  of  ownership  to 
specific  property  of  the  corporation.  But  he  does  own  the 
specific  stock  held  in  his  name,  and,  under  the  rules  of  law, 
the  property  of  the  corporation  is  held  by  the  corporation  in 
trust  for  the  stockholders."1 

§  302.  Amount  of  capital  stock. — The  charter  of  a  corpora- 
tion generally  provides  that  the  corporation  shall  have  a  cer- 
tain amount  of  capital  stock  which  is  supposed  to  represent 
a  fund  upon  which  it  obtains  credit  and  transacts  business. 
This  fund  can  not  be  increased  or  decreased  in  amount  or  num- 
ber of  shares  by  the  corporation  without  the  authority  of  the 
state.2  Stock  issued  in  violation  of  this  rule  is  void.3  But 
where  the  power  to  increase  exists  and  is  irregularly  exercised, 
the  corporation  is  estopped  to  deny  the  validity  of  the  stock  so 
issued  as  against  a  bona  fide  bolder  thereof.'  The  manner  in 
which  a  corporation  may  change  the  amount  of  its  capital 
stock  is  commonly  provided  by  the  general  corporation  laws  of 
the  state.  As  a  general  rule,  it  must  be  exercised  by  the  stock- 
holders and  not  by  the  directors.6  But  where  the  directors 
have  power  to  determine  the  amount  of  capital  stock,  they 
have  power  to  increase  the  same.  The  rule  that  a  corporation 
has  no  implied  power  to  increase  the  amount  of  its  capital 
k  when  the  charter  has  definitely  fixed  it  at  a  certain  sum, 
has  no  application  when  the  charter  docs  not  impose  any  lim- 
itation bul  expressly  authorizes  the  amount  to  be  determined 
by  by-law.  ruder  such  ci rcumstances  the  increase  may  be 
under  the  authority  of  a  by-law,  and  a  mere  resolution  of  the 

>Bridgman  v.  Keokuk, 72  Eowa  12,  ■Scoville  v.  Thayer,  105  U.S.  L4S; 

.„.,  Beck,  J.  New  York,  etc.,  E.  Co.  v.  Schuyler, 84 

..ill.-  v.  Thayer,  105  U.  8.  I  13;  N.  Y.  80. 

Sutherland   v.   Olcott,  95   N.   Y.  93;  »Veeder  v.  Mudgett,  95  N.Y.295; 

Grangers,  etc.,  CJo.  v.  Kamper,  73  Ala.  Saj  les  \ ,  Brown,  40  Fed.  Rep.  8. 

Crandall  v. Lincoln, 62  Conn.  74;  'Chicago,  etc.,  Co.  v.  Allerton,    is 

Chicago,  etc.,  R.  Co.  v.    Ulerton,  18  Wall.   I                Eidman  v.  Bowman, 

Wal]                      ,    Einstein  v    Roch-  58  III.  ill.   n   Am    Rep.  90;  Tshumi 

I    . .  i  ft  \.  Y.  46;  Ross-  v.  Hills.  8   Kan.    A.pp.   549,  51    Pac. 

Meehan  Co.  v.  Southern  iron  Co.,  72  Rep.  619. 
Rep  967  :  Jones  v.  <  loncord,  ••<<••, 
0       9  234. 


§  302  CAPITAL    STOCK.  311 

members  is  a  sufficient  by-law  for  that  purpose.1  As  in  all  other 
cases  where  there  is  no  lack  of  original  power,  the  stock- 
holders may  by  acquiescence  deprive  themselves  of  the  right 
to  object  to  the  exercise  of  such  power  by  the  board  of  direc- 
tors.* But  the  reduction  of  the  capital  is  a  different  matter. 
"Different  questions  of  public  policy  are  involved  by  a  power 
of  diminishing  capital  invested  in  said  companies.  The  rights 
of  creditors  would  be  affected  by  a  decrease.  Their  rights 
are  not  injuriously  affected  by  an  increase.  To  decrease  the 
capital  of  such  a  corporation  would  be  in  most  cases  to  with- 
draw capital  pledged  to  the  fortunes  of  the  venture.  These 
reasons  have  led  the  courts  with  great  unanimity  to  hold  that 
the  power  of  increasing  the  capital  does  not  involve  or  imply 
the  power  to  decrease  it."3  The  purchase  of  shares  of  its  own 
stock  by  a  corporation  having  authority  to  do  so  does  not 
operate  as  a  reduction  of  the  capital  stock,  when  it  did  not  re- 
serve to  itself  the  power  to  reduce  the  capital  stock.1  Where 
the  law  required  that  the  constating  instrument  shall  state  the 
amount  of  capital  stock  and  it  stated  the  amount  and  added 
that  k  might  be  increased,  the  latter  provision  was  treated  as 
a  nullity  and  the  amount  so  named  as  the  limit.5  In  order  to 
make  this  rule  effective,  the  courts  hold  that  stock  issued  in 
excess  of  the  lawful  amount  is  void  and  the  holders  of  such 
stock  do  not  become  members  of  the  corporation.6  A  corpora- 
tion which  has  been  directed  by  the  court  to  issue  a  certain 
amount  of  stock  to  different  persons,  the  aggregate  of  which 
exceeds  the  amount  authorized  by  its  charter,  should  issue  a 
proportional  amount  to  each.7 

1  Peck  v.  Elliott,  79  Fed.  Rep.  10,  47  tificate.   Gade  v.  Forest,  etc.,  Co.,  165 

IT.  S.  App.  605,  38  L.  R.  A.  616.  111.  367. 

2Bailey  v.  Champion,  etc.,  Co.,  77  4  Western,   etc.,   Co.  v.  DesMoines 

Wis.  453.  Nat'l  Bank,  103  Iowa  455. 

3  Peck  v.  Elliott,  supra;  Sutherland  5  Grangers,  etc.,  Co.  v.  Kamper,  73 

v.  Olcott,  95  N.  Y.  94.     A  corporation  Ala.  325. 

which  has  completed  its  organization,  6  Cartwright  v.  Dickinson,  88  Tenn. 

except   filing  the   certificate  that  its  476,  7  L.  R.  A.  706. 

organization  is  complete,  may  reduce  7  Clark  Co.  v.  Winchester,  etc.,  Co. 

its  capital  stock  before  filing  the  cer-  (Ky.),  43  S.  W.  Rep.  716.     As  to  es- 


312  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  303 

§  303.  Dividend  stock. — When  a  corporation  has  not  issued 
all  its  stock  or  has  authority  to  increase  its  capital  stock,  and 
there  is  no  statutory  or  constitutional  prohibition,1  it  may  is- 
sue new  shares  as  dividends  when  an  amount  of  money  or 
property  equivalent  in  value  to  the  full  par  value  of  the  stock 
so  issued  has  been  accumulated  and  permanently  added  to  the 
capital  of  the  corporation.2  ''There  is  no  public  policy  which  in 
all  cases  condemns  such  dividends.  Shares  having  been  legally 
brought  into  existence  may  be  distributed  among  the  stock- 
holders of  a  company.  By  such  distribution  no  harm  is  done 
to  any  one  person,  provided  the  dividend  is  not  a  mere  infla- 
tion of  the  stock  of  the  company,  with  no  corresponding  value 
to  answer  to  the  stock  distributed.  It  may  be  that  a  distribu- 
tion of  stock  gratuitously  to  the  stockholders  of  a  company 
based  upon  no  values,  a  mere  inflation,  or,  to  use  a  phrase 
much  in  vogue,  a  watering  of  stock,  would  be  condemned  by 
the  law.  But  when  stock  has  been  lawfully  created,  and  is 
held  by  a  corporation,  which  it  has  a  right  to  issue  for  value, 
then  a  stock  dividend  may  be  made,  provided  that  the  stock 
always  represents  value.  *  *  *  So  long  as  every  dollar  of 
stock  issued  by  a  corporation  is  represented  by  a  dollar  of  prop- 
ertv,  no  harm  can  result  to  individuals  or  the  public  from  dis- 
tributing the  stock  to  the  stockholders.  Here  there  was  no 
fraud,  no  conspiracy,  no  unlawful  combination  *  *  *  and 
we  know  of  no  principle  of  law,  no  public  policy,  and  no  stat- 
ute that  condemns  a  stock  dividend  under  such  circum- 
stances." 8 

toppel  of  certain  stockholders  to  assert    business  have  been  mad it  of  tli» 

invalidity  of  an  unauthorized  issue  of    profits  earned.     It  is  also  made  when 
ber  v.  Union,  etc.,  Co.,  56    the  corporate  plan!  has  increased  in 
(,],,,,  >t    |,si.  value  and  it  seems  better  to  issue  new 

1  See  Comw.  v.  Boston,  etc.,  R.  <'"•.    Btock  i<>  represenl  the  excess  of  value 
l  ,.j  Mass,  1  16.  ,,i;m  '"  M'"  ''"'  increase  and  declare  a 

'William"  v.  Western  Union,  etc.,    cash  dividend,     [n  this  country  these 
,  y    [52;  Leland  v.  Hayden,    dividends  an-  frequently   made  and 

102  Ma-.  642;  Gibbons  v.  Mahon,  I     are     constantly      sustained     by    the 
M  .,    ..      iso        "Corporations     fre-    courts."    Cook  I,  §  586. 
qaently  make  a  dividend  of  this  char-       ■Williamsv.  Western  Union,  etc., 
;,,(..,   when  impro  >  the  rut-    Co.,  98  N.  Y.  L62,  citing  many  cases. 

porate  property  oi  the 


§  304  CAPITAL    STOCK.  313 

It  is  discretionary  with  the  directors  whether  they  will  de- 
clare a  stock  or  cash  dividend.1 

§  304.  Stock  certificates. — A  certificate  of  stock  is  a  written 
acknowledgment  by  the  corporation  of  the  interest  of  the 
stockholder  in  the  corporate  property  and  franchises.  The 
stock  must  be  distinguished  from  the  certificate  of  stock.  The 
former  is  the  substance,  while  the  latter  is  simply  the  evi- 
dence.2 The  possession  of  a  certificate  is  not  necessary  to  con- 
stitute a  person  a  member  of  the  corporation.3  A  stock- 
holder has  a  right  to  demand  and  receive  a  stock  certificate, 
but  the  possession  of  a  certificate  is  not  necessary  to  entitle 
him  to  enjoy  the  rights  and  privileges  of  membership  in  a  cor- 
poration nor  to  impose  upon  him  the  duties  and  liabilities  in- 
cidental to  such  membership.4  An  action  may  be  brought 
against  him  upon  a  stock  subscription,  although  no  certificate 
has  been  delivered  or  tendered,  unless  the  contract  provides 
otherwise.5 

§  305.  Not  negotiable  instruments. — Certificates  of  stock 
are  not  negotiable  instruments,6  although  they  are  sometimes 

1  Howell  v.  Chicago,  etc.,  E.  Co.,  51  5Marson  v.  Deither,  49  Minn.  423; 

Barb.  (N.Y.)  378;  Jackson  v.  Newark,  Courtright  v.  Deeds,  37  Iowa  503. 

etc.,  Co.,  31  N.  J.  L.  277;  Williams  v.  60'Herron  v.  Gray,  1(38  Mass.  573, 

Western  Union,  etc.,  Co.,  supra.  40  L.  R.  A.  498;  Shaw  v.  Spencer,  100 

2Cartwright  v.  Dickson,  88  Tenn.  Mass.  382;  Sewall  v.  Boston,  etc.,  Co., 

476,  17  Am.  St.  Rep.  910;  Hawley  v.  4  Allen  (Mass.)  277;  East  Birming- 

Brumagin,  33  Cal.394;  Payne  v.  El-  ham,    etc.,    Co.    v.  Dennis,   85    Ala. 

liott,  54  Cal.  339;  Hubbell  v.  Drexel,  565,  7  Am.  St.  Rep.  73;  Hammond  v. 

11  Fed.  Rep.  115.  Hastings,    134  U.    S.  401;  Parker  v. 

8  Walter  A.  Wood,  etc.,  Co.  v.  Rob-  Sun,  etc.,  42  La.  An.  1172;  Weaver  v. 
bins,  56  Minn.  48;  Wemple  v.  Rail-  Barden,  49  N.  Y.  286;  Winter  v.  Bel- 
road  Co.,  120  111.  196;  Mitchell  v.  mont,  etc.,  Co.,  53  Cal.  428;  Weyer  v. 
Beckman,  64  Cal.  117.  Second    Nal'l    Bank,    57    Ind.    198; 

4 National    Bank    v.     Watsontown  Young  v.  South,  etc.,  Co.,  85  Tenn. 

Bank,  105  IT.  S.  217;  First  Nat'l  Bank  189,   4   Am.    St.    Rep.    752;    Clark  v. 

v.  Gifford,  47  Iowa  575;  Colfax,  etc.,  American,  etc.,  Co.,  86   Iowa  436,  17 

Co.,  v.    Lyon,  69  Iowa  683;  Buffalo,  L.  R.    A.   557.     "Corporate  stock    is 

etc.,  R.  Co.  v.  Dudley,  14  N.  Y.  336;  not  commercial  paper,  and  it  has  none 

Chester,  etc.,  Co.  v.  Dewey,  16  Mass.  of    the     privileges    and    immunities 

94;  Wemple  v.  Railroad  Co.,  120  111.  which  such  paper  has.     A   purchaser 

196;  Columbia,  etc.,  Co.  v.  Dixon,  46  takes  it  subject  to  any  debt  due  from 

Minn.  463.  the  stock  he  purchases  to  the  corpora- 


314  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  306 

said  to  be  quasi  negotiable,1  and  the  holders  are  often  protected 
through  the  application  of  the  doctrine  of  estoppel.2  To  such 
an  extent  has  the  law  of  estoppel  been  applied  to  protect  a 
bona  fide  purchaser  of  stock  that  he  is  protected  in  almost 
every  instance  where  he  would  he  protected  if  he  were  the 
purchaser  of  a  promissory  note  or  other  negotiable  instrument. 

I.    Classes  of  Stock. 

§  306.  Different  kinds  of  stock. — Corporations  often  issue 
different  kinds  or  classes  of  stock,  which  are  known  by  names 
which  illustrate  their  principal  characteristics.  Thus,  we  find 
stock  which  is  described  as  common,  preferred,  preference  or 
preferential,  guaranteed  and  bonus.  Preferred  stock  is  so 
called  because  the  holders  are  entitled  to  a  preference  over 
the  holders  of  the  common  stoek  in  the  matter  of  dividends. 
When  the  payment  is  guaranteed  without  reference  to  earn- 
ings, stock  is  known  as  guaranteed  stock.  The  phrase  "  wat- 
ered stock  "  is  commonly  used  to  describe  issues  which  have  no 
proper  basis  of  property  back  of  them,  while  bonus  stock  is 
Btock  which  is  issued  gratuitously,  without  consideration.  Some 
states  provide  for  the  issue  of  special  kinds  of  stock.  Thus,  in 
Massachusetts,  certain  corporations  may  issue  what  is  known 
as  special  stoek,  the  holders  of  which  are  creditors  of  the  cor- 
poration and  not  stockholders.3 

ti,,n."      Gilflllan,   ('.  .1.,  In  re  Peo-  whal  is  called   "special   stock."    In 

p]e'8]   etc.,   (',,..  56  Minn.    iso.    See  American,  etc.,  Works  v.  Boston,  etc., 

note 'to  •  Am.  St.  Rep.  759.     "Certifi-  Co.,  139  Mass.  5, 9,  the  court  in  discuss- 

stock  an-  aol  securities  for  ing  this  stock  says :  "It   is  limited  in 

■  v  iii  anysense,  much   less    are  amountto  two-fifths  of  the  actual  cap- 

they  negotiable  securities.    They  are  ital;  it    is  subject   to   redemption   by 

simply  the  muniments  and  evidence  tin'  corporation   at    par  after  a  fixed 

0I  the  holder's  title  to  a  given  share  time,  to  be  expressed  in  certificates; 

in  the  property  and  franchises  ol  tin-  the  corporation   is   bound   t<>    pay   a 

oration  of  which   Ik-   is  a   mem-  fixed    half-yearly    Bum    or    dividend 

Mechanic's  Bank  v.  N.  Y.  Cent.  np.ni  ii  as  a  debt;  the  holders  oi    it 

i:  |  0    |.;  \  y  are  in  no  e)  enl  liable  for  the  debt  of 

i  Daniel  Neg    [nst.  II,  f  1708.  the  corporation  beyond  their  stock; 

■  Woods  App.,  92  Pa.  St.  879.  and  the  issue  of  special  stock   makes 

•The  Massachusetts  Btatute  (Public  all  tin-  general  stockholders  liable  for 

cij(  iQ6(   ..  12-61)  provides  for  all  the  debts  and  contracts  of  the  cor- 


§  307  CAPITAL    STOCK.  315 

§  307.  Preferred  stock, — The  only  kind  of  stock  other  than 
common  entitled  to  any  particular  consideration  at  this  time, 
is  that  which  is  known  as  preferred.  Ordinarily  preferred 
stock  is  entitled  to  a  preference  in  the  payment  of  dividends 
before  anything  is  paid  on  the  common  stock.1  After  the  pre- 
ferred dividend  is  paid,  any  additional  earnings  are  used  for 
the  purpose  of  paying  dividends  upon  the  common  stock.  The 
right  of  further  participation  in  this  second  dividend  is,  of 
course,  determined  by  the  terms  of  the  contract  between  the  cor- 
poration and  the  holders  of  the  preferred  stock.  Guaranteed 
stock  generally  means  nothing  more  than  that  the  corporation 
guarantees  to  pay  a  preferred  dividend  upon  such  stock  out  of 
the  earnings  of  the  corporation,  if  there  are  any  earnings. 
Ordinarily  it  does  not  make  the  holder  a  creditor  who  is  enti- 
tled to  the  dividend  without  reference  to  earnings. 

§  308.  Power  to  issue  preferred  stock, — As  a  general  rule  a 
corporation  has  no  power  to  issue  preferred  stock  after  its  or- 
ganization, unless  expressly  authorized  to  do  so  by  its  charter 
or  by  the  laws  of  the  state.2  But  at  the  time  of  organization 
it  may,  unless  prohibited  by  statute,  provide  for  a  preference 
of  one  class  over  another,  in  respect  to  both  capital  and  divi- 
dend.3 So,  unless  expressly  prohibited  by  statute,  such  stock 
may  be  issued  at  any  time  by  the  consent  of  all  parties  affected 
thereby,  and  such  consent  may  be  inferred  from  the  acqui- 
escence of  the  stockholders.4 

poration    until    the  special   stock   is  etc.,   R.   Co.,   78  Va.  501;  Totten   v. 

fully  redeemed."  The  dividends  upon  Tison,  54  Ga.  139;  Taft  v.  Hartford, 

this  stock  are  payable  without  regard  etc.,  R.  Co.,  8  R.  I.  310;  Banigan  v. 

to  earnings.     Williams  v.  Parker,  136  Bard,  134  U.  S.  291 ;  Moss  v.  Syers,  32 

Mass.  204.  L.  J.  Ch.  Div.  (N.  S.)  711;  Anthony 

Gotten  v.  Tison,  54  Ga.  139;  Chaf-  v.  Household,  etc.,  Co.,  16  R.  I.  571, 

fee  v.   Rutland,  etc.,   R.   Co.,  55  Vt.  5  L.  R.  A.  575;  Melhads  v.  Hamilton, 

HO.  29  L.  T.   (N.   S.)  364;    Re  South  Dur- 

2  Belfast,  etc.,  R.  Co.  v.  Belfast,  77  ham,  etc.,  Co.,  L.  R.  31  Ch.  Div.  261. 

Maine,  445;  Kent  v.  Quicksilver,  etc.,  3  Hamlin  v.  Toledo,  etc.,  R.  Co.,  78 

Co.,  78  N.  Y.  159;    Campbell  v.  Amer-  Fed.  Rep.  664,  47  U.   S.  App.  422,  36 

ican,  etc.,  Co.,  122  N.  Y.  455,  11  L.  R.  L.  R.  A.  826. 

A.  596;  Chaffee  v.  Rutland,  etc.,  R.  *Hazelhurst  v.   Savannah,  etc.,  R. 

Co.,  55  Vt.  110;  Gordon  v.  Richmond,  Co.,  43  Ga.  13;  Higgins  v.  Lansingh, 


316  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  309 

§  309.  Power  of  majority. — It  is  generally  held  that  after  the 
organization  of  the  corporation  the  majority  of  the  stockhold- 
ers have  no  power  to  issue  preferred  shares  without  the  unani- 
mous consent  of  the  holders  of  the  stock  then  outstanding.  This 
rule  rests  on  the  ground  that  such  stock  impairs  the  contracts 
with  the  original  subscribers,  who  are  entitled  to  share  equally 
in  the  earnings  of  the  corporation.  "Shares  of  stock,"  said 
Folger,  J.,1  "are  in  the  nature  of  choses  in  action  and  give  the 
holder  a  fixed  right  in  the  division  of  the  profits  or  earnings 
of  the  company  so  long  as  it  exists,  and  of  its  effects  when 
dissolved.  The  right  is  as  inviolable  as  is  any  right  in  prop- 
erty, and  can  no  more  be  taken  away  or  lessened  against  the 
will  of  the  owner  than  can  any  other  right  unless  power  is 
reserved  in  the  first  instance  when  it  enters  into  the  constitu- 
tion of  the  right  or  is  properly  derived  afterward  from  a  su- 
perior law-giver." 

§  310.  Under  legislative  authority. — The  principle  stated  in 
the  preceding  section  would  prevent  the  legislature  from  au- 
thorizing the  issuing  of  preferred  stock  without  the  unani- 
mous consent  of  the  existing  stockholders.  But,  upon  the 
theory  that  the  issue  of  such  stock  is  merely  a  method  of  bor- 
rowing money,  it  has  been  held  that  the  power  to  issue  it  with- 
out the  consent  of  prior  stockholders  may  be  conferred  by  a 
statute  passed  subsequent  to  the  organization  of  the  corpora- 
tion and  the  issue  of  its  original  stock.2  But  it  is  only  when 
tin'  preferred  stock  takes  the  form  of  borrowing  that  it  creates 
a  debt,  and  in  such  cases  the  holders  are  creditors  and  not 
stockholders.8 

[64   III.  801;  Campbell  v.  American,  'Everharl  v.  Westchester,  etc.,  B. 

I  ....  L22  N.  Y.  166,  1 1  I..  B.  A..698;  Oo.,  28  Pa.  St.  889;  Curry  v.  Scott,  64 

Lockhartv.VanAlgtyne,81  Mich.  76;  Pa.  St.  270;  Rutland,  etc.,  El.  Co.  \. 

Kenl  v   Quicksilver,  etc.,  Co.,  78  N.  Thrall,  86  Vt.  686;  Covington  v.  Cov- 

Y.  i                  v.  Androscoggin,  etc.,  ington,  etc.,  Co.,  10  Bush  (Ky.)  69. 

i:  Co  .  19  Maine  191.  ■  Hazelhursl  v.  Bailroad  Co.,  18  Ga. 

1  Kent  v.  Quicksilver,  etc.,  Co.,  78  L8;  Totten  ir.Tison,  64  Ga.  L39;  West- 

N.  Y.    169;    Sutton   v.   Scarborough,  Chester,  etc.,   R.  l'<>.  v.  JackBon,  77 

2  Dre*  <*  Sm.  621.  Pa.  St.  821. 


§  311  CAPITAL    STOCK.  317 

§  311.  Estoppel. — The  doctrine  of  estoppel  maybe  invoked 
against  an  attack  on  the  validity  of  preferred  stock.  It  may 
be  invoked  against  a  corporation  which  has  received  a  consid- 
eration or  the  stockholders  who  have  participated1  or  ac- 
quiesced2 in  its  issue.  Thus  one  who  voted  for  the  issue  of 
the  stock  and  afterwards  voted  it  at  the  meetings  of  the  stock- 
holders can  not  assert  its  invalidity  after  the  corporation  has 
become  insolvent.3  So  one  who  accepted  the  stock  in  payment 
for  work  as  a  contractor  and  received  interest  on  it  for  several 
years  is  estopped  to  deny  that  he  is  a  stockholder  as  against 
the  creditors  of  the  insolvent  corporation.4 

§  312.  Status  of  holders  of  preferred  stock. — Unless  other- 
wise provided  by  statute  or  the  charter  or  contract  the  holders 
of  preferred  shares  are  stockholders  with  the  same  rights  and 
powers  in  the  management  of  the  corporation  as  the  holders 
of  the  common  stock 5  and  subject  to  the  same  general  and 
statutory  liabilities.6 

§  313.  Rights  of  holders  of  preferred  stock. — The  rights  of 
the  holders  of  preferred  shares  are  enforcible  according  to  the 
terms  of  their  contract  with  the  corporation.7  The  characteristic 
feature  of  such  stock  is  the  provision  that  the  holders  are  en- 
titled to  payment  of  the  full  stipulated  dividends  before  any 
dividends  are  paid  on  the  common  stock.  Such  dividends, 
however,  are  not  payable  absolutely  like  interest;  they  are  pay- 
able and  can  be  made  payable  legally  only  out  of  profits.8     A 

1Hazelhurst  v.  Savannah,  etc.,  R.  Co.,  162  Mass.  388;  Taft  v.   Railroad 

Co.,  43  Ga.   13;  McGregor  v.  Home,  Co.,  8  R.  I.  310;  Belfast,  etc.,  R.  Co. 

etc.,  Co.,  33  N.  J.  Eq.  181.  v.  Belfast,  77  Maine  445. 

2  Taylor  v.  South,  etc.,  R.  Co.,  13  6  Railway  Co.  v.  Smith,  48  Ohio  St. 
Fed.  Rep.  152.  219. 

3  Banigan  v.  Bard,  134  U.  S.  291.  7  Hazeltine  v.  Belfast,  etc.,  R.  Co.,  79 

4  Branch  v.  Jesup,  106  U.  S.  468.  Maine  411,  1  Am.  St.  Rep.  330,  anno- 
See  Tama,  etc.,  Co.  v.   Hopkins,    79  tated. 

Iowa  653;  Evansville,    etc.,  R.  Co.  v.  8  Boardman  v.  Lake  Shore,  etc.,  R. 

Evansville,  15  Ind.  395.  Co.,  84  N.  Y.  157;  Lockhart  v.  Van 

5  Miller  v.  Ratterman,  47  Ohio  St.  Alstyne,  31  Mich.  76;  Miller  v.  Ratter- 
141;  Warren  v.  King,  108  U.  S.  389;  man,  47  Ohio  St.  141;  Union  Pac. 
Mackintosh  v.  Flint,  etc.,  R.  Co.,  34  R.  Co.  v.  United  States,  99  U.  S.  402; 
Fed.  Rep.  582;  Field  v.  Lamson,  etc.,  Taft  v.  Hartford,  etc.,  R.  Co.,  8  R.  I. 


31S 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§333 


guarantee  of  dividends  upon  preferred  stock  in  accordance 
with  a  statute  permitting  a  guarantee  of  such  dividends,  pay- 
aide  cumulatively  out  of  net  profits,  does  not  make  the  divi- 
dend payable  absolutely.  In  such  a  case  the  corporation  can 
not  be  compelled  to  declare  a  dividend  out  of  net  profits  against 
the  judgment  of  the  directors.1  The  directors  may,  in  their 
discretion,  apply  the  earnings  toward  the  payment  of  debts  in- 
curred during  the  year  in  enlarging  a  plant  instead  of  to  the 
payment  of  dividends  on  preferred  stock.2  Holders  of  such 
stock  are  not  creditors  of  the  corporation,  and  the  stock  can 
not  be  treated  as  an  indebtedness  which  can  be  considered  in 
determining  whether  its  obligations  are  such  as  to  prevent  it 
from  engaging  in  a  certain  enterprise.3  An  agreement  to  pay 
dividends  on  preferred  stock  out  of  the  net  earnings  of  the  cor- 
poration does  not  mean  the  net  earnings  of  the  corporation  as 
it  was  when  the  preferred  stock  was  issued.  The  corporation 
may,  after  the  agreement,  incur  new  obligations  which  will 
diminish  the  net  earnings  applicable  to  such  dividends.4  A 
guaranty  of  dividends  is  construed  to  mean  a  guaranty  that 
the  dividends  will  be  paid  if  any  are  earned.5  Unless  other- 
wise provided  by  statute,  the  holders  of  preferred  stock  are  not 


310.  Stork  bearing  interest  without 
reference  to  earnings  is  generally  held 
invalid.  Miller  v.  Pittsburg,  etc.,  R. 
Co.,  id  I'M.  st.  237,  Sit  Am.  Dec.  ">70; 
Pittsburg,  etc.,  R.  Co.  v.  Allegheny 
Co.,  63  Pa.  -i.  126;  Painsville,  etc.,  R. 
c,,.  v.  King,  17  Ohio  st.  534;  Ohio 
Collei  Ro  enthal,  !■">  OhioSt.  L83; 
Cunningham  v.  Vermont,  etc,  R. Co., 
12  Gray  ill. 

1  Field    v.   Lamson,    etc.,  Co.,  162 
-.  27  I..  R.  A    [36. 
Yo,k.  etc.,  R.  Co  v.  Nickals, 
119  D\  8.  296. 

» People  v.  Bt.  Louis,  etc.,   i>'.  Co., 

:.  ,  i.    i:     \     666;    Warren  v.  King, 

l  baffee  v.    Rutland 

I;    ,  HO;  1  nt  v.  Hartford 

i;    Co.,  B  R.  [.  810,    That  preferred 


stock  may  be  so  issued  as  to  amount 
to  a  debt, see  Gordon's  Kxr's  v.  Rail- 
road Co.,  78  Va.  501.  In  Miller  v. 
Ratterman,  47  Ohio  St.  141,  the 
court  said:  "The  relation  of  the 
holder  Of  preferred  stock  is,  in  some 
Of  its  aspects,  similar  to  thai  Of  a 
creditor;  Imt  he  is  not  a  creditor  save 
as  to  dividends,  after  the  same  are 
declared.      Nor  does  he  sustain  a  dual 

relation    to   the  corporation.     He  is 

either  a  stockholder  or  a  creditor  " 
*  Bt.  John  v.  Railway  Co.,  22  Wall. 
C.S.i  136;  Warren  v.  King,  108  r.  8. 
389.      Bui  see  Pent    v.  Tramways  Co  , 

in  Ch.  Div.  84  I.  2Cum.  Cas.  Pri.  Corp. 
226. 

■' T:ift  v.  Railroad  Co.,  8  R.  I.  810; 
Miller  v.  Ratterman,  47  Ohio  Bt.  141. 


§  314  CAPITAL    STOCK.  319 

entitled  to  preference  in  the  distribution  of  the  capital  when 
a  corporation  is  wound  up.1 

§  314.  Accumulative  dividends, — When  the  dividends  are 
cumulative  and  accumulated  earnings  for  any  period  are  insuf- 
ficient to  pay  dividends  for  that  period,  such  arrears  must  be 
paid  out  of  subsequent  profits.  In  other  words,  unless  declared 
to  be  non-cumulative,  or  there  is  a  requirement  that  it  shall  be 
paid  out  of  the  net  profits  of  the  year,  or  that  the  entire  net 
profits  of  the  year  shall  be  paid  out  in  dividends,2  all  arrears 
on  dividends  on  preferred  stock  must  be  paid  before  a  divi- 
dend can  be  paid  on  common  stock.3  In  Boardman  v.  Ry. 
Co.,  supra,  the  court  says:  "The  reasonable  and  fair  interpre- 
tation of  the  contract  is  that  the  dividends  were  not  only  to  be 
preferred,  but  being  guaranteed,  were  cumulative  and  a  specific 
charge  upon  the  accruing  profits,  to  be  paid  as  arrears,  before 
any  other  dividends  were  divided  upon  the  common  stock.  The 
doctrine  that  preference  shares  are  entitled  to  be  first  paid  the 
amount  of  dividends  guaranteed  and  of  all  arrears  of  dividends 
and  interest  before  the  other  shareholders  are  entitled  to  receive 
anything,  and  although  they  can  receive  no  profits  where  none 
are  earned,  yet,  as  soon  as  there  are  any  profits  to  divide,  they 
are  entitled  to  the  same,  is  fully  supported  by  authority."4 

McGregor  v.  Home,  etc.,  Co.,  33  Prouty  v.  Michigan,  etc.,  R.  Co.,  1  Hun 

N.  J.  Eq.   181;  Gordon  v.  Richmond,  (N.  Y.)  655;  Wood  v.  Lary,  47  Hun 

etc.,  R.  Co.,  78  Va.  501.  (N.  Y.)  550. 

2  Railroad  Co.,  v.  Belfast,  77  Maine        4  Adams  v.  Ft.  Plain  Bank,  36  N.  Y. 

445;    Hazeltine   v.  Belfast,    etc.,    R.  255.     Ordinarily,  preferred  sharehold- 

Co.,    79  Maine   411,  1  Am.  St.    Rep.  ers  are  entitled  "to  have  deficiencies 

330;  New  York,  etc.,  R.  Co.  v.  Nichals,  in  their  dividends  made  up  out  of  the 

119  U.  S  .  296.  earnings  legally  applicable  to  the  pay- 

8  Boardman  v.  Lake  Shore,  etc.,  R.  ment    of  dividends,    whenever    such 

Co.,  84  N.  Y.  157;  Elkins  v.  Camden,  earnings   are  received,  in  preference 

etc.,  R.  Co.,  36  N.  J.  Eq.  233;  Bailey  to  any  payment  to  the  holders  of  the 

v.  Hannibal,  etc.,  R.  Co.,  17  Wall.  96,  common  stock.     This  right  is  inferred 

1  Dillon  (C.  C.)  174;  Henry  v.  Great  from   the   contract,  and  need  not  be 

Northern  R.  Co.,  1    DeG.  &  J.   606;  provided  for  in  express  terms.     Corry 

Harrison  v.  Mexican  R.  Co.,  L.  R.  19  v.  Londonderry,  etc.,  R.  Co.,  29  Beav. 

Eq.    358;    contra    by    statute,     26-27  263,7  Jur.   (N.  S.)  508,  30  L.  J.  Ch 

Vict.,  ch.  118,  §  14;  Lockhart  v.  Van  290." 
Alstyne,  31  Mich.  76, 18  Am.  Rep.  156 ; 


320 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§315 


II.    Nature  of  Capital  Stock. 

§  315.  Personal  property. — By  the  older  law  shares  of  stock 
were  considered  real  or  personal  property,  according  to  the 
nature,  object  and  manner  of  the  investment.1  But  these  de- 
cisions are  now  practically  obsolete,  and  it  may  be  taken  as 
the  settled  law  that  shares  of  stock  are  personal  property.2 
They  are  in  the  nature  of  choses  in  action.3  At  common  law 
such  shares  belonging  to  a  wife  do  not  vest  in  the  husband.4 
Upon  the  death  of  the  holder  of  stock  in  a  corporation,  the 
property  of  which  consists  of  real  estate,  the  shares  are  dis- 
tributed as  personal  property.5 

§  310.  Statute  of  frauds. — The  American  decisions  gener- 
ally hold  that  the  17th  section  of  the  statute  of  frauds,  which 
requires  that  every  contract  for  the  sale  of  goods,  wares  and 
merchandise  of  a  specified  value  shall  be  in  writing,  applies  to 
a  sale  of  shares  of  stock.6     Modern  English  authorities  hold 


1  Greenleaf's  Ed.  Cruise  on  Real 
Property,  39;  Tomlinson  v.  Tomlin- 
son,  9  Beav.  459;  Price  v.  Price,  6 
Dana  (Ky.)  107;  Copeland  v.  Cope- 
laud,  7  Bush  (Ky.)  349;  Wells  v. 
Cowles,  -  Conn.  567;  Johns  v.  Johns, 
1  Ohio  St.  250,  where  the  cases  are 
fully  reviewed  by  Thurman,  J. 

2  Lowndes  v.  Cooch,  87  Md.  478,  40 
l..  i:  \.  380;  Wilkesbarre  v.  city  of 
Wilkesbarre,  I  18  I'm.  601,  24  AH.  Rep. 
ill ;  Paynev.  Elliott,  54  Cal.  339;  San 

Francisco  v.  Fl 1.  64  Cal.  504;  Tre- 

gear  v.  Etiwanda,  etc.,  ( '"..  ~r<  Cal. 
537,9  \ni.  St.  Rep.  245;  Cooper  v.  Cor- 
bin,  i'»:-  IN-  224;  Seward  \.  Rising 
Sun.  79   End.  351  ;  Arnold  v.  Rag 

l  i;  i.  L65;  Dyer  v.  Osborne,  1 1  R.  I. 
821  :  Baldwin  v.  Canfleld,  26  Minn, 
c;  Excepl  in  Pennsylvania  i  Neiler 
89Pa  31  to:;,,  trover  lies  for 
the  conversion  of  Bharea  oi  stork. 
,,.  v.  Elliott,  54  Cal.  889;  Avers 
v  i  rench,  n  <  !onn.  1 12;  McAllister 
v.  Kuhu  ,  'JU  I.  Bi  87. 


3  Fisher  v.  Bank,  5  Gray  (Mass.) 
o73. 

4  Arnold  v.  Ruggles,  1  R.  I.  165. 

5  Russell  v.  Temple  (Mass.),  3  Dane's 
Abr.  108. 

6  In  Tisdale  v.  Harris.  20  Pick. 
(Mass.)  9,  Chief  Justice  Shaw  says : 
"There  is  nothing  in  the  nature  of 
shares  of  stock  in  companies  which  in 
teas r  sound  policy  should  exempt 

contracts  in  respect    to  them  from  this 

enable  restriction,  designed  by  the 

statute  to  prevent  frauds  in  the  sale  of 
other  cm  n  i  nodi  ties.     On  the  contrary, 

these  companies  have  become  so  num- 
erous, so  large  an  amount  of  the  prop- 
erty of  the  community  is  invested  in 
them" ;  and  as  the  ordinary  indicia  oi 
property  arising  from  delivery  and 
possession  can  not  take  place,  there 
seems  to  be  a  peculiar  reason  for  ex- 
tending the  provision  of  this  statute; 
ami    thus    they    may    properly    he    in- 

cluded  under  the  term 'goods,'  as  they 

arc   within  the  reason  and  policy  of 


§317 


CAPITAL    STOCK. 


321 


that  this  section  has  no  application,1  and  this  rule  is  adopted 
by  some  American  cases.2  In  some  states  the  statutes  use  the 
words  "personal  property,"  and  expressly  include  choses  in 
action.3  An  agreement  for  the  sale  of  shares  in  a  corporation 
owning  real  estate  is  not  an  agreement  for  the  sale  of  an  in- 
terest in  land,  and  need  not  be  in  writing.4 

§  317.  The  trust  fund  theory. — A  long  line  of  American  de- 
cisions establishes  the  doctrine  that  after  insolvency  the  capital 
of  a  corporation  as  represented  by  its  subscribed  capital  stock 
is  a  trust  fund  pledged  for  the  payment  of  the  debts  of  the  cor- 
poration.5 The  doctrine  has  been  applied  in  cases  where  the 
the  act.    The  court  is  of  the  opinion    498;  Richardson  v.  Green,  133  U.  S. 


that  contracts  for  the  sale  of  shares, 
in  the  absence  of    other    requisites, 
must  be  proved  by  some  note  or  mem- 
orandum in  writing."  Mason  v.  Deck- 
er, 72  N.  Y.  595;  Boardman  v.  Cutter 
128  Mass.  388 ;  Mayer  v.  Child,  47  Cal 
142;  North  v.  Forest,  15  Conn.  400 
Pray    v.    Mitchell,    00    Maine    430 
Greenwood  v.    Law,  55  N.  J.  L.  168 
Hudson  v.  Weir,  29  Ala.  294;  Green 
v.  Brokins,  23  Mich.  48;  Reed,  Statute 
of  Frauds,  §  234. 

1  Humble  v.  Mitchell,  11  Ad.  &  El. 
205 ;  Colonial  Bank  v.  Whinney,  30 
Ch.  Div.  261;  Knight  v.  Barber,  16 
Mee.  &  W.  66. 

2  Webb  v.  Railroad  Co.,  77  Md.  92; 
Whittemore  v.  Gibbs,  24  N.  H.  484; 
Vawter  v.  Griffin,  40  Ind.  593. 

3  See  Peabody  v.  Speyers,  56  N.  Y. 
230 ;  Mayer  v.  Child,  47  Cal.  142 ;  Spear 
v.  Bach,  82  Wis.  192;  Southern,  etc., 
Co.  v.  Cole,  4  Fla.  359. 

4  §315,  supra. 

5  Wood  v.  Dummer,  3  Mason  308; 
Sawyer  v.  Hoag,  17  Wall.  610;  Upton 
v.  Tribilcock,  91  U.  S.  45;  Sanger  v. 
Upton,  91  U.  S.  56 ;  Webster  v.  Upton, 
91  U.  S.  65;  Chubb  v.  Upton,  95  U.  S. 
665;  Pullman  v.  Upton,  96  U.  S.  328; 
Graham  v.  Railroad  Co.,  102  U.  S. 
148;  Morgan  Co.  v.  Allen,  103  U.  S. 

21 — Private  Corp. 


30;  Handley  v.  Stutz,  139  U.  S.  417; 
Clark  v.  Bever,  139  U.S.  96;  Fogg 
v.  Blair,  139  U.  S.  118;  Camden  v. 
Stuart,  144  U.  S.  104;  Wabash,  etc., 
R.  Co.  v.  Ham,  114  U.  S.  587 ;  Ailing  v. 
Wenzel,  133  111.  264;  Thompson  v. 
Reno  Sav.  Bank,  19  Nev.  242,  3  Am. 
St.  Rep.  797;  Marshall,  etc.,  Co.  v. 
Killian,  99  N.  C.  501,  6  Am.  St.  Rep. 
539;  Bartlett  v.  Drew,  57  N.  Y.  587; 
State  v.  Com.  Bank,  28  Neb.  677.  In 
Sanger  v. Upton,91.U.S.56, the  doctrine 
is  stated  as  follows :  "The  capital  stock 
of  an  incorporated  company  is  a  fund 
set  apart  for  the  payment  of  its  debts. 
It  is  a  substitute  for  the  personal  lia- 
bility which  subsists  in  private  co- 
partnerships. When  debts  are  in- 
curred, a  contract  arises  with  the 
creditors  that  it  shall  not  be  with- 
drawn or  applied  otherwise  than  upon 
their  demands,  until  their  demands 
are  satisfied.  The  creditors  have  a 
lien  upon  it  in  equity.  If  divested 
they  may  follow  it  as  far  as  it  can  be 
traced,  and  subject  it  to  the  payment 
of  their  claims,  except  as  against 
holders  who  have  taken  it  bona  fide 
for  a  valuable  consideration  and  with- 
out notice.  It  is  publicly  pledged  to 
those  who  deal  with  the  corporation, 
for  their  security.    Unpaid  stock  is  as 


322  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   317 

corporation  had  distributed  its  capital  among  the  stockholders 
without  providing  for  the  payment  of  creditors,  where  the  cor- 
poration released  the  subscribers  from  their  liability  to  con- 
tribute their  share  of  the  capital  stock,  and  where  it  has  trans- 
ferred the  corporate  property  to  third  persons  in  fraud  of  its 
creditors.  In  a  case  of  the  latter  character,  the  court  said: 
"The  assets  of  a  corporation  are  a  trust  fund  for  the  payment 
of  its  debts,  upon  which  the  creditors  have  an  equitable  lien, 
both  as  against  the  stockholders  and  all  transferees  except 
those  purchasing  in  good  faith  for  value."1 

It  is  the  settled  doctrine  of  the  supreme  court  of  the  United 
States  that  "the  capital  stock  of  an  insolvent  corporation  is  a 
trust  fund  for  the  payment  of  its  debts,  that  the  law  implies  a 
promise  by  the  original  subscribers  of  stock,  who  did  not  pay  for 
it  in  money  or  other  property,  to  pay  for  the  same  when  called 
upon  by  the  creditors;  and  that  a  contract  between  themselves 
and  the  corporation,  that  the  stock  shall  be  treated  as  fully 
paid  and  non-assessable,  or  otherwise  limiting  their  liability, 
therefore  is  void  against  creditors."2 

But  there  is  no  direct  and  express  trust  attached  to  the  prop- 
erty of  a  corporation.  It  is  not  "in  any  true  and  complete 
sense  a  trust,  and  can  only  be  called  so  by  way  of  analogy  or 
metaphor."3     The  true   meaning  of   the  phrase  has  recently 

much  a  part  of  this  pledge,  and  as  2  Hundley  v.  Slut/.,  139  I*.  S.  417. 
much  a  part  of  the  assets  of  the  com-  Certain  decisions  having  given  ris- 
pany,  as  1 1 1  *  -  cash  which  lias  been  to  suspicion  that  the  courl  was 
paid  in  upon  it.  Creditors  have  the  wavering  in  its  adherence  to  this 
Bame  right  to  look  to  it  as  to  any  thing  doctrine,  in  the  recent  case  Cam- 
else,  and  the  same  right  to  insist  upon  den  v.  Stuart,  111  I'.  S.  Mil,  Mv. 
its  payment  as  upon  the  payment  of  .lustier      Brown      said:      "Nothing 

any   other  debl    dm-    to  the  Company,      thai    was     said     in     the     recent    eases 

A-  regards  creditors,  there  is  no  dis-  of  Clark  v.  Bever,  139  U.S.  96;  Fogg 
tinction  between  such  a  demand  and  v.  Blair,  189  TJ.  8.  118,  or  Handley  v. 
any   Other  assets    which    may   form  a     Stutz,  l.'J!)   V.  S.   117,  was    intended   to 

part  of  the  property  and  effects  of  the  overrule  or  qualify  in  any  way  the 

corporation."  wholesome  principle  adopted  bythis 

lCole  v.   Millerton,  etc.,  Co.,    188  courl  in  the  earlier  cases,  especially 

N.  v    164.   See,  also,  Satton,  etc.,  Co.  as  applied  to  the  original  subscribers 

v.  Hutchinson,  68  Fed.  Rep.  196,  11  to  stork." 
(     0.  A.  820.  ■Pomeroy,  Eq.  Jur.  II,  §  ion;;  Gra- 


§318  CAPITAL    STOCK.  323 

been  stated  by  the  supreme  court  in  a  case  in  which  simple 
contract  creditors  came  into  a  court  of  equity  and  asked  to 
have  the  corporate  property  subjected  to  a  lien  in  their  favor. 
The  court  said:  "While  it  is  true  language  has  been  frequently 
used  to  the  effect  that  the  assets  of  a  corporation  are  a  trust 
fund  held  by  a  corporation  for  the  benefit  of  creditors,  this 
has  not  been  to  convey  the  idea  that  there  is  a  direct  and  ex- 
press trust  attached  to  the  property.  *  *  *  The  corpora- 
tion is  an  entity  distinct  from  its  stockholders  as  from  its  cred- 
itors. Solvent,  it  holds  its  property  as  any  individual  holds 
his,  free  from  the  touch  of  a  creditor  who  has  acquired  no 
lien;  free,  also,  from  the  touch  of  a  stockholder  who,  though 
equitably  interested  in,  has  no  legal  right  to,  the  property. 
Becoming  insolvent,  the  equitable  interest  of  the  stockholders 
in  the  property,  together  with  their  conditional  liability  to  the 
creditors,  places  the  property  in  a  condition  of  trust,  first  for 
the  creditors,  and  then  for  the  stockholders.  Whatever  of 
trust  there  is  arises  from  the  peculiar  and  diverse  equitable 
rights  of  the  stockholders  as  against  the  corporation  in  its 
property,  and  their  conditional  liability  to  its  creditors.  It  is 
rather  a  trust  in  the  administration  of  the  assets  after  posses- 
sion by  a  court  of  equity,  than  a  trust  attaching  to  the  prop- 
erty as  such,  for  the  direct  benefit  of  either  creditor  or  stock- 
holder."1 The  theory  has  no  application  until  the  corporation 
becomes  insolvent.2 

§  318.  Meaning  of  the  doctrine. — But  this  doctrine  does 
not  mean  all  that  the  language  used  in  some  of  the  decisions 
would  seem  to  imply.  It  is  only  in  a  limited  sense  that  the 
capital  stock  is  a  trust  fund.  No  direct  and  express  trust  at- 
taches to  the  property  of  a  corporation.  As  stated  above  it  is 
not  "in  any  true  and  complete  sense  a  trust  and  can  only  be 

ham  v.  Railroad  Co.,  102  U.  S.  148;  U.S.371.  The  limitations  upon  the  gen- 

Hollins   v.   Brierfield,  etc.,   Co.,   150  eral  language  used  in  some  of  the  cases 

U.  S.  371.     As  to  what  constitutes  a  are  also  stated  in  Graham  v.  Railroad 

withdrawal   of   corporate   assets,   see  Co.,  102  U.  S.  148;  Fogg  v.  Blair,  133 

Buck  v.  Ross,  68  Conn.  29,  57  Am.  St.  U.  S.  534,  541 ;  Railroad  Co.  v.  Ham, 

Rep.  60;  In  re  Brockway,  etc.,  Co.,  89  114  U.  S.  587. 

Me.  121,  56  Am.  St.  Rep.  401.  2  Fear  v.  Bartlett,  81  Md.  435,  33  L. 

Collins  v.  Brierfield,  etc.,  Co.,  150  R.  A.  721. 


324  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  318 

called  so  by  way  of  analogy  or  metaphor."1  Thus  the  rule 
that  where  a  creditor  has  a  trust  in  his  favor,  or  a  lien  upon 
property  for  a  debt  due  him,  he  may  go  into  equity  without  ex- 
hausting his  legal  remedies,  does  not  apply,2  because,  as  above 
stated,  there  is  no  "true  and  complete  trust."  The  general 
creditors  of  a  corporation  have  no  lien  upon  the  property  of 
the  corporation  by  virtue  of  the  doctrine  that  the  capital  stock 
is  a  trust  fund  for  the  protection  of  creditors.  Heuce  a  party 
may  deal  with  a  corporation  in  respect  to  its  property  in  the 
same  manner  as  with  an  individual  owner,  and  with  no  greater 
danger  of  being  held  to  have  received  into  his  possession 
property  burdened  with  a  trust  or  lien.  As  between  a  cor- 
poration and  its  creditors,  a  corporation  is  simply  a  debtor 
and  does  not  hold  its  property  in  trust  or  subject  to  a  lien  in 
their  favor  in  any  other  sense  than  does  an  individual  debtor.8 

The  trust  fund  doctrine  only  means  that  the  property  of  the 
corporation  must  first  be  appropriated  to  the  payment  of  the 
debts  of  the  company  before  any  portion  can  be  distributed  to 
the  stockholders  ;  it  does  not  mean  that  the  property  is  so  af- 
fected by  the  indebtedness  of  the  company  that  it  can  not  be 
sold,  transferred,  or  mortgaged  to  bona  fide  purchasers  for  a 
valuable  consideration,  except  subject  to  the  liability  of  being 
appropriated  to  pay  that  indebtedness.4  Such  a  doctrine  has 
no  existence.  If  it  was  a  real  trust  fund  it  would  be  appli- 
cable to  the  payment  of  all  the  debts  of  the  corporation,  but  it 
is  well  settled  that  only  those  who  became  creditors  before  the 
date  of  the  transaction  complained  of,  and  who  at  least  pre- 
sumptively relied  on  the  credit  of  the  fund,  can  be  heard  to 
quest  ion  its  validity.5 

But  when  "a  corporation  becomes  insolvent,  it  is  so  far 
civilly  d<ad  that  its  property  may  be  administered  as  a  trust 
fund  for  the  benefit  of  its  stockholders  and  creditors:  a  court  of 

1  Pomeroy  Eq.  Jar.  II,  §  L046;  1I<>1-  land,  etc.,  Co.,  03  Tenn.  482, 27 S.  W. 

lins  v.  Brierfleld,  etc.,  <'".,  L60  D.  8.  Rep.  660. 

871;  O'Bear,  etc.,   Co.   v.    Volfer   &  •  Fogg  v.  Blair,  133  U.  S.  684  (1890). 

Co.,  108  \l:i.  206,  28  L.  R.  A.  707.  'First    Nat'l  Bank  v.  Gustin,   etc., 

Beauregard,  L01   D.  8.  688.  Co.,  42  Minn.  827;  Hospes  v.  North- 

*  I  loll  ins  v.  Brierfleld,  etc.,  Co.,  160  western,  etc.,  ( "<•..  18  Minn.  174. 
r.  B.  871     1893       Read   v.  Cumber- 


§  319  CAPITAL    STUCK.  325 

equity,  at  the  instance  of  the  proper  parties,  will  then  make 
these  funds  trust  funds,  which  in  other  circumstances  are  as 
much  the  absolute  property  of  the  corporation  as  any  man's 
property  is  his."1 

§  319.  Criticisms. — While  this  doctrine  seems  to  be  es- 
tablished in  the  jurisprudence  of  the  United  States,  it  has 
never  been  recognized  by  the  English  courts,2  and  has  been 
characterized  in  recent  American  decisions  as  a  confusing 
device  for  accomplishing  ends  more  readily  attainable  on  well 
established  and  easily  comprehended  principles.3  It  is  appar- 
ent, from  what  has  already  been  said,  that  it  is  little  more 
than  a  formula,  and  signifies  that  the  corporation  must  pre- 
serve its  property  for  the  payment  of  its  debts  to  creditors  who 
have  become  such  in  reliance  upon  the  apparent  means  pro- 
vided for  that  purpose.  It  is  difficult  to  see  why  this  does  not 
apply  to  one  individual  as  well  as  to  a  corporation.  In  a  well 
considered  Minnesota  case,  in  which  the  whole  doctrine  is 
virtually  repudiated,  Mr.  Justice  Michell  said:4  "The  phrase 
that  the  capital  of  a  corporation  constitutes  a  trust  fund  for 
the  benefit  of  creditors  is  misleading.  Corporate  property  is 
not  held  in  trust,  in  any  proper  sense  of  the  term.  A  trust 
implies  two  estates  or  interests — one  equitable  and  one  legal — 
one  person  as  trustee,  holding  the  legal  title,  while  another  as 
cestui  que  trust,  has  the  beneficial  interest.  Absolute  control 
and  power  of  disposition  are  inconsistent  with  the  idea  of  a 
trust.  The  capital  of  a  corporation  is  its  property.  It  has  the 
whole  beneficial  interest  in  it  as  well  as  the  legal  title.  It  may 
use  the  income  and  profits  of  it,  and  sell  and  dispose  of  it  the 

*Graham  v.  Railroad  Co.,  102  TJ.  S.  Guest  v.  Worcester  R.  Co.,  L.  R.  4  C. 
148,  160;  Hollins  v.  Brierfiekl,  etc.,  P.  9.  But  contracts  for  the  sale  of 
Co.,  150  U.  S.  371;  Railroad  Co.  v.  stock  below  par  are  by  statute  re- 
Ham,  114  TJ.  S.  587.  quired  to  be  in  writing  and  registered 

2  Creditors  "  can  obtain  nothing  but  with  the  registrar  of  joint  stock  corn- 

what  the  company  can  get  from  the  panies. 

shareholders."     In  re  Dronfield,  etc.,  sHospes  v.  Northwestern,  etc.,  Co., 

Co.,17Ch.  Div.  76;  In  re  Ambrose,  48  Minn.  174;  Brant  v.  Ehlen,  59  Md. 

etc.,  Co.,  14  Ch.  Div.  390.    The  price  1. 

to  be  paid  for  shares  is  a  matter  of  4Hospes  v.  Northwestern,  etc.,  Co., 

contract  irrespective  of  the  face  value.  48  Minn.  174. 


326  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  320 

same  as  a  natural  person.  It  is  a  trustee  for  the  creditors  in 
the  same  sense  and  to  the  same  extent  as  a  natural  person,  but 
no  further."  In  the  opinion  of  the  court,  all  the  cases  in 
which  the  trust  fund  theory  has  been  advanced  could  have 
been  equally  well  founded  on  the  simple  doctrine  of  fraud. 
"By  putting  it  on  the  ground  of  fraud,  and  applying  the  old 
and  familiar  rules  of  law  on  that  subject  to  the  peculiar  nature 
of  a  corporation,  and  the  relation  which  its  stockholders  bear 
to  it  and  to  the  public,  we  have  at  once  rational  and  logical 
ground  on  which  to  stand.  The  capital  of  a  corporation  is 
the  basis  of  its  credit.  It  is  a  substitute  for  the  individual 
liability  of  those  who  own  its  stock.  People  deal  with  it  and 
give  it  credit  on  the  faith  of  it.  They  have  a  right  to  as- 
sume that  it  has  paid  in  capital  to  the  amount  which  it  repre- 
sents itself  as  having,  and  if  they  give  it  credit  on  the  faith  of 
that  representation,  and  if  the  representation  is  false,  it  is  a 
fraud  upon  them,  and,  in  case  the  corporation  becomes  insolv- 
ent, the  law  upon  the  plainest  principles  of  common  justice  says 
to  the  delinquent  stockholder:  'Make  that  representation  good 
by  paying  for  your  stock.'  It  certainly  can  not  require  the 
invention  of  any  new  doctrine  in  order  to  enforce  so  familiar 
a  rule  of  equity." 

III.  Fraudulently  Issued  Stock. 
§  320.  Overissue  of  stock. — Stock  issued  accidentally  or 
fraudulently  in  excess  of  the  limit  fixed  by  law  is  invalid, 
even  in  tic  hands  of  a  bona  tide  purchaser  for  value,1  and  the 
corporation  may  have  it  declared  void  and  ordered  canceled.1 
'rip-  holding  <»f  such  stock  confers  no  rights  of  membership 

lipOE    tip-    holder;    he    does    not    become    a    stockholder1  and    is 

qoI  Liable  on  his  subscription  as  such :' 

§321.  Bona  fide  holders  of  fraudulently  issued  stock. — A 
bona  tide  holder  of  fraudulently  issued  stock,  which  is  repre- 
sented by  certificates  signed  by  the  corporation  officers  ha\  ing 

igcoville  ^.Thayer,   105 1  .8.  L43;       »New  York,  etc.,  R.  Co.  v.  Schuyler, 

Bank    v.   Kurtz,  99  I'm.  si.   344;    Mi.    84  V  V.  30. 

Holly,  etc.  Company's  App.,  99  I'm.       *  Arkansas,  etc.,  <'".   v.  Farmers', 
,13.  etc    Co  .  i::  Colo.  587. 

'Clark  v.  Turner,  7.'i  <  la.  1. 


§  322  CAPITAL    STOCK.  327 

authority  to  issue  stock  and  actually  issued  by  such  officers, 
may  recover  damages  sustained  by  reason  of  the  issue  of  such 
stock  from  the  corporation.1  Under  such  circumstances  the 
corporation  is  estopped  to  deny  its  liability  for  loss  arising  from 
the  worthless  character  of  the  certificates  issued  by  the  acts  of 
its  officers  within  the  apparent  scope  of  their  authority.  In- 
formation given  by  a  person  in  charge  of  the  office  of  a  corpora- 
tion that  a  certain  certificate  of  stock  is  genuine  and  in  a  con- 
dition for  transfer  was  held  to  estop  the  corporation  from  de- 
nying its  liability  to  indemnify  the  transferee  against  loss,  be- 
cause of  its  spurious  character.2  The  corporation  is  liable  to 
any  one  injured  by  reason  of  the  spurious  character  of  the 
certificate.  Merely  directing  an  employe  to  cancel  surrendered 
certificates  gives  him  neither  express  nor  implied  authority  to 
reissue  them,  and  the  corporation,  in  such  a  case,  is  not  liable 
for  damages  caused  by  their  wrongful  use  to  secure  a  personal 
loan.3  The  liability  in  such  cases  rests  upon  the  principle 
that  the  acts  of  a  corporation  through  its  officers  of  issuing 
spurious  certificates  of  stock,  when  accepted  and  acted  upon 
by  another  in  good  faith,  estops  the  corporation  from  denying 
its  liability  to  the  bona  fide  taker  of  the  shares  for  the  loss 
that  he  has  thereby  sustained. 

§  322.  Estoppel  by  recital  in  stock  certificate. — A  stock 
certificate  issued  by  a  corporation  having  power  to  issue  it,  in 
which  it  is  stated  that  a  designated  person  is  the  owner  of  a 
certain  number  of  shares,  transferable  only  on  the  books  of 
the  corporation  on  the  indorsement  and  surrender  of  the  cer- 
tificate, is  a  continuing  affirmation  as  to  the  ownership  of 
stock,  and  that  the  corporation  will  not  transfer  the  stock 
upon  its  books  unless  the  certificate  is  first  surrendered.  Such 
a  certificate  is  an  assurance  to  the  commercial  world  that  the 
shares  of  stock  are  the  property  of  the  person  designated  and 
that  he  has  the  power  and  right  to  transfer  and  sell  the  stock 
until  this    power  and   right  have  been  lawfully  terminated. 

2Ne\v  York,  etc.,  R.  Co.  v.  Schny-  Marvis  v.  Manhattan   Beach   Co., 

ler,  34  N.  Y.  30;  Allen  v.  South  Bos-  148  N.  Y.  652,  31  L.  R.  A.  776. 

ton,  etc.,  R.    Co.,  150  Mass.    200,  15  3  Knox  v.  Eden,  etc.,  Co.,  148  N.  Y. 

Am.  St.  Rep.  185.  441,  31  L.  R.  A.  779. 


S2S  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  323 

Such  a  representation  tends  to  enhance  the  value  of  the  stock, 
and  must  be  presumed  to  have  been  made  with  the  expectation 
that  it  would  be  acted  upon  by  others.1  In  an  action  against 
the  officers  who  fraudulently  issued  stock  certificates,  the  court 
said,  with  reference  to  the  certificates:  "They  authenticated 
them,  fraudulently  and  falsely  attested  them  as  genuine.  They 
bore  on  their  face  such  false  attestation,  which  was  equivalent 
to  an  assertion  on  their  part  to  all  persons  who  should  pur- 
chase or  to  whom  they  should  be  offered  that  they  were 
genuine.  In  this  way  they  invited  confidence  and  induced 
trade.  These  acts  were  done  with  intent  to  defraud  any  and 
all  purchasers,  well  knowing  that  any  person  to  whose  hands 
tlnse  false  certificates  should  come  by  fair  purchase  might  be 
injured.  Therefore,  having  authenticated  and  issued  these 
certificates  for  the  purpose  of  defrauding,  these  defendants 
should  be  held  liable  to  anyone  sustaining  damage  by  pur- 
chasing on  the  faith  of  their  genuineness.2  It  has  been  held 
that  fraudulent  certificates  are  not  misrepresentations  to  the 
general  public  but  to  the  original  grantees  only,  upon  the  prin- 
ciple that  an  admission  or  representation  is  no  estoppel  in 
favor  of  a  stranger.3  But  "it  is  believed  that  the  courts  have 
gone  far  enough  to  establish  a  rule  precisely  the  contrary."4 

§  323.  Liability  for  fraudulent  acts  of  agents. — By  the  ap- 
plication of  the  ordinary  rule  of  respondeat  superior,  a  corpo- 
ration is  liable  in  damages  to  one  who  has  been  defrauded  by 
the  acl  of  an  agent  or  officer  of  a  corporation  in  issuing  ficti- 
tious stock."  If  the  issue  of  the  stuck  is  within  the  power  of 
the  corporation,  the  recitals  in  its  certificate  are  binding  upon 
the  corporation  and  it  is  obliged  to  ad  mil   the  innocent  holder 

the  certificate  to  the  rights  of  a  stockholder.6    So  the  corpo- 

'Joslyn  v.  st.    Paul,  etc.,  Co.,   n  ing Eaton,  etc.,  Co.  v.  Avery, 83  N.  Y, 

Minn.  L83;  Cincinnati,  etc.,  R.  Co.  v.  81,  88    \m.   Rep.  889,  ae  establishing 

Citizens'  Nat']  Bank,  66  Ohio  St.  861,  this  principle  in  connection  with  the 

i..  R,  \.  777.  liability  of  commercial  agencies. 

•Brnflv,  Mali,  86  N.  Y  200.  'Jarvisv.  Manhattan,  etc.,  Co.,  148 

•Mechanics' Bank  v.  New  York,  etc.,  N.  Y.  652,  31  L   R.  A.  776. 

I;.  ( !o  .  18  V  Y  •  ''<  lincinnati,  etc.,  Co.   v.  Citizens' 

'Thompson  I'riv.  Corp.,  j  L500,  cit-  Nat'l  Bank,  66  Ohio  St.  851 ;  Manhat- 


§  323  CAPITAL   STOCK.  329 

ration,  by  failing  to  act  promptly,  may  lose  the  right  which, 
under  some  circumstances,  it  might  have,  to  have  fraudulent 
shares  surrendered  up  and  canceled.  By  acquiescence  it  is 
held  to  have  ratified  the  issue.1  But,  when  there  is  an  over- 
issue of  shares,  the  holder  acquires  no  rights  as  a  stockholder, 
and  any  holder  of  genuine  shares  may  maintain  a  suit  in 
equity  to  have  the  illegal  shares  canceled  or  to  prevent 
the  corporation  from  in  any  way  recognizing  them.2  A  dis- 
tinction has  been  made  between  a  case  where  the  fraudulent 
issue  was  made  by  the  agent  for  his  own  benefit,  and  where  it 
was  made  by  him  while  acting  for  the  corporation.  In  the 
former  case  it  is  held  that  the  holder  of  the  certificate  had  no 
right  of  action  against  the  corporation  for  damages,  on  the 
theory  that  the  purchaser  of  a  non-negotiable  instrument  takes 
only  the  title  of  the  seller.3  But  this  position  does  not  seem  to 
be  supported  by  the  best  authorities.  Where  the  agent  issues 
the  stock  fraudulently  to  persons  who  are  dealing  with  the 
corporation  through  him,  there  is  no  doubt  as  to  the  liability 
of  the  corporation  for  damages  caused  to  a  bona  fide  holder. 
In  the  well-known  Schuyler  cases  it  appears  that  Schuyler  was 
the  president  and  director  of  the  company,  and  for  many 
years  acted  as  its  transfer  agent  at  New  York  city,  under  an 
appointment  general  in  terms.  During  this  time  he  issued 
great  numbers  of  fraudulent  overissued  certificates,  and  the  cor- 
poration was  held  liable  in  damages  to  the  holders.  It  was 
held  that  the  false  certificates  and  fraudulent  transfers  did  not 
create  valid  stock  of  the  corporation  as  "a  corporation  with  a 
fixed  capital  divided  into  a  fixed  number  of  shares  can  have 
no  power  of  its  own  volition,  or  by  any  act  of  its  officers  or 
agents  to  enlarge  the  capital  or  increase  the  number  of  shares 
into  which  it  is  divided;"  that  if  such  a  result  can  not  be  ac- 

tan,  etc.,  Co.  v.  Harned,  27  Fed.  Rep.  s  See  Tome  v.  Ry.  Co.,  39  Md.  36, 17 

484-  Am.  Rep.  540;  Willis  v.  Fry,  13  Phila. 

1  American,  etc.,  Co.  v.  Bayless,  91  33;  Mechanics' Bank  v.  N.  Y.,   etc., 

Ky-  94-  R.  Co.,  13  N.  Y.  599 ;  overruled  by  N. 

8  Campbell  v.  Morgan,  4  111.  App.  Y.,  etc.,  R.  Co.  v.  Schuyler,  34  N.  Y. 

100;    Underwood  v.  N.  Y.,  etc.,   R.  30,  and   see  Titus  v.  Great  Western, 

Co.,  17  Howard's  Practice  N.  Y.  537.  etc.,  Co.,  61  N.  Y.  237. 


330 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§324 


coraplished  directly,  "it  is  absurd  to  suppose  that  it  can  be 
produced  by  the  covert  or  fraudulent  efforts  of  one  or  more  of 
the  agents  of  the  corporation."1  Fraudulently  issued  stock 
certificates  may,  however,  by  estopped  bind  the  corporation 
either  to  indemnify,  or  issue  valid  certificates  to,  one  who,  in 
good  faith,  relies  upon  the  act  of  the  corporation  in  issuing 
them.2  The  corporation  is  liable  in  damages  if  a  certificate  of 
stock  is  fraudulently  issued  to  a  purchaser  by  its  treasurer 
with  whom  blank  certificates  signed  by  the  president  have  been 
left.3  Stock  certificates  issued  by  the  officers  of  the  corporation 
with  apparent  authority,  fraudulently  or  by  mistake,  which 
do  not  amount  to  an  overissue,  are  valid  as  against  the  corpora- 
tion in  the  hands  of  bona  fide  purchasers.4 

§  324.  Fraudulent  acts  of  agents*  continued. — The  liability 
of  a  corporation,  on  stock  fraudulently  issued  by  its  officers, 
was  recently  given  careful  consideration  by  the  supreme  court 
of  Ohio.5     The  conclusion  was  that  one  who  purchases  a  cer- 

1  X.  Y.,  etc.,  R.  Co.  v.  Schuyler,  34  the  fraud.  If  the  extent  of  his  agency 

N.  Y.  30.  included   the   legitimate  doing  of  an 

'Appeal  of  Kisterbock,  127  Pa.  St.  act  of  the  kind  done,  then  it  will  be 

601,  11  Am.  St.  Rep.  868.  liable,  though  the  act  done  was  a  fraud 

1  Allen  v.  South  Boston,  etc.,  R.  Co.,  as  to  it  ami  other  persons.     As  loan 

L50  Mass.  200,  15  Am.  St.  Rep.  185.  innocent  third  person,  affected  by  the 

•  Fifth  Avenue  Bank  v.  Forty-second  agent's  wrongful  act,  the  negligence 

Street,  etc.,  Ferry  R.  Co.,  137  N.  Y.  of  the  company  in  not  discovering  or 

231,  33  N.  E.  Rep    378;   Farrington  v.  preventing  the  fraud  may  accentuate 

Railroad  Co.,  150  Mass. 406;  Tome  v.  his  right  of  recovery,  bul  does  not,  as 

Railroad  Co.,  39  M<l.  36;  17  Am.  Rep.  I   apprehend,  add   to  nor  create  thai 

540.  ris_'l  it . 

'Cincinnati,  etc.,  Co.  V.  Citizens'  "The  plaintiff  in  error  relies  much 
Nat'l  Bank,  56  Ohio  St.  351,  13  L.  R.  upon  the  case  of  Moores  v.  Citizens' 
A.  777.  Thecourt  said:  "Insomeof  Nat'l  Bank,  ill  U.  S.  156,28  L.  ed. 
the  cases  importance  has  been  at-  385.  We  think  it  Bufficienl  to  dis- 
tached  to  the  negligence  of  the  com-  tinguish  thai  case  from  this  that  the 
pany,  through  its  proper  agents,  in  courl  there  found  thai  the  plaintiff 
nol  supervising  the  condm-t  of  its  made  the  cashier  of  the  bank,  who 
business,  and  whereby  the  particular  committed  the  fraud,  her  agent  to  pro- 
has  been  enabled  to  perpetrate  cure  and  have  transferred  to  berthe 
l  i  frauds.  Bu1  I  apprehend  that,  stock  on  which  she  proposed  to  loan 
upon  an  accurate  analysis  of  the  com-  him  the  money,  and  thai  in  doingso 
pany'a  liability  in  such  a  case,  it  will  he  acted  for  her,  and  nol  the  bank; 
found  i"  real  on  if-  liability  for  and,  therefore,  thai  she,  and  nol  the 
kcteol  theagenl  who  perpetrated  bank,  wa    responsible  for  his  wrong- 


§324 


CATITAL    STOCK. 


331 


tificate  of  stock  which  is  in  the  usual  form,  without  knowledge 
of  any  fraud  in  its  issue,  is  entitled  to  have  it  transferred  to  him 
on  the  books  of  the  company,  or  upon  demand  and  refusal 
to  transfer,  is  entitled  to  recover  its  value  at  the  time  of  the 
demand.   Where  certificates  of  stock  are  required  to  be  issued  by 


ful  act  in  filling  up  the  certificate  in 
fraud  of  the  hank  as  well  as  of  the 
plaintiff.  If  the  court  was  right  in 
its  assumption  as  tothefactof  agency, 
then  the  decision  can  have  no  appli- 
cation to  this  case,  because  there  is 
no  such  feature  in  it.     *     *     * 

"It  may  be  further  observed  that  the 
case  does  not  seem  to  be  in  harmony 
with  Allen  v.  South  Boston  R.  Co.,  150 
.Mass.  200,  5  L.  R.  A.  710,  where,  on 
a  state  of  facts  quite  similar,  the  court 
held  the  treasurer  who  committed  the 
frauds  to  be  the  agent  of  the  company, 
and  not  of  the  party  purchasing  the 
stock.  The  case  of  Olaflin  v.  Farm- 
ers', etc.,  Bank,  25  N.  Y.  293,  has 
been  cited  as  sustaining  the  conten- 
tion of  the  railway  company.  But 
this  case  was  distinguished  from  a 
case  like  the  present  one  by  the  court 
delivering  the  opinion,  as  well  as  by 
the  same  court  in  the  later  case  of 
Titus  v.  Great  Western,  etc.,  Co.,  01 
N.  Y.  237.  In  the  former  case  the 
president  of  a  bank,  having  a  general 
authority  to  certify  checks  upon  it  as 
good,  certified  one  in  his  own  favor. 
This  the  court  held  was  out  of  the 
ordinary  course  of  business,  and  con- 
trary to  business  and  legal  rules,  and 
not  within  the  scope  of  the  agency, 
but  was  particular  to  distinguish  it 
from  the  issuing  or  transfer  of  a  cer- 
tificate of  stock.  The  recent  case  of 
Knox  v.  Eden  Musee,  etc.,  Co.,  148 
N.  Y.  441,  31  L.  R.  A.  779,  needs  to  be 
noticed.  In  that  case  it  will  be  ob- 
served that  Jurgens,  the  wrongdoer, 
was  not  the  agent  of  the  company  to 
issue  or  transfer  stock.     His  employ- 


ment was  simply  to  cancel  surren- 
dered stock.  Surrendered  certificates 
were  by  him  abstracted  from  the  safe 
of  the  company  ami  pledged  as  secur- 
ity for  a  loan.  With  respect  to  this 
the  court  said:  'If  it  can  be  said 
that  the  direction  of  the  president  to 
Jurgens  to  cancel  the  certificates  made 
him  the  agent  of  the  company  for  that 
purpose,  it  was  an  authority  to  de- 
stroy, and  not  use.  His  act  in  ab- 
stracting them  from  the  safe  and  utter- 
ing them  as  valid  certificates  had  no 
relation  to  the  authority  conferred. 
It  was  not  an  act  of  the  same  kind  as 
that  which  he  was  authorized  to  per- 
form. He  had  no  apparent  authority 
to  issue  them  as  genuine  certificates, 
because  he  had  no  authority  to  issue 
certificates  for  any  purpose.'  This 
broadly  distinguishes  the  case  from 
the  one  before  us.  No  disposition  is 
shown  to  modify  the  doctrine  of  the 
same  court  as  announced  in  many 
previous  cases  as  to  the  liability  of  a 
corporation  for  the  acts  of  its  agents 
done  within  the  scope  of  their  em- 
ployment, although  not  only  negli- 
gently, but  even  fraudulently,  done, 
and  contrary  to  the  purpose  and  in- 
structions of  the  company.  This 
clearly  appears  from  the  decision  in 
Jarvis  v.  Manhattan,  etc.,  Co.,  148  N. 
Y.  652,  31  L.  R.  A.  776,  decided  at  the 
same  term.  The  case  draws  the  dis- 
tinction between  negotiable  instru- 
ments and  certificates  of  stock.  The 
former,  though  lost  or  stolen,  are 
available  in  the  hands  of  an  innocent 
purchaser  for  value,  whereas  the  lat- 
ter are  not." 


332 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§324 


the  president  and  secretary  under  the  seal  of  the  company, 
and  no  other  mode  is  provided  or  can  be  used,  and  neither 
the  president  nor  the  secretary  is  prohibited  from  holding  stock, 
and  both,  with  its  knowledge,  do  in  fact  hold  stock,  the  fact 
that  a  certificate  is  issued  in  favor  of  the  secretary  is  not  of 
itself  sufficient  to  put  a  party  on  inquiry  as  to  whether  the 
secretary  is  rightfully  the  owner  of  it.  By  reason  of  what  ap- 
pears on  the  face  of  a  certificate  of  stock,  and  the  fact  that,  as 
a  matter  of  general  knowledge  in  the  business  world,  such 
certificates  of  stock  are  extensively  purchased  as  investments 
with  no  other  inquiry  than  as  to  the  genuineness  of  the  signa- 
tures of  the  officers  to  the  certificates,  and  that  such  use  of 
them  adds  to  the  value  of  the  stock  of  a  company,  and  is 
largely  to  its  advantage,  the  company  is  charged  with  the  duty 
of  observing  care  in  their  issue,  and  of  supervising  their 
agents  charged  with  the  performance  of  the  duty.  This  is  a 
duty  it  owes  to  all  persons  dealing  in  its  stock,  and  if  by 
reason  of  its  negligence  in  this  regard,  spurious  stock  is  issued, 
it  is  liable  in  damages  to  any  one  purchasing  it  for  value  with- 
out knowledge'  of  its  fraudulent  character.  The  failure  of  a 
party  under  such  circumstances  to  inquire  at  the  office  of  the 
company  is  not  such  negligence  as  will  deprive  him  of  the 
right  to  recover,  although  such  inquiry  would  have  disclosed 
the  fraudulent  character  of  the  certificates.  The  liability  of 
the  corporation  under  such  circumstances  is  supported  by  the 
great  weight  of  authority.1     A  corporation   is   liable  to  bona 

'Western,  etc.,  R.  Co.  v.  Franklin  55  X.  Y.  II,  11  Am.  Rep.  17:;:  Hoi- 
Bank,  60  M<  l .  •';•• ;  New  York,  etc.,  R.  brook  v.  New  Jersey,  etc.,  Co.,  57  N. 
Co.  v.  Schuyler,  34  N.  Y.  30;  Bank  oi  Y.  616;  Bridgeport  Bank  v.  New 
Kentucky  v.  Schuylkill  Bank,  I  Para.  York,  <•!<■..  R.  Co.,  80  Conn.  231; 
Eq.  Cas.  180,  affirmed  on  appeal  by  Tome  v.  Parkeraburg,  etc.,  R.  Co.,  39 


th^  supreme  courl ;  Hackensack,  etc., 
Co.  v.  De  Kay,  :;<'>  N.  J.  Eq.  548; 
Merchants'  Bank  v.  sea-'  Bank,  i" 
Wall.  604,  l'.'  I.,  ed.  L008;  People's 
Bank  v.  Kurtz,  99  Pa.  3t.  344,  M  km. 
112;  Titus  v.  <  treat  Westei n  Turn- 
pike Road, 61  N.  V.  237;  Brufl  -..  Mali, 
..  V.  200;  McNeil  v.  Tenth  Nat'l 
Bank,  16  N.  V.  :;•-'■">,  7  Am.  Rep.  841; 
Moore  v.   M<  tropolitaa  Na1 1    Bank, 


Md.  36,  17  Am.  Rep.  540;  Willis  v. 
Fry,  L3  Phila.33;  Firsl  Nat'l  Bank  v. 
Lanier,  n  Wall.  869;  Allen  v.  South 
Boston  R.  Co.,  L50  Mass.  200,  5  L.  K. 
A.  716;  Jarvis  v.  Manhattan,  etc., 
Co.,  i  is  N.  V.  652,  31  i ..  i:  \.  776; 
Fifth  Avenne  Bank  v.  Forty-second 
Street,  etc.,  R.  (V.  187  N.  Y.  281,  L9 
I..  R.  A. 


§  325  CAPITAL    STOCK.  333 

fide  holders  of  forged  certificates  regular  on  their  face,  but 
fraudulently  issued  by  the  secretary  who  was  also  the  treasurer 
and  transfer  agent,  and  who  countersigned  them  in  his  official 
capacity  after  forging  the  signature  of  the  president.1 

The  title  of  the  true  owner  of  a  lost  or  stolen  stock  certifi- 
cate may  be  asserted  even  against  one  who  subsequently  ac- 
quires it  in  good  faith  for  value.2 

§  325.  Liability  to  innocent  purchasers  only. — The  liability 
of  the  corporation  to  a  holder  of  stock  issued  fraudulently  or 
in  excess  of  its  power  is  to  those  only  who  acquire  the  stock 
without  knowledge  of  its  fraudulent  character.  There  is  no 
estoppel  in  favor  of  one  who  had  knowledge  of  its  invalidity, 
or  of  facts  sufficient  to  put  him  upon  inquiry.3  A  statement 
in  the  certificate  received  that  no  certificate  can  be  lawfully 
issued  without  the  surrender  of  the  old  certificate  is  sufficient 
to  deprive  the  person  receiving  it  of  the  status  of  an  innocent 
purchaser.  The  certificate  was  issued  by  the  cashier  of  a  bank 
as  security  for  his  personal  debt.  The  court  said  that  none 
of  the  cases  affirmed  a  broader  doctrine  than  this.  "  A  cer- 
tificate of  stock  in  a  corporation,  under  the  corporate  seal  and 
signed  by  the  officer  authorized  to  issue  certificates,  estops  the 
corporation  to  deny  its  validity  as  against  one  who  takes  it  for 
value,  and  with  no  knowledge  or  notice  of  any  fact  tending 
to  show  that  it  has  been  irregulary  issued."4  But  the  fact 
that  a  certificate  of  stock  is  issued  in  favor  of  the  secretary  of 
the  corporation  is  not  sufficient  to  put  a  purchaser  upon  in- 

1  Fifth     Avenue     Bank    v.     Forty-  111  U.  S.  156.    In  Farrington  v.  South 

second  Street,  etc.,  R.  Co.,  137  N.  Y.  Boston,  etc.,  Ry.  Co.,  150  Mass.  406, 

231,  19  L.  R.  A.  331,  annotated.  15  Am.  St.  Rep.  222,  it  was  held  that 

8 Knox  v.  Eden,  etc.,  Co.,  148  N.  Y.  the  corporation  was  not  estopped  to 

441,  31  L.  R.  A.  779,  §  450,  infra.     As  deny  the  validity  of  stock  certificates 

to  the   liability  of   the   company   for  fraudulently  issued  by  one  of  its  offi- 

making  a  transfer  of  shares  upon  the  cers  to  secure  a  private  debt  when  the 

authority   of  a  forged   power   of    at-  creditor  knew  that  the  surrender  and 

torney,  see   §  452,  and   Pennsylvania  transfer  of  the   old   certificate   were 

Co.   v.   Franklin,    etc.,   Co.,   181  Pa.  prerequisites  to  the  lawful  issue  of  the 

St.  40,  37  L.  R.  A.  780.  new  one  and  took  no  steps  to  see  that 

3  Byers  v.  Rollis,  13  Colo.  22.  this  was  done. 

*Moores  v.   Citizens'   Nat'l   Bank, 


334  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  326 

quiry  as  to  whether  he  is  rightfully  the  owner,  where  no  other 
mode  of  issuing  stock  than  by  the  president  or  the  secretary 
under  the  corporate  seal  is  provided,  and  neither  the  secretary 
nor  the  president  is  prohibited  from  holding  stock.1 

§  320.  Recovery  of  money  paid  for  void  shares. — The  trus- 
tees of  a  corporation  organized  under  the  New  York  manu- 
facturing act  passed  a  resolution  increasing  its  capital  stock 
from  $1,000,000  to  $1,200,000,  allowing  each  shareholder  to 
take  one  share  of  the  new  stock  for  each  five  shares  of  the 
original  stock  which  he  held,  and  providing  that  on  his  pay- 
ing $80  on  each  share  of  $100,  a  certificate  for  full  paid  stock 
should  be  issued  to  him  by  the  company,  and  on  his  failure  to 
pay  an  installment  of  $20  per  share  on  or  before  a  specified 
date,  his  claim  to  the  new  stock  should  be  forfeited,  and  such 
forfeited  shares  divided  ratably  among  the  other  stockholders 
who  had  paid  that  installment.  A  subscription  agreement 
binding  the  subscribers  thereto  to  take  stock  and  pay  $80  per 
share  in  installments  as  they  should  be  called  for  by  the  com- 
pany, and  <m  failure  to  pay  any  installment  to  submit  to  the 
forfeiture  of  all  sums  theretofore  paid,  was  signed  by  one  of 
the  trustees  who  had  been  active  in  the  promotion  of  the 
Bcheme  for  the  increase  of  the  stock.  He  paid  one  install- 
ment of  twenty  per  cent.,  and  upon  failure  to  pay  another  tin; 
stock  was  forfeited.  The  capital  stock  was  afterwards  reduced 
and  bonds  issued  to  refund  the  payments  made  on  the  new 
stock  which  was  thus  withdrawn.  The  trustee,  whose  stork 
had  been  forfeited,  received  none  of  the  bonds  and  sued  to  re- 
cover tin'  amount  he  had  paid,  and  was  allowed  to  recover  on 
the  ground  that  the  contract  remained  executory,  and  although 
prohibited  by  law  was  not  malum  ins,."    The  plan  to  increase 

the  BtOCk  was  in  violation  Of  the  law, "  but  the  court  adopted  the 

rule  as  stated  by  Parsons:   "  'All  contracts  which  provide  that 
anything  Bhall  be  done  which  is  distinctly  prohibited  by  law,  or 

i Cincinnati,  etc.,  R.  Go.  v.  Citizens'  49,  but  see  Clark  v.  Lincoln,  etc.,  Co., 
Nat']   Bank,  66  Ohio  St.  861,  47  N.  B.    69  Wis.  655;  Potter  v   Necedah,  etc., 

Cm.  (Wis.),  mi  N.  W.  Rep.  88. 

•Spring  Co.  v.  Knowl  ton,  103  U.  8        •Knowlton  \    Congress,  etc.,  <'<-, 

.,  \ .  Y .    ns ;  Parsons  Cont inns.  vol. 
2,    p.   7J»i. 


§  327  CAPITAL    STOCK.  335 

morality,  or  public  policy,  are  void,  so  he  who  advances 
money  in  consideration  of  a  promise  or  undertaking  to  do 
such  a  thing  may  at  any  time  before  it  is  done  rescind  the 
contract  and  prevent  the  thing  from  being  done  and  recover 
back  his  money.'  " 

§  327.  Payment  for  stock, — To  the  amount  authorized  by 
its  charter  a  corporation  may  issue  its  stock  in  pursuance  of  a 
contract  of  subscription,  and  accept  in  payment  therefor  either 
cash,  labor  or  property,  taken  at  a  reasonable  valuation. 
While  stock  need  not  be  paid  for  in  cash,  it  must  be  paid  for 
in  the  equivalent  of  cash.1  The  property  accepted  in  pay- 
ment must  be  at  a  fair  and  just  valuation,  fairly  equivalent  to 
what  it  is  worth  in  money  and  equal  to  the  par  value  of  the 
stock.2  Whatever  may  have  been  formerly  held,  it  is  now 
established  that  subscriptions  to  corporate  stock  need  not, 
in  the  absence  of  statutory  provisions  requiring  it,  be  paid 
for  in  cash.  The  principle  is  generally  accepted,  both  in 
England  and  America,  that  any  property  which  the  corpora- 
tion is  authorized  to  purchase,  or  which  is  necessary  for  the 
purposes  of  its  legitimate  business,  may  be  received  in  pay- 
ment for  its  stock.  Any  payment,  whether  it  be  in  money  or 
money's  worth,  so  that  it  be  in  good  faith,  will  give  the  shares 
so  paid  for  the  status  of  paid-up  stock.3  In  the  language  of 
Lord  Justice  Gifford  in  Drummond's  case:    If  a  man  contracts 

1  Gamble  v.  Queens  County,  etc.,  same  relation  to  the  property  that  he 
Co.,  123  N.  Y.  91,  25  N.  E.  Rep.  201;  previously  sustained,  does  not  con- 
Wetherbee  v.  Baker,  35  N.  J.  Eq.  stitute  a  contract  of  bargain  and  sale 
501 ;  Douglass  v.  Ireland,  73  N.  Y.  of  the  assets,  or  establish  that  their 
100;  Camden  v.  Stuart,  144  U.  S.  104;  value  is  sufficient  to  pay  for  the  new 
Coit  v.  Amalgamating  Co.,  119  U.  S.  stock  in  full.  As  against  the  credi- 
343.  tors  of  the  old  company  the  stock  will 

2  Van  Cleve  v.  Berkey,  143  Mo.  109,  be  considered  as  paid  only  to  the  ex- 
44  S.  W.  Rep.  743.  In  Sprague  v.  tent  of  the  actual  value  of  the  prop- 
National  Bank  of  America,  172  111.  erty  received  from  the  old  company. 
149,  it  was  held  that  a  transfer  of  all  3  Hayden  v.  Atlanta  Cotton  Factory, 
the  assets  of  a  corporation  to  a  new  61  Ga.  233;  Richwald  v.  Commercial 
company  in  consideration  of  its  as-  Hotel  Co.,  106  111.  439;  Liebke  v. 
suming  the  indebtedness  of  the  old  Knapp,  79  Mo.  22;  Coffin  v.  Ransdell, 
one  and  exchanging  its  stock,  share  110  Ind.  417;  Carr  v.  Le  Fevre,  27  Pa. 
for  share,  for  that  of  the  old  company,  St.  413 ;  Brant  v.  Ehlen,  59  Md.  1. 
thereby  giving  each  shareholder  the 


336  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  328 

to  take  shares  he  must  pay  for  them,  to  use  a  homely  phrase, 
in  meal  or  in  meat;  he  must  either  pay  in  money  or  money's 
worth. 

IV.    Watered  Stock. 

§  32$.  Meaning  of  the  phrase. — The  adjective  "watered"  is 
used  to  describe  stock  which  is  issued  as  paid  up  but  which  has 
not  iu  fact  been  paid  up.  The  difference  between  the  amount  act- 
ually paid  and  the  par  or  face  value  of  the  shares  is  said  to  be 
water.  .Such  stock  is  issued  by  taking  a  partial  cash  payment,  by 
accepting  property  at  an  overvaluation,  or  by  the  issue  of  an 
invalid  stock  dividend.  The  result  in  all  cases  is  an  over-cap- 
italization. -  After  such  shares  reach  the  hands  of  a  bona  fide 
transferee  the  holder  is  not  liable  to  any  greater  extent  than 
the  holder  of  ordinary  full-paid  shares.  But  so  long  as  they 
are  in  the  hands  of  the  original  holders  "the  stock  is  liable  to 
be  canceled.  The  person  to  whom  it  was  issued,  or  his  trans- 
feree with  notice,  or  the  corporate  officers  participating  in  the 
act,  may,  under  certain  circumstances,  each  be  held  personally 
liable  for  the  unpaid  par  value  of  the  stock.  They  may  be 
liable  to  the  corporation  itself,  or  to  the  corporate  creditors,  or 
to  bona  fide  transferees  of  the  stock.  '1 a 

§  320.    Issue  of  shares  below  par — The  eonimon  law  rule. — 

The  rule  supported  by  the  weight  of  authority  in  the  United 
States  is  that,  when  not  restricted  by  its  charter  or  by  a  gen- 
eral law,  a  corporation  may,  if  all  the  subscribers  consent,  le- 
gally issue  its  shares  to  subscribers  under  a  contract  by  which 
they  are  t<.  pay  a  less  sum  therefor  than  is  represented  by  their 
face  or  par  value.  As  between  I  he  subscriber  and  the  corpora- 
tion the  <|ii< istioD  is  purely  one  of  contract,  and  if  the  corpora- 
tion agrees  to  accept  less  than  par  for  its  shares  M  can  not  there- 
after repudiate  the  contract  and  recover  the  difference  Erom  the 
tkholders.1    There  are  Borne  cases,  however,  which  slate  the 

k  Corp.,  etc.,  Co.,  42  Minn.  327;   arrapahoe, 

•Hebbe                iath  western,    etc.,  etc.,  Co.  v.  Stevens,   IS  Coin.    534; 

I         »6  V.I.  Eq.  18,86  Ml.  Rep.  122;  Northern  Trusl  Co.  \   Columbia, etc., 

ill    v.  Thayer,    106    U.   8.    L48;  Co.,  75  Fed.  Rep.  986;  Wells  v.  Green 

Kenton,  etc.,  Co.  v.  McAlpin,  6  Fed.  Bay,  etc.,  Co.,  90  Wis.  442;  Lorillard 

i   rat  Nat'l  Bank  v.  Guetin,  v.  Clyde,  86  N.  Y.  884.     ButBeeMor- 


§  329  CAPITAL   STOCK.  337 

rule  broadly  that  a  corporation  can  not  issue  its  shares  for  less 
than  par,1  but  it  is  submitted  that  the  accepted  rule  is  other- 
wise. The  English  courts,  under  the  present  statute,  hold,  on 
the  theory  that  such  an  issue  is  prejudicial  to  the  rights  of  prior 
shareholders  who  have  paid  in  full,  that  stock  must  be  paid  for 
at  its  full  par  value.  A  holder  of  full  paid  ordinary  shares  was 
allowed  to  force  the  purchaser  of  certain  shares  which  were  is- 
sued as  full  paid  for  sums  less  than  their  face,  to  pay  the 
difference  in  order  to  create  a  fund  which  would  be  sufficient 
to  pay  off  certain  debentures  which  were  charges  against  the 
entire  property  of  the  corporation.  The  result  was  to  greatly 
increase  the  value  of  the  ordinary  shares.2  Lord  Chancellor 
Halsbury  stated  that  the  solution  of  the  question  was  to  be 
found  in  the  nature  of  the  contract  of  subscription,  which  is 
"an  agreement  to  become  liable  to  pay  to  the  company  the 
amount  for  which  the  shares  have  been  created.  That  agree- 
ment is  one  which  the  company  itself  has  no  authority  to  alter 
or  qualify,  and  I  am  therefore  of  opinion  that  the  company 
were  prohibited  by  law — from  doing  what  is  compenduously 
described  as  issuing  shares  at  a  discount."  Lord  Herschel, 
dissenting,  said  that,  in  his  judgment,  the  company  would  not 
be  entitled  to  call  upon  such  shareholders  for  any  further 
favors  beyond  that  agreed  upon,  except  in  the  case  of  the 
winding  up,  and  then  only  so  far  as  necessary  for  the  dis- 
charge of  the  obligations  of  the  company.  In  New  York  it 
was  held  that  a  contract  between  the  corporation  and  the  stock- 
holder was  valid  even  as  against  creditors,  but  this  is  not  in 
accordance  with  the  weight  of  authority.3 

Stock  which  has  been  fraudulently  issued  as  paid  up,  and 

row  v.  Tron,  etc.,  Co.,  87  Term.  262;  be  an  ultra  vires  act.     Fisk  v.  Chicago, 

Winston  v.  Dorsett,  etc.,  Co.,  129  111.  etc.,   R.   Co.,   53  Barb.  (N.  Y.)  513. 

64.  4  L.  R.  A.  507.  But  ultra  vires  acts  are  not  always  void. 

1See  dicta  in  Barnes  v.  Brown,  80  2  Ooregum,  etc., Co.  v.  Roper  (H.  L.), 

N.  Y.  527 ;  Coleman  v.  Howe,  154  111.  61  Law  J.  (N.  S.)  337 ;  Law  Rep.  App. 

458;   Sturges  v.   Stetson,  1  Biss.  (C.  Cases  (1892),  125. 

C.)  246;  Oliphant  v.  Woodburn,  etc.,  3  Christesen  v.  Eno,  106  N.  Y.  97. 
Co.,  63  Iowa  332.     It  is  often  said  to 

22 — Private  Corp. 


ool 


THE    LAW    OF    PRIVATE    CORPORATIONS.  §  330 

which  has  not  reached  the  hands  of  a  bona  fide  holder,  may, 
at  the  instance  of  a  dissenting  stockholder,  be  withdrawn  and 
the  certificates  canceled.1 

§  330.    As  between  stockholder  and  creditor. — Whether  a 
certain  issue  of  stock  is  valid   or  not  will  depend  upon  who 
complains  of  the  issue.     It  may  be  valid  as  to  the  immediate 
parties  to  the  issue,  and  invalid  as  to  creditors  of  the  corpora- 
tion.    After  a  corporation  becomes  insolvent  its  assets  become 
a  trust  fund  for  the  benefit  of  its  creditors,  and  among  such 
assets  are  included  all  unpaid  subscriptions.     The  obligation 
of  the  stockholders  to  the  creditors  is  considered   as  growing 
out  of  the  relation  and  not  of  the  contract  between  the  corpora- 
tion and    the  stockholders.     The    subscription    agreement    is 
construed  as  a  contract  to  pay  the  company  for  the  benefit  of 
its  creditors  the  amount  for  which  the  shares  have  been  cre- 
ated and  issued.      This  rule   is  based    upon   the   principle  of 
public  policy  which  forbids  a  corporation  as  against  its  cred- 
itors to  create  stock  for  which  it  has  not  received  in  property  or 
cash  the  full  face  value  as  represented  by  the  shares.     It  may 
be  considered  as  settled  law  that  as  against  its  creditors  a  cor- 
poration has  no  power  in  the  first  instance  to  issue  its  capital 
stock  for  less  than   its   full   par  value.      Eence,  persons  who 
purchase  such  shares  from  tin  corporation  at  less  than  their  par 
value  are,  in  the  event  of  the  insolvency  of  the  corporation, 
liable  to  pay  for  the  benefit  of  its  creditors  at  least  the  differ- 
ence between  that  which  they  have  actually  paid  and  the  par 
value  of  the  shares.2    The  issuance  of  the  shares  is  treated  as 
;i  representation  to  the  public  thai  the  corporation  has  property 
equivalent  to  their  face  value.     "It  is  so  held  out  to  the  pub- 
lie  who  have  no  means  of  knowing  the  private  contracts  made 
between   Wo-  corporation  aid  its  stockholders.     The  creditor 
therefore,  the  righl  to  presume  that  die  stock  subscribed 

iQilman,  etc.,    R.  Co.  v.  Kelly,  77  yer  v.  Hoag,  17  Wall.TJ.  S.610;  Cam- 

I,,     126     See  Sturgea   v.  Stetson,   l  den  v.  Stuart,  144  U.  S.  104 ;  A.llingv. 

.J|i;  WYn/.el,  L88  [11.264;  First  Nat'l  Bank 

Hawley  v.  Opton,  L02  0.  S.  314;  v.  Gustin  Minerva,  e*c..  Co.. 42  Minn 

Tribilcock,91  U.S.  16;  Saw-  827. 


§  331  CAPITAL    STOCK.  339 

for  has  been  or  will  be  paid  up,  and  if  it  is  not,  a  court  of 
equity  will,  at  his  instance,  require  it  to  be  paid."1  The  same 
result  is  reached  if  we  reject  the  trust  fund  theory  and  place 
the  rule  upon  the  ground  of  fraud.2 

A  distinction  is  made  between  the  liability  of  subscribers  to 
the  original  stock  and  those  who  receive  stock  subsequently  is- 
sued and  sold  for  its  actual  value  in  the  market  for  the  pur- 
pose of  raising  money  necessary  to  carry  on  the  business  of 
the  corporation  and  preserve  it  from  ruin;  but  the  subscribers 
to  an  increase  of  capital  stock  which  is  added  to  the  original 
stock  for  the  mere  purpose  of  extending  its  business,  and  not 
to  save  it  from  wreck,  are  said  to  be  liable  in  the  same  manner 
as  the  subscribers  to  the  original  stock.3  The  distinction,  how- 
ever, is  somewhat  difficult  to  perceive,  and  more  difficult  to 
properly  apply. 

§  331.   Recital  that  shares  shall  be  deemed  fully  paid  up. — 

An  agreement  between  the  shareholder  and  the  corporation  that 
the  shares  shall  be  deemed  fully  paid  up  is  ineffectual  as 
against  the  creditors.4  But  a  purchaser  or  assignee  of  shares 
of  stock  in  a  corporation  without  notice  that  it  has  not  been 
fully  paid  up  does  not  become  liable  to  the  corporate  creditors 
for  the  unpaid  balance,  where  the  stock  was  issued  as  fully  paid 
up.5  "Even  in  England,  where  the  questions  are  generally 
considered  solely  with  reference  to  the  rights  of  the  share- 
holders inter  se,6  such  agreements,  as  between  the  original 
parties  and  their  privies,   have  been  declared  invalid  by  the 

'Scovill  v.Thayer,  105  U.  S.  143.  the  stock  was  issued,  not,  as  in  this 

2  Hospes  v.  Northwestern,  etc.,  Co.,  case,  to   purchase    property  or  raise 

48  Minn.  174.  money  to  add  to  the  plant  and  facili- 

3Flinn  v.  Bagley,  7  Fed.  Rep.  785.  tate  the  operations  of  the  company. 

In  Handley   v.  Stutz,  139  U.  S.  417,  but   simply   to    increase    its   original 

the  court  said:   "In  the  Upton  cases  stock  in   order  to  carry  on  a  larger 

arising  out  of  the  failure  of  the  Great  business,  and   the  stock  thus  issued 

Western      Insurance    Company,     in  was  treated  as  if  it  formed  a  part  of 

Hatch  v.  Dana,  101  U.  S.  205,  and  in  the  original  capital." 

Hawkins    v.   Glenn,   131   U.  S.  319,  4  Wallace  v.  Carpenter,  etc.,  Co.,  70 

the  defendants   were  either  original  Minn.  321,  73  N.  W.  Rep.  189. 

subscribers    to    the    increased    stock  5Sprague  v.  National  Bank  of  Anier- 

at  a  price  far  below  its  par  value,  or  ica,  172  111.  149,  42  L.  R.  A.  606. 

transferees  of  said  subscribers;   and  6 Poole's  Case,  9  Ch.  Div.  322. 


340  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  332 

courts.1  And  even  the  supreme  court  of  the  United  States  con- 
cedes the  principle,  while  refusing  to  apply  it,  that  a  contract 
between  the  subscribers  to  stock  and  the  corporation,  that  the 
stock  shall  be  considered  as  fully  paid  and  non-assessable, 
or  otherwise  limiting  their  liability  therefor,  is  void  as  against 
creditors.2  And  we  may  conclude  with  great  confidence  that  the 
general  doctrine  is,  except  in  so  far  as  it  has  been  shaken  in 
California,3  Minnesota,4  New  York,5  and  in  the  supreme  court 
of  the  United  States,6  that  any  agreement,  secret  or  otherwise, 
between  the  corporation  and  its  shareholders  that  its  shares 
shall  not  be  paid  in  full,  though  possibly  good  as  between  the 
corporation  and  its  shareholders,  is  void  as  to  creditors  of  the 
corporation  in  the  event  of  its  insolvency."  The  foregoing  is 
the  very  conservative  statement  of  the  law  by  Judge  Thompson, 
who  is  very  strongly  opposed  to  the  doctrine  that  a  corporation 
can,  under  any  circumstances,  issue  stock  for  less  than  par.  The 
word  "non-assessable"  upon  a  stock  certificate  is  merely  a 
protection  against  further  assessments  after  the  par  value  of  the 
stock  has  been  paid.7  All  fictitious  arrangements  by  which 
stock  is  issued  as  paid  when  not  in  fact  paid  are  ineffectual. 
Thus  an  arrangement  by  which  stock  was  nominally  paid  for 
in  full  and  the  money  returned  to  the  stockholder  in  the  form 
of  a  loan  was  held  ineffectual  to  protect  the  stockholder  as 
against  the  creditors  of  the  corporation.8  One  who  receives 
stock  as  full  paid  but  in  fact  as  a  gift,  for  the  purpose  of  secur- 
ing his  influence  on  behalf  of  a  corporation  may  be  called  on 
to  pay  for  the  stock  after  the  corporation  becomes  insolvent.9 

§  332.  Bona  flde  purchasers  of  shares. — A  person  who  pur- 
chases stock  with  notice  of  the  fact  that  it  has  not  been  fully 
paid  up  i-  Liable  thereon  to  the  same  extent  as  his  tninslVrrer.10 

i  Daniell'a  Oase,  i  De  J.  J.  372.  7  Upton  v.  Tribilcock,  91  U.  S.  45. 

■Handley  v.  Stutz,  L39TL  B.  U7.  BSawyerv.  Hoag,  L7  Wallace  U.  S. 

•  Stein  v.  Howard,  65  Oal.  816.  810;  Bays  Oase,   l>.   B.  10  Oh.  App. 

4  Hospee  v.  Northwestern  <';n-,  etc.,    598. 
(        18  Minn.  174.  '  Peninsular  Savings  Bank  v.  Black, 

•Ohristensen  v.  Eno,  L06  N.  Y.  97,    etc.,  Co.,  105  Mich.  535. 
60  An.    Rep.  i;i.  "Upton  v.  Tribilcock,  91  U.  S.  45; 

eovill  v.  Thayer,  106  U.  S.  L48,    Coleman  v.  Howe,  L64  [11.458;  Boul- 
an<l  oth( 


§  332  CAPITAL    STOCK.  341 

Although  a  recital  in  the  certificate  that  the  shares  are  fully 
paid  is  of  no  effect  as  between  the  creditors  of  the  corporation 
after  its  insolvency  and  the  original  holders,  the  cases  are  in 
substantial  accord  upon  the  proposition  that  a  bona  fide  pur- 
chaser of  shares  who  relies  upon  the  recital  in  the  certificate 
is  not  liable  to  the  corporate  creditors  because  of  the  fact  of 
their  non-payment  by  the  original  holders.1  In  an  action  by 
a  creditor  against  the  holder  of  bonus  or  watered  shares,  the 
burden  is  on  the  holder  to  show  that  he  acquired  his  shares 
bona  fide  without  notice  of  the  facts  which  make  the  issue 
fraudulent  as  to  the  creditor  or  that  he  purchased  the  stock 
from  a  bona  fide  innocent  transferee.2  Any  subsequent  trans- 
feree from  a  bona  fide  holder  is  protected.3 

The  ordinary  form  of  stock  certificate  which  contains  nothing 
to  show  that  the  stock  is  not  fully  paid,  and  is  silent  as  to 
whether  it  is  fully  paid  or  not,  implies  that  it  is  fully  paid, 
and  a  bona  fide  purchaser  thereof  is  entitled  to  rely  upon 
this  presumption.4  "Where  shares  are  issued  by  the  company 
to  the  subscriber  as  full  paid  shares,  and  are  sold  by  the  sub- 
scriber as  such,  there  is  no  ground  on  which  a  promise  can 
be  implied,  on  the  part  of  the  purchaser  without  notice,  to  be 
answerable  either  to  the  company  or  its  creditors.  Should  the 
representations  on  the  faith  of  which  he  purchased  prove  to 
be  false,  he  could  not  be  held  liable  on  the  ground  of  contract, 
because  he  never  agreed   to  purchase  any  other  shares  than 

ton,  etc.,  Co.  v.  Mills,  78  Iowa  460;  2  Wallace    v.    Carpenter,   etc.,   Co. 

White  v.  Greene   (Iowa),  70  N.  W.  (Minn.),  73.  N.  W.  Rep.  189. 

Rep.  182.  3  Barrow's  case,  L.  R.  14  Ch.  Div. 

1  Webster  v.  Upton,  91  U.   S.  65;  432.. 

Protective,  etc.,  Co.  v.  Osgood,  93  111.  4  Young  v.  Erie,  etc.,  Co.,  65  Mich. 

69;  Young  v.  Erie,  etc.,  Co.,  65  Mich.  Ill;  West  Nashville  Planing  Mill  v. 

Ill;  Brant  v.  Ehlen,  59  Md.l ;  Steacy  Nashville  Sav.   Bank,  86  Tenn.  252; 

v.   Little   Rock,  etc.,  R.   Co.,  5  Dill.  Johnson  v.  Lullman,  15  Mo.  App.  55; 

(C.  C.)  348.     Contra,  Tasker  v.  Wal-  Albitztigui  v.  Guadalupe,  etc.,  Co.,  92 

lace,  6  Daly  (N.  Y.)  364;  Foreman  v.  Tenn.  598;  Rood  v.  Whorton,  67  Fed. 

Bigelow,  4  Cliff.  (C.  C.)  508;  Troup  v.  Rep.  434,  74  Fed.  Rep.  118;  Coleman 

Horbach  (Neb.),  74  N.  W.  Rep.  326.  v.  Howe,  154  111.  458;  Steacy  v.  Lit- 

For  the  English  rule,  see   Re  Con-  tie  Rock,  etc.,  R.  Co.,  5  Dill.  (C.  C.) 

cession  Trust  (1896),  2  Ch.  757.  348 ;  Keystone,  etc.,  Co.  v.  McCluney, 

8  Mo.  App.  496. 


342  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  333 

full  paid  shares;  and  if  it  be  said  that  the  shares  were  fraud- 
ulently issued,  he  could  not  be  held  liable  on  the  ground  of 
fraud,  because  he  was  in  no  sense  a  party  to  the  fraud."1  But 
the  mere  fact  that  stock  is  marked  "non-assessable"  does  not 
protect  a  transferee  from  liability  for  unpaid  calls,  as  these 
words  are  not  construed  to  refer  to  calls  or  assessments  neces- 
sary to  make  stock  full  paid.2  So  the  statement  that  the  stock 
is  full  paid  will  not  protect  against  assessments  provided  for 
by  the  charter.'  Statements  of  officers  and  directors  that  stork 
is  full  paid  unless  shown  to  have  been  made  in  the  perform- 
ance of  their  duties  can  not  be  relied  upon  by  a  purchaser  and 
are  not  sufficient  to  make  him  a  bona  fide  holder  of  the  stock 
without  notice.4 

§  333.  AVho  may  complain. — The  issue  of  watered  stock  is 
an  ;////'/  vires  act  on  the  part  of  the  corporation,  and  if  it  ap- 
pears that  the  issue  of  the  shares  will  result  in  defrauding  the 
public,  the  state  may,  in  a  proper  proceeding,  have  the  cor- 
porate charter  forfeited.5  It  has  been  held  that  quo  ■warranto 
will  not  lie  against  a  corporation  merely  because  of  the  issue 
of  stock  below  par.6  The  corporation  is  estopped  to  deny  the 
contract  to  accept  less  than  par  for  its  stock.  So,  stockholders 
who  participate  or  aid  in  the  issue  of  the  stock  or  who  acqui- 
esce therein  can  not  afterwards  be  heard  to  complain.7  A 
transferee  of  a  participating  stockholder  can  not  complain  of 
tin'  transaction,  as  his  remedy  is  against  those  who  induced 
him  to  purchase  the  stock.8 

1  Branl  v.  Ehlen,  59  Md.  L.  8State  v.  Minnesota,  etc.,  Co.,  40 

•Webster  v.    Upton,  9]    U.  8.  <;">;  Minn.  213. 

Upton  v.  Tribilcock,  91  U.S.  r>.  "TenEyck  v.   Pontiac,  etc.,  R.  Co. 

'Western,  etc.,  Co.  v.   l>'-s  Moines  (Mich.),  72 ET.W.  Rep. 362;  Woolfolk 

Nati                        72  N.  W.  Rep.  667.  V.January,  131   Mo.  620;   Washburn 

'Browing  v.  Hinkle,  48  Minn.544;  v.  National,  etc., Co., 81  Fed. Rep. 17; 

Webster  v.  i  pton,91  U.  8.  65.  dark  v.  American,  etc.,  Co.,  86  [owa 

ite  v.  Webb,  97  Ah.  IN  ;  State  186. 

v.  Janesville,  etc.,  Co.,  92  Wis.  496;  'Higgina  v.  Lansingh  (111.),  40  N 

tham  v.  McCormick,  L78  Pa.  si.  I'..  Rep.  362;  Barr  v.  New  York,  etc. 

186,  Co.,   125  N.    V.  263;  Church   v.  Citi 

sens',  etc.,  R.  Co.,  78  Fed.  Rep.  526. 


§  334  CAPITAL    STOCK.  343 

§  334.  Liability  is  to  subsequent  creditors  only. — Only 
those  who  become  creditors  of  the  corporation  after  the  issue 
of  the  fictitious  or  part  paid  stock  can  be  heard  to  object,  as 
they  only  can  possibly  be  injured  by  the  transaction.1  In  First 
National  Bank  v.  Guston,etc,  Co.,  supra,  the  court  says:  "It  is 
only  those  creditors  who  can  fairly  allege  that  they  have  re- 
lied, or  whom  the  law  presumes  to  have  relied,  upon  the 
amount  of  capital  stock  of  the  company  who  have  a  right  to 
make  such  inquiry  or  in  whose  favor  equity  will  impress  a 
trust  upon  the  subscription  to  the  stock  and  set  aside  a  ficti- 
tious arrangement  for  its  payment.  For  example,  to  distribute 
the  capital  among  the  stockholders  without  provision  for  pay- 
ing corporate  debts  would  be  a  fraud  on  existing  creditors  as 
well  as  on  subsequent  creditors  who  dealt  with  the  corporation,  in 
reliance  upon  the  assumption  that  its  professed  capital  remains 
intact. "  The  court  further  said  that  there  were  no  cases  "where 
any  such  trust  has  been  enforced  in  favor  of  creditors  who 
have  dealt  with  the  corporation  with  full  knowledge  of  the 
facts.  The  reason  is  apparent,  for  in  such  cases  no  fraud, 
actual  or  constructive,  has  been  committed  on  such  creditors. 
If  a  corporation  issues  new  shares  after  the  claim  of  a  creditor 
arose,  it  is  clear  that  the  latter  could  not  have  dealt  with  the 
company  on  the  faith  of  any  capital  represented  by  them. 
Whatever  was  contributed  as  capital  in  respect  of  the  new 
shares  was  a  clear  gain  to  the  creditor's  security.  So,  too,  if 
a  party  deals  with  a  corporation,  with  full  knowledge  of  the 
fact  that  its  nominal  paid-up  capital  has  not,  in  fact,  been  paid 
for  in  money  or  property  to  the  full  amount  of  its  par  value,  he 
deals  solely  on  the  faith  of  what  has  been  actually  paid  in. and 

1  Handley  v.  Stutz,  139  U.  S.   417 ;  case  of  the  insolvency  of  the  corpora- 

Coit  v.  Gold,  etc.,  Co.,  119  U.  S.  343,  tion,  be  charged,  in  favor  of  the  cred- 

14  Fed.  Rep.  12;  Hospes  v.  Northwest-  itor  who  become  such  after  the  stock 

em,  etc.,  Co.,  48  Minn.  174,  15  L.  R.  was  issued,  with   the    difference  be- 

A.   470;  First  Xat'l  Bank  v.    Gustin,  tween  the  par  value  of  the  stock  and 

etc.,   Co.,  42  Minn.  327,  6  L.    R.    A.  the     amount     paid     the    corporation 

676;   Duinmer  v.  Smedley,  110  Mich,  therefor,  to  the  extent    necessary  to 

466,    38   L.    R.  A.  490.     The  original  pay  the  creditor's  claims.     Wallace  v. 

holders  of  bonus  or  watered  stock  of  Carpenter,  etc.,  Co.  (Minn.),  73  N.  W. 

a  corporation  issued  as  paid-up,  and  Rep.  189;  Hastings,  etc.  Co.  v.  Iron, 

their  transferees  with  notice,  will,  in  etc.,  Co.,  65  Minn.  28. 


344  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  335 

has  no  equitable  right  to  insist  on  the  contribution  of  a  greater 
amount  of  capital  by  the  shareholders  than  the  corporation  it- 
self could  claim  as  part  of  its  assets."1 

§  335.    Bonus  stock  given  to  "sweeten"  bonds. — The  issue  of 
purely  gratuitous  or    bonus  stock  is  universally  condemned, 
and  either  held  void  or   payment  therefor  required  from  its 
holders  in  favor  of  corporate  creditors.     In  some  cases,  how- 
ever, it  is  held  that  the  issue  of  stock  to  the  purchasers  of  bonds 
of  a  corporation,  to  induce  them  to  purchase  the  securities,  is 
valid,  even  as  against  subsequent  creditors.     When  the  issue 
of  shares  for  less  than  par  is  permitted  as  between  the  corpora- 
tion and  the  taker,  it  is  clear  that  one  who  was  a  creditor  of 
the  corporation  before  such  issue  can  not  attack  the  transac- 
tion, as  even  on  the  trust  fund  theory  the  trust  does  not  attach 
until  insolvency,  and  only  those  creditors  who  have  at  least 
presumptively  become  such  on  the  security  of  the  stock  sub- 
scription can  complain.2     In  a  well   known  case3  the  actual 
value  of  the  stock  which  was  given  to  the  purchasers  of  the 
bonds  in  equal  amounts,  in  order  to  induce  them  to  purchase 
the  bonds,  added  to  the  actual  value  of   the  bonds,  was   not 
more  than  the  par  value  of  the  bonds  and  the  transaction  was 
sustained.     The  cases  which  permit  such  transactions  require 
that  the  corporation    shall  receive  some   fair  and   reasonable 
equivalent  for  the  stock  and  the  bonds.4    In  other  jurisdictions 
the  holders  of  such  stock  are   held   liable  to  the  creditors  for 
the  full  face  value  of  the  stock,  on  the  ground   that    the  trans- 
action is  a  fraud  on  the  creditors  of  the  corporation.5     In  one 

1  Fii-t   N.it'l   Bank  v.  < Justin,  etc.,  'See  cases  cited  in  preceding  sec- 
Co.,  12  Minn.  827,  6  I..  !:.  A.  676.     In  tion. 

Richardson's Exrs.  v. Green,  133 U.S.  "Handley   v.  Stutz,  L39  l\  S.    117. 

SO,  il  appeared  thai    Richardson  had  Bee,  also,   Brown  v.  Duluth,  etc.,  R. 

advanced  money  on  bonds  and  taken  Co.,  53  Fed,  Rep.  889,  under  statute: 

st.wk  as  a  bonus.    On  a  suit  t<>  tore-  Richardson's  Exrs.  \.  Green,  L83  li 

ethe  mortgage  the  moneys  a. 'in-  s.  81; 

ally  advanced  by  him  were  allowed,  'Foggv.  Blair,  189  U.  B,  L18. 

withoul  any  reduction  on  a.-. ■ n  ol  B Hebbard  v.  S.  W.  Land,  etc.,  Co., 

tie-  i ii.  stock,  though  there  were  56  N.  .1.   E.   18,  86    Ail.    Rep.    122; 

general  creditors  subsequent    to  tin-  Bkrainka  v.  Allen,  7  Mo.  App.  434,  76 

mortgage  securing  his  bonds.  Mo.  884;  $845. 


§  336  CAPITAL    STOCK.  345 

case  an  agreement  by  which  a  subscriber  to  the  original  organ- 
ization stock  of  the  corporation,  on  payment  therefor,  was  to 
have  in  addition  to  the  stock  an  equal  amount  of  the  bonds  of 
the  company,  was  held  invalid  as  a  mere  device  to  escape  the 
obligation  created  by  his  subscription.1 

§  336.  Construction  bonds  and  bonus  shares. — Railroad 
companies  often  issue  bonds  and  stock  to  contractors  in  pay- 
ment for  material  and  services  in  the  construction  of  the  road 
in  an  amount  at  par  much  in  excess  of  the  actual  value  of  the 
material  or  services,  and  such  contracts  have  received  judicial 
sanction.2  But  where  a  company  made  a  construction  con- 
tract under  which  the  contractor  agreed  to  furnish  all  the  ma- 
terials and  do  all  the  work  necessary  to  construct  the  railroad 
at  an  expenditure  not  to  exceed  $200,000,  and  in  considera- 
tion to  receive  $300,000  of  the  capital  stock  full  paid,  and 
the  same  amount  of  its  first  mortgage  bonds,  the  contract  was 
held  invalid.  The  state  constitution  provided  that  "no  cor- 
poration shall  issue  stocks  or  bonds  except  for  money,  labor 
done,  or  money  or  property  actually  received;  and  all  ficti-. 
tious  increase  of  stock  or  indebtedness  shall  be  void."  And 
the  court  said:  "The  above  quoted  section  of  the  new  con- 
stitution has  strangely  miscarried  if  such  an  issue  of  watered 
stock  and  unsubstantial  bonds  can  be  emitted." 

The  contractor  had  entered  upon  the  work  and  expended 
considerable  money,  and  although  the  contract  was  rescinded, 
compensation  upon  equitable  terms  was  allowed  for  what  had 
been  done. 

In  another  case  it  was  held  that  a  statute  which  prohibited 
any  railroad  company  from  selling  or  disposing  of  its  stock 
unless  such  shares  have  been  fully  paid  up,  or  issuing  any 
bonds  or  stocks  except  for  money,  labor  or  property  received 
and  applied  for  the  purpose  for  which  the  corporation  was 
created,4  does  not  forbid  the  issue  of  first-mortgage  bonds  and 

'Morrow  v.  Nashville,  etc.,  Co.,  87  s  New  Castle,  etc.,  R.  Co.  v.  Simp- 

Tenn.  262,  3  L.  R.  A.  37.  son,  21  Fed.  Rep.  533. 

2 Van  Cott  v.  Van  Brunt,  82  N.  Y.  «Laws  Minn.,  1887,  ch.  12,  §  1. 
535. 


346  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   337 

full  paid  stock  by  a  railroad  company  in  payment  for  the  con- 
struction of  its  road,  if  the  amount  issued  does  not  unreason- 
ably exceed  the  value  received.  "This  statute  was  not  in- 
tended to  prevent  or  interfere  with  the  usual  method  of  raising 
money  to  build  railroads,  or  for  any  legitimate  corporate  pur- 
pose. It  is  not  to  be  construed  as  obstructive  to  the  extent  of  re- 
stricting or  hampering  corporations  in  their  internal  manage- 
ment, and  embarrass  them  in  procuring  means  to  carry  out  the 
legitimate  purposes  of  the  corporation;  and  unless  it  appears 
that,  under  the  guise  of  building  its  road,  bonds  and  stocks  of 
the  defendant  company  are  to  be  issued  and  put  upon  the 
market  fraudulently,  that  do  not  and  arc  not  intended  to  rep- 
resent money  or  property,  this  corporation  is  not  prohibited 
from  entering  into  a  real  transaction  based  upon  a  present 
consideration  and  having  reference  to  legitimate  corporate 
purposes."  1 

§  337.    Stock  issued  by  a  going  concern  with  impaired  cap- 
ital.— A   distinction  is  sometimes   made   between  an  original 
subscription  for  stock  and  a  sale  of   stock.     The  principle  is 
recognized  in  cases  cited   in  the  preceding  section.     The  su- 
preme court  of  the   United  States  has  established  the  doctrine 
that  a  going  corporation  which  requires  money  for  the  purpose 
of  carrying  on  its  business  may  issue  its  bonds  and  stock  and 
sell  the  same  together  for  what  they  are  actually   worth  in  the 
market.     In  the  leading  case  it  appeared  that  the  corporation 
found  its  original  capital  impaired,  and  for  t lie  purpose  of  rais- 
in- capital  with  which  to  preserve  itself  by  extending  its  busi- 
j  into  new  and  more  promising  fields,  issued  bonds  secured  by 
mortgage  upon  it-  property.    In  order  to  effect  a  sale  of  these 
bonds  new  sto<-k  was  issued  to  the  purchasers  of  the  bondsdollar 
dollar.    Thus  each  purchaser  of  n  thousand-dollar  bond  re- 
.  .1  in  addition  to  the  bond,  a  thousand  dollars  face  value  of 
k,  "full  |»;iid  and  non-assessable."  The  court ,  by  Brown,  .1 . , 
I;  "The  case  then  resolves  itself  into  the  question  whet  her  an 

'Brown  v.  Duluth,  etc  .  !:.  Co.,  58    Dow,  L20  U.  B.287. 
El  lilroad  ('".  v. 


§  337  CAPITAL   STOCK.  347 

active  corporation,  or  as  it  is  called  in  some  cases  'a  going  con- 
cern,' finding  the  original  capital  impaired  by  loss  or  misfor- 
tune, may  not,  for  the  purpose  of  recuperating  itself  and  provid- 
ing new  conditions  for  the  successful  prosecution  of  its  busi- 
ness, issue  new   stock,  put  it  upon  the  market  and  sell  it  for 
the  best  price  that  can  be  obtained.     The  question  has  never 
been  directly  raised  before  in  this  court,  and  we  are  not,  conse- 
quently, embarrassed  by  any  previous  decisions  on  the  point. 
*    *    *    To  say  that  a  corporation  may  not,  under  the  circum- 
stances above  indicated,  put  its  stock  upon  the  market  and  sell 
it  to  the  highest  bidder,  is  practically  to  declare  that  a  corpora- 
tion can  never  increase  its  capital  by  a  sale  of  shares,  if  the 
original  stock  has  fallen  below  par.     The  wholesome  doctrine, 
so  many  times  enforced  by  this  court,  that  the  capital  stock  of 
an  insolvent  corporation  is  a  trust  fund  for  the  payment  of  its 
debts,    rests   upon  the   idea  that  the   creditors   have    a   right 
to  rely  upon   the   fact  that  the  subscribers  to  such  stock  have 
put  into  the  treasury  of  the  corporation,  in  some  form,  the 
amount  represented   by  it;  but  it  does   not   follow  that  every 
creditor  has  the  right  to  trace  each   share  of   stock  issued  by 
such  corporation,  and  inquire  whether  the  holder,  or  the  per- 
son of  whom  he  purchased,  has  paid  the  par  value  for  it.     It 
frequently  happens  that  corporations,  as  well  as  individuals, 
find   it  necessary  to  increase   their  capital  in  order  to    raise 
money  to  prosecute  their  business  successfully,  and  one  of  the 
most  frequent  methods  resorted  to  is  that  of  issuing  new  shares 
of  stock  and  putting  them  upon  the  market  for  the  best  price 
that  can  be  obtained;  and  so  long  as  the  transaction  is  bona 
fide,  and  not  a  mere  cover  for  'watering'  the   stock,  and  the 
consideration    obtained    represents    the   actual  value  of   such 
stock,  the  courts  have  shown  no  disposition  to  disturb  it.     Of 
course  no  one  would  take  stock  so  issued  at  a  greater  price  than 
the  original  stock  could  be  purchased  for,  and  hence  the  ability 
to  negotiate  the  stock  and  to  raise  the  money  must  depend  upon 
the  fact  whether  the  purchaser  shall  or  shall  not  be  called  upon 
to  respond  for  its  par  value.     While,  as  before  observed,  the 
precise   question  has  never  been  raised  in  this   court,   there 


34S  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  338 

are  numerous  decisions  to  the  effect  that  the  general  rule  that 
holders  of  stock,  in  favor  of  creditors,  must  respond  for  its  par 
value,  is  subject  to  exceptions  where  the  transaction  is  not  a 
mere  cover  for  an  illegal  increase.1  *  *  *  "We  think  that  an 
active  corporation  may,  for  the  purpose  of  paving  its  debts,  and 
obtaining  money  for  the  successful  prosecution  of  its  business, 
issue  its  stock  and  dispose  of  it  for  the  best  price  that  can  be  ob- 
tained."1 On  the  same  principle  it  has  been  held  that  a  corpo- 
ration may  issue  stock  at  its  actual  market  value  and  take  pay- 
ment therefor  in  property  or  services  of  which  it  is  in  need. 
Thus,  a  railroad  company  in  good  faith  made  a  contract  for  the 
construction  of  its  road  and  agreed  to  pay  therefor  in  its  stock 
at  its  actual  instead  of  par  valuation,  and  it  was  held  that  the 
holders  of  the  stock  were  not  liable  to  the  creditors  of  the  cor- 
poration.8 

§  338.  Shares  accepted  as  a  gratuity. — It  is  held  in  New 
York  that  no  liability  attaches  to  one  who  accepts  unpaid 
shares  as  a  mere  gratuity.  The  liability  is  made  to  rest  en- 
tirely on  the  contract  of  subscription,  and  as  in  such  case  there 
i-  no  contract  between  the  holder  and  the  corporation  the 
creditors  have  no  basis  for  a  claim  upon  him  for  the  nominal 
value  of  the  shares.1  This  rule  is  in  conflict  with  the  cases 
which  hold  that  subsequent  creditors  arc  allowed  to  call  upon 
the  stockholders  and  is  not  in  accord  with  the  weight  of  au- 
thority. In  general  no  distinction  is  made  between  the  liabil- 
ity of  one  who  is  a  subscriber  for  such  stock  and  one  who 
receives  it  merely  as  a  gift.5 

Harrison  v.  Arkansas,  etc.,  R.  2  Hundley  v.  Stutz,  139  V.  S.  117. 

Co.,   l  McCrary264;  VanCott  v.  Van  3Y;m  Ootl  v.  Van    Brunt,  82  N.  Y. 

Brunt,  82  N.  Y.  635;  Stein  v.  Howard,  535;  Barr  v.  Railroad  Co.,126N.Y. 

65  Cal.  616;  Dummer  v.  Bmedley,  1 LO  263. 

Mich.  166,  68  V  W.  Rep.   260.     Bee  •Christensen  v.  Eno,  106  N.  V. '.'7, 

Clark  v.  Bever,  139  TJ.  S.  96;  Morrow  60    Am.    Rep.    129;    Christensen    v. 

v.  Iron  Co.,  -7T.-HI1.  262;   Rickerson,  Quintard,  8  N.Y.  Supp.400;  Seymour 

rell,  etc.,  Co.,  75  Fed.  v.  Bturgee  i,  26  N    Y.  134. 

Rep.                  PS  v.  Union,  etc.,  Co.  'Peninsular  Savings  Bank  v.  Black, 

(Ohio),  46  N.   E.  Rep.  894,    Contra,  etc.,  Co.,  105  Mich.  685. 

ler,  <;i  [owa  W9,  20  N. 
\v.  Rep.  . 


§  339  CAPITAL    STOCK.  349 

§  339.  Illustrations. — The  books  are  full  of  cases  illustrating 
the  principles  stated  in  the  preceding  sections.  Where  a 
railway  company  was  indebted  to  a  construction  company  in 
the  sum  of  $70,000,  which  it  was  unable  to  pay,  and  issued 
therefor  stock  of  the  par  value  of  $350,000,  the  holders  were 
treated  as  stockholders  who  had  paid  twenty  per  cent,  on  their 
stock.1  Where  $300,000  of  stock  was  issued  for  property 
worth  $68,000,  the  stockholders  were  held  liable  for  the  differ- 
ence.2 In  this  case  the  court  said:  "A  deliberate  and  advised 
overvaluation  of  property  thus  purchased  and  paid  for  is  a 
fraud  upon  the  law,  and  a  violation  of  the  condition  upon 
which  the  exemption  of  stockholders  from  liability  under  the 
provisions  of  the  statute  is  made  to  depend.  It  is  in  direct 
violation  of  the  policy  as  well  as  the  terms  of  the  law  which 
demands  payment  either  in  money  or  property  at  its  value,  of 
all  the  capital  stock  of  the  company  as  a  condition  of  immun- 
ity to  the  stockholders  from  liability  for  debts  of  the  corpora- 
tion. The  payment  of  an  amount  for  property  in  excess  of  its 
value  deprives  creditors  and  the  public  of  the  security  con- 
templated by  the  statute,  and  thus  a  fraud  is  perpetrated  as  well 
upon  the  law  as  upon  the  creditors.  *  *  *  All  that  is  necessary  to 
establish  legal  fraud  is  to  prove  two  facts:  (1)  That  the  stock 
issued  exceeded  the  value  of  the  property  in  exchange  for 
which  it  was  issued,  and  (2)  That  the  trustees  deliberately 
and  with  knowledge  of  the  real  value  of  the  property  over- 
valued it  and  paid  in  stock  for  it  an  amount  which  they  knew 
was  in  excess  of  its  actual  value."3 

Under  a  statute  which  authorized  payment  for  corporate 
stock  to  be  made  "either  in  money  or  in  land,  the  land  to  be 
appraised  by  the  board  of  directors  and  taken  at  such  value 
on  such  terms  as  may  be  agreed  upon,"  $100,000  worth  of 
stock    was    issued    and    subscribed    for    by   five   persons    who 

1  Jackson  v.  Traer,  64  Iowa  469;  Os-  2  Douglas  v.  Ireland,  73  N.  Y.  100. 

good  v.  King,  42  Iowa  478.    The  su-  3To  the  same  effect  is  Boynton  v. 

preme  court  of  the  United  States,  in  Andrews,  63  N.  Y.  93;    Schenck  v. 

Clark  v.  Bever,  139  U.  S.  96,  refused  Andrews,  57  N.  Y.  133 ;    Iron   Com- 

to  follow  the  decision  in  Jackson  v.  pany  v.  Drexel,  90  N.  Y.  87. 
Traer,  supra. 


350  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  339 

afterward  became  the  directors  of  the  corporation.  Certain 
lands  worth  $50,000  were  purchased  for  that  sum  and  the  deed 
thereof  made  directly  to  the  corporation,  which  gave  its  obli- 
gation for  the  whole  amount.  The  directors  then  appraised 
the  land  at  $100,000  and  credited  $50,000  of  it  as  a  payment 
of  fifty  per  cent,  on  the  stock  subscribed  for  by  them.  The 
allowance  of  the  credit  on  the  stock  was  as  against  the  cred- 
itors of  the  corporation  held  invalid,  and  the  stockholders 
were  required  to  pay  the  whole  amount  of  their,  subscription. 
The  court  said:1  "This  appraisement,  it  is  manifest,  was  illu- 
sory and  made  only  in  the  interest  of  the  directors  who  were 
to  profit  by  it."  Where  a  statute  provided  that  "no  share 
shall  be  issued  for  less  than  its  par  value,"  it  was  held,  al- 
though the  rights  of  the  creditors  were  not  involved,  that 
where  land  was  purchased  for  $125,000  on  September  29th, 
and  on  October  following  the  corporation  agreed  to  take  it  at 
an  advance  of  $50,000,  so  that  a  stock  subscription  of  that 
amount  made  by  the  vendors  should  be  thereby  fully  paid, 
the  stock  was  not  thereby  paid.  The  transaction  was  regarded 
as  a  fraud  on  -  the  other  stockholders  who  had  paid  for  their 
stock,  and  as  not  being  in  compliance  with  statutory  safe- 
guards intended  for  the  protection  of  the  public.2  A  share- 
holder in  a  water  company,  at  an  expense  of  $85,000,  con- 
structed a  system  of  pipes  suitable  for  the  extension  of  the 
company's  plant,  and  afterward  sold  it  to  the  corporation  for 
$110,000,  payable  in  stock.  The  transaction  was  upheld  on 
the  ground  that  the  difference  was  not  so  great  as  to  show 
fraud.'1  The  promoters  of  a  corporation  acquired  a  bond  for 
a  deed  to  certain  r<  al  estate  in  the  sum  of  $53,000.  Thereafter 
they  organized  a  corporation  and  issued  $200,000  of  stock, 
which  was  given  to  the  promoters  for  a  transfer  of  the  bond 
for  title.  The  real  estate  was  found  to  be  worth  only  $53,000 
and  the  stockholders  were  held  liable  to  the  creditors  for  the 
difference.1     One  who  received   Btock  as  paid  up  as  considera- 

'Wetherbee  v.  Baker,  86  N.i.  Eq.       'Gamble  v.  Q n'a  County,  etc., 

Co.,  L23  V  V.  91,  25  N.  E.  Rep,  201 
1  l        59  Pa.  St.  884.        'Elyton,  etc.,  Co.  v.   Birmingham, 

etc.,  Co    92  \l.i.  107,  L2  L.  R.   \.  807. 


§  340  CAPITAL    STOCK.  35] 

tion  for  using  his  influence  to  sell  the  products  of  the  corpo- 
ration must  pay  the  full  par  value  of  the  stock  to  the  corpo- 
rate creditors.1 

§  340.  Payment  in  property. — In  many  states  there  are  stat- 
utes which  provide  that  stock  must  be  paid  for  in  money  or  in 
property  taken  at  its  actual  valuation.  In  the  absence  of  such 
a  statute,  while  a  corporation  may  accept  something  other  than 
cash  in  payment  for  its  stock,  it  must  be  taken  at  a  fair  and 
equivalent  valuation.  The  valuation  to  be  considered  is  the 
value  to  the  corporation  and  not  the  parties  who  sold  it  to  the 
corporation.2  The  presumption  is  that  the  valuation  at  which 
property  or  services  was  taken  by  the  corporation  was  ade- 
quate.3 The  fact  that  the  actual  value  of  the  property  proved 
much  less  than  it  was  taken  at  is  immaterial  if  the  valuation 
was  fair  and  honest  at  the  time.4  If  stock  is  paid  for  in  prop- 
erty or  services  at  a  gross  overvaluation,  and  the  corporation 
thereafter  becomes  insolvent,  its  creditors  may,  according  to 
some  authorities,  require  the  holders  of  the  stock  to  pay  the 
difference  between  the  actual  value  of  the  property  and  the 
par  value  of  the  stock;  while  other  cases  hold  that,  at  least 
where  there  was  actual  fraud,  the  entire  transaction  is  void 
and  the  holder  is  liable  for  the  full  value  of  the  stock  without 
a  credit  of  the  actual  value  of  the  property.5  Before  a  cred- 
itor can  require  the  holders  of  such  stock  to  pay  anything 
further,  it  must  be  shown  that  there  was  actual  fraud  or  such 
gross  overvaluation  as  to  be  the  equivalent  of  fraud  in  law. 
Such  a  transaction  may  "  be  impeached  for  fraud  but  not  for 
error  of  judgment  or  mistaken  views  of  the  value  of  property, 
inasmuch  as  good  faith  and  the  exercise  of  an  honest  judg- 

1  Peninsular   Sav.   Bank  v.   Black,  3 Davis  Bros.  V.Montgomery,  etc., 

etc.,  Co.,  105  Mich.  535.  Co.,  101  Ala.  127,  8  So.  Rep.  496. 

2Gamble  v.  Queen's  County  Water  4  Coit  v.  Gold,  etc.,  Co.,  11!)  V.  S. 

Co.,  123  N.    Y.   91,  9   L.  R.    A.   527.  343;  Carr  v.  Le  Fevre,  27  Pa.  St.  413. 

Distinguishing  Van  Cott  v.  Van  Brunt,  5  See  §  345,  infra.   Smith  v.  Prior.  58 

82   N.  Y.   535.     See  Gogebic   Invest.  Minn.  247.    This  case   turns  upon  a 

Co.  v.  Iron  Chief,  etc.,  Co.,  78  Wis.  question  of  pleading. 
426;  In  re  Western,  etc.,  Co.,  L.  R. 
1  Ch.  Div.  115. 


352  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  340 

merit  is  all  that  is  required."1  In  one  case2  it  was  said  that 
"where  full  paid  stock  is  issued  for  property  received,  there 
must  be  actual  fraud  in  the  transaction,  to  enable  the  creditors 
of  a  corporation  to  call  the  stockholders  to  account.  A  gross 
and  obvious  overvaluation  of  property  would  be  strong  evi- 
dence of  fraud."  This  question  was  elaborately  discussed  in 
two  recent  cases.  In  the  Montana  case3  it  was  held  that  good 
faith  in  the  valuation  of  the  property  is  all  that  the  law  de- 
mands. A  Missouri  case,4  on  the  other  hand,  adopts  an  extreme 
position  and  holds  that  the  property  accepted  in  payment  must 
be  in  fact  a  fair  equivalent  for  the  money  subscribed,  and  that 
the  belief  of  the  stockholder  that  the  property  was  equal  in 
value  to  the  par  value  of  the  stock  will  not  relieve  him  from 
liability  on  his  subscription  as  against  those  who  have  given 
credit  to  the  company  on  the  faith  of  its  capital  stock,  if  in 
fact  the  property  is  not  of  such  value. 

It  is  safe  to  say  that  the  taking  of  property  at  a  gross  over- 
valuation is  invalid  without  reference  to  the  question  of  actual 
fraudulent  intent,  or,  if  the  actual  fraudulent  intent  is  neces- 
sary, a  gross  overvaluation  is  sufficient  evidence  of  its  exist- 
ence. Thus,  where  property  worth  $5,000  was  taken  to  pay  a 
stock  subscription  of  $200,000,  the  court  said  that  the  transac- 
tion did  not  "bear  the  semblance  of  compliance  with  the  con- 
tract of  subscription  as  to  one  of  the  essential  terms  thereof. 
The  taking  of  property  at  a  valuation  forty  times  greater  than 
its  actual  worth,  which  was  known  to  the  parties,  shows  upon 
its  face  the  absence  of  a  bona  fide  exercise  of  judgmenl  and 
discretioD  in  making  the  valuation  and  an  intentional  non- 
compliance with   tli''  requirement   that  the  properly  sliall  be 

'  Douglass  v.  [reland,  73  N.  V.  LOO.       ■  Kelly  v.  Fourth  oi  July,  etc,  (V, 

;,   v.  Gold,  etc.,  Co.,  119  I'.s.  (Mont.),  53  Pac.    Rep.  959,   12   I..    R. 

343;   Bank   v.  Alden,  L29  U.  8.  :'.7'-';  k.  621.    Bee  also  National  Bank  v.  I. 

Queen      County    Water  a   W.  L.  Co.,   i"i    Wis.  247;   North- 

L28N.Y.  91,  25  N.  E.Rep.201;  western,  etc.,  Ins.  Co.  v.  Cotton,  etc., 

Y tg    v.    [ron    Co.,  65  Mich,  ill;  <'<>.,  7<»  Fed.    Rep.    155;    DuPontv. 

Whitehill  v.  Jacobs,  75  Wis.  174;  Col-  Tilden,  42  Fed.  Rep.  87. 
lit,  ^.    Ransdell,  110  Tnd.  H7;  Bickley       *Van  Cleve  v.    Berkey   (Mo.),  ■•' 

v.  Bchlag,  !■">  V  -i.  Eq.588;  Clayton  B.  W.  Rep.  748,  42  L.  Ii.  A.  593. 
v.  Ore  Knob  Co.,  L09  N.  0. 


§  341  CAPITAL    STOCK.  353 

taken  at  its  money  value.  The  absence  of  fraudulent  motive 
on  the  part  of  the  trustee  does  not  give  validity  to  a  mere  sim- 
ulated execution  of  the  trust,  and  an  averment  of  fraud  in  ref- 
erence thereto  is  unnecessary.  The  parties  beneficially  inter- 
ested in  the  trust  are  entitled  to  a  substantial  compliance  with 
its  terms.  They  are  not  bound  by  an  act  of  mere  formal  com- 
pliance which  really  involved  their  practical  exclusion  from 
the  benefits  intended  to  be  secured  to  them."1  The  allegation 
in  a  bill  seeking  to  require  the  payment  of  the  difference  be- 
tween the  par  value  of  shares  and  the  actual  value  of  property 
conveyed  to  the  corporation,  that  all  of  the  capital  stock  of 
$1,250,000  was  paid  for  by  a  conveyance  of  real  estate  worth 
$100,000  is  a  sufficient  allegation  of  fraud.2 

§  341.  Remedy  where  there  is  overvaluation. — Where  the 
stock  is  issued  at  a  discount  for  cash,  the  stockholder,  if  liable 
at  all,  is  liable  for  the  difference  between  the  amount  paid  and 
the  par  value  of  the  shares.  So  it  will  be  seen  that  in  some 
cases  it  is  held  that,  when  property  is  taken  in  payment  of 
stock  at  a  gross  overvaluation,  the  stockholder  is  liable  to  the 
corporate  creditors  for  the  difference  between  the  actual  value 
of  the  property  at  the  time  and  the  face  or  par  value  of  the  stock.3 

^lyton,  etc.,  Co.  v.  Birmingham,  Ore  Knob  Co.,  109  N.  C.  385.    In  Ely- 

etc,  Co.,  92  Ala.  407,  12  L.  R.  A.  307.  ton,  etc.,  Co.  v.  Birmingham,  etc.,  Co., 

Reviewing  more  cases.  92  Ala.  407,  12  L.  R.  A.  307,  the  court 

2 Lea  v.  Iron,   etc.,   Co.  (Ala.),  24  said:  "Our  examination  satisfies   us 

So.  Rep.  28.  that  the  weight  of  American  authority 

8 Gates  v.  Tippecanoe,  etc.,  Co.,  75  does  not  support  the  statement  made 

Ohio  St.   60,   63  Am.   St.   Rep.   705 ;  by  Mr.  Cook  in  section  46  of  his  work 

Wishard  v.  Hansen,  99  Iowa  307,  61  on  Stock  and  Stockholders,  to  the  ef- 

Am.  St.  Rep.  238;  Coleman  v.  Howe,  feet  that  the  attempts  which  have  been 

154   111.    458,   45   Am.   St.   Rep.  133;  made  in  cases  where  stock  was  issued 

Cole  v.  Adams  (Tex.),  49  S.  W.  Rep.  for  property  taken  at  an  overvaluation 

1052;    Roman  v.    Dimmick,  115  Ala.  to  hold  the  party  receiving  such  stock 

233;  Hastings,  etc.,  Co.  v.  Iron  Range,  liable  for  its  full  value  less  the  actual 

etc.,  Co.,  65  Minn.  28;  Wallace  v.  Car-  value  of  the  property  received  from 

penter,etc.,Co.  (Minn.), 73 N.  W.Rep.  him  have  been  unsuccessful ;  and  that 

189;  Elyton,  etc.,  Co.  v.  Birmingham,  if  there   has   been   an   overvaluation 

etc.,  Co.,  92  Ala.  407  and  cases  there  which  is  shown  to  have  been  fraudu- 

cited.  See,  aslo,  Clayton,  etc.,  Co.  v.  lent,  then  the  contract  is  to  be  treated 
23 — Private  Corp. 


354  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  341 

But  the  decisions  are  conflicting.  It  lias  been  held  that  where 
it  is  alleged  that  a  subscription  is  unpaid,  it  can  not  be  shown 
that,  although  the  property  given  was  greatly  overvalued,  it 
nevertheless  had  some  value,  and  that  the  stockholders  should 
have  credit  for  that  amount.  Where  there  is  a  fraudulent 
overvaluation  of  the  property  or  services  the  entire  transaction 
is  generally  held  to  be  void,  and  the  stockholders  are  liable  to 
the  creditors  of  the  corporation  for  the  full  nominal  value  of 
the  stock.1  "During  the  past  ten  years,"  says  Mr.  Cook,2 
"there  has  been  a  vast  amount  of  litigation  on  this  subject. 
The  courts  still  disagree  in  their  conclusions,  but  a  careful 
study  of  the  cases  will  show  that,  upon  authority  as  well  as 
principle,  the  stockholders  can  not  be  held  liable  in  such  a 
case.  In  England  and  New  York  they  can  not  be  held  liable 
at  all,  except  on  the  basis  of  a  rescission,  and  under  all  the 
well-considered  decisions  they  can  not  bo  held  liable  unless 
the  property  is  of  so  trifling  a  character  that  it  practically  has 
no  value  whatever.  This  class  of  cases  has  arisen  under  two 
aspects — first,  at  common  law;  and  second,  under  statutes.  At 
common  law  it  is  well  settled  that  corporate  creditors  can  not 
hold  stockholders  liable  on  stock  which  lias  been  issued  for 
property,  even  though  the  property  was  turned  over  to  the 
corporation  at  an  agreed  valuation  which  was  largely  in  excess 
of  the  real  value  of  the  properly.  There  have  been  cases  which 
refuse  to  follow  this  rule,  but  it  is  clearly  established  by  Hi" 
great  weight  of  authority.     The  reason  of  the  rule  is,  that  if 

like  other  fraudulent  contracts  and  is  be  held  liable  unless  there  was  fraud- 

to  be  adopted  in  toto  or  rescinded  in  ulenl   overvaluation   of  the  property 

toto  and  set  aside."  ami  a  rescission  <>n  the  contract,    ee 

1  Smith  v.  Prior,  58  Minn.  247,59  N.  Phelari  v.  Hazard,  5  Dill.  (C.  C.)  45; 

W.  Rep.  L016;  Peck  v.  Coalfield,  etc.,  Van  Cot!  v.  Van  Brunt,  82  N.  V.  535; 

II     III.     \|.p.    B8;    Bcovill    v.  Barr  v.  New    York,  etc.,  R.  Co.,  125 

Thayer,  105  U.  8.  143.     In  Clayton  v.  N.  V.  268 :  Seymour  v.  Spring  Foi 

109  N.  C.   885,  it  ap-  etc.,   Issn.,  mi   N.  Y.  338;  Flynn  v. 

peared  thai    there   was  ;i   fraudulent  Brooklyn,  etc.,  R.  Co.,  9  V   Y.   App. 

aluation  of  the  property,  bu1  the  l>i\.  269;  Coffin  v.  Ransdell,  uo  [nd. 

Iiolder  was  L'iven  credit  for  the  117;   Burner  \.  Brown,  189  [nd.  800; 

actual  value  of  the  property.  Bickley  v.  Schlag,   16  N.J.   Eq 

''■      ^b  supporting  Medler  v.  Albuquerque,  etc.,  Co.,  6  N, 
lie  thai  the  stockholder  can  not 


§  341  CAPITAL    STOCK.  355 

the  payment  by  property  was  fraudulent,  then  the  contract  is 
to  be  treated  like  other  fraudulent  contracts.  It  is  to  be 
adopted  in  toto  or  rescinded  in  toto  and  set  aside.  Both  parties 
are  to  be  restored,  as  nearly  as  possible,  to  their  original  posi- 
tions. The  property,  or  its  value,  is  to  be  returned  to  the  per- 
son receiving  the  stock,  and  he  must  return  the  stock,  or  its 
value.  In  New  York  and  England,  as  stated  above,  at  com- 
mon law,  the  stockholder  is  not  liable  at  all  to  corporate  credi- 
tors, even  though  the  overvaluation  was  gross,  and  clearly 
shown  so  to  be.  The  remedy  is  by  rescission,  and  not  the 
making  of  a  new  contract  by  the  court.  There  are  other  cases, 
however,  which  hold  that  when  the  property  so  turned  over 
has  no  substantial  value,  or  where  the  valuation  was  'fraudu- 
lent,' the  court  wrill  hold  the  stockholders  liable  for  the  par 
value  of  the  stock  less  the  value  of  the  property." 

If  the  property  given  in  payment  for  the  stock  has  no  value 
whatever  there  is  no  payment  and  the  stockholder  is  liable  on 
the  stock.  Thus,  in  one  case,  the  court  said:  "The  experi- 
ence and  good- will  of  the  partners,  which,  it  is  claimed,  were 
transferred  to  the  corporation,  are  of  too  unsubstantial  and 
shadowy  a  nature  to  be  capable  of  pecuniary  estimation 
in  this  connection. "  J  Where  the  owner  of  a  railroad  sold  it  to 
a  new  organization  and  received  in  payment  stock  and  bonds 
of  the  par  value  of  fifty  times  the  actual  value  of  the  railroad,  it 
was  held  that  the  subscription  price  had  never  been  paid.  The 
court  said:  "The  entire  organization  was  grossly  fraudulent 
from  first  to  last,  without  a  single  honest  incident  or  redeem- 
ing feature.  It  having  been  found  on  convincing  evidence 
that  the  overvaluation  of  the  property  transferred  to  the  rail- 
way company  by  Harper,  in  pretended  payment  of  the  sub- 
scriptions to  the  capital  stock,  was  so  gross  and  obvious  as, 
in  connection  with  the  other  facts  in  the  case,  to  clearly  estab- 
lish a  case  of  fraud,  and  to  entitle  bona  fide  creditors  to  en- 
force actual  payment  by  the  subscribers,  it  only  remains  to 
consider  the  effect  of  the  defenses  set  up."2 

The  remedy  of  the  corporate  creditor  is  in  equity  and  not  at 

1  Camden  v.  Stewart,  144  U.  S.  104.        2  Lloyd  v.  Preston,  146  U.  S.  630. 


356  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  342 

law  for  fraud  and  deceit.1     The  bill  may  be  for  one  on  behalf 
of  all.2 

§  342.  Constitutional  and  statutory  provisions  as  to  pay- 
ment of  shares. — Many  states  have  attempted  to  prevent  the 
issue  of  watered  stock  by  the  adoption  of  statutory  or  constitu- 
tional provisions  prohibiting  corporations  from  issuing  stock 
unless  they  receive  a  full  equivalent  therefor  in  money  or 
property.3  Care  must  be  taken  to  distinguish  between  cases 
decided  under  these  statutes  and  those  on  the  common  law.4 
The  provision  of  the  Illinois  constitution,  which  refers,  how- 
ever, only  to  railroad  corporations,  is  a  fair  illustration  of  all 
this  class  of  prohibitions.  It  provides  that  "no  railroad  shall 
issue  any  stock  or  bonds,  except  for  money,  labor  or  property 
actually  received  and  applied  to  the  purposes  for  which  said 
corporation  was  created,  and  all  stock  dividends  and  other  fic- 
titious increases  of  the  capital  stock  or  indebtedness  of  any 
such  corporation  shall  be  void."  These  provisions,  however, 
are  not,  as  a  rule,  given  the  sweeping  effect  which  their  lan- 
guage would  seem  to  justify.  The  results  of  attempts  to  apply 
a  remedy  which  makes  the  stock  void  after  the  mischief  is  done 
must  fall  heavily  and  unjustly  upon  innocent  holders  of  stock. 
"The  trouble  with  these  constitutional  prohibitions  is  that  they 
attempt  to  cure  the  evil  after  the  harm  has  been  done  instead 

1  Priest  v.  White,  89  Mo.  609;  Cole-  Pennsylvania,  art.  lfi,  §7;  South  Da- 
man v.  Bowe,  L64  III.  458.  kota,  art.  17,  §8;  Texas,  art.  12,  §6; 
•Cleveland,  etc.,  Co.  v.  Texas,  etc.,  Washington,   art.    L2,   §6;   Ohio  (R. 
R.  Co.,  27  Fed.  Rep.  260.  B.,  §3313);  Maine  (Iibby  v.Tobey,82 
■Astothe  difficulties  intheway of  Maine   397);    Wisconsin,    Mowry    v. 
applying  these  provisions,  see  State  v.  Farmers',  etc..,  Co.,  7ii  Fed.  Hep.  38; 
Webb,   L10   Ala.  214;  Van   Cleve  v.  Minnesota   (Gen.  Stat.    1894,   §3415, 
ey,   L43  Mo.  LOO,  n  B.  W.   Rep.  Hastings,  etc.,  Co.  v.  Iron,  etc.,  Co., 
748,  12  L.  R.  A..  593.    Bee  the  consti-  65  Minn.  28;    Wallace  v.  Carpenter, 
tutione  ol  Alabama,  art.  9,  §  6;    \r-  etc.,  Co.,  78N.W.Rep.  189);  Tennes- 
it.  12,  §8;  California,  art.  see  (Jones  v.  Whitworth,  94  Tenn. 
12,  §  11;  Colorado,  art.  L5,§9;  Malm,  602);  New  Jersey  (Baker  v.  Guarantee, 
•    [llinoiB,  art.  12,  §  13 ;  Ken-  etc.,  Co.  (N.  J.),  81  Atl.  Rep.  174),  and 
tacky,    |198;     Louisiana,    art,    238;  [owa  (Jackson  v.  Traer,  64  Iowa  469), 

ouri,  art,    L2,  have  statutes  to  the  same  effect. 

§8;  Montana,  art.  15,  §10;  Nebraska,  ■See  Railway.    Co.  v.  Allerton,  18 

:iri     ii,        .     '.  irth    Dakota,   |  188;  Wallace  U.  B.  288. 


§342 


CAPITAL    STOCK. 


357 


of  attempting  to  oversee  the  issue  of  stock  and  bonds  before  the 
issue  is  made."  In  Massachusetts  the  problem  has  been 
solved  by  a  statute  which  prohibits  the  issue  of  stock  or  bonds 
for  property  until  approved  by  state  commissioners.  The 
Minnesota  statute  prevents  the  issue  of  shares  below  par,  with 
an  exception  which  provides  for  special  and  preferred  shares.1 


1  Wallace  v.  Carpenter  Elec.  Heat- 
ing, etc.,  Co.  (Minn.),  73  N.  W.  Rep. 
189;  Hastings,  etc.,  Co.  v.  Iron,  etc., 
Co.,  65  Minn.  28;  Gen.  St.  Minn. 
1894,  §  3415,  provides:  "Corporations 
having  capital  stock  divided  into 
shares,  unless  specially  authorized, 
shall  not  issue  any  shares  for  a  less 
amount  to  be  actually  paid  in  on  each 
share  than  the  par  value  of  the  shares 
first  issued;  provided,  that  railroad 
and  navigation  and  manufacturing 
corporations,  and  corporations  for 
buying,  holding,  improving,  selling 
and  dealing  in  lands,  tenements  here- 
ditaments, real,  mixed  and  personal 
estate  and  property,  created  or  organ- 
ized under  this  chapter,  or  under  any 
charter  or  special  act  of  incorporation 
heretofore  passed,  shall  have  power 
to  create,  issue  and  dispose  of  such 
an  amount  of  special,  preferred  or 
full-paid  stock  of  the  capital  stock  of 
such  corporation  as  may  be  deemed 
advisable  by  the  board  of  directors  of 
such  corporation;  provided,  that  any 
corporation  may,  by  its  articles  of  in- 
corporation or  by  any  amended  article 
of  its  articles  of  incorporation,  pro- 
vide for  special,  preferred  and  com- 
mon stock,  or  special  or  preferred  and 
common  stock,  of  the  capital  stock  of 
such  corporation  ;  and  any  corporation 
heretofore  or  hereafter  organized 
without  changing  its  articles  of  in- 
corporation may  issue  its  capital  stock 
as  a  part  special  and  a  part  pre- 
ferred and  a  part  common,  or  a  part 
common  and  a  part  either  special  or 
preferred,  by  direction  of  its  board  of 


directors,  when  so  authorized  by  a 
majority  of  its  stockholders  at  its  an- 
nual meeting  or  at  a  meeting  called 
for  that  purpose;  and  said  board  of 
directors,  when  so  authorized  by  said 
meeting  of  said  stockholders,  may 
give  such  preference  as  it  may  deem 
best  to  such  special  or  preferred  stock, 
or  such  special  and  preferred  stock." 
This  statute  was  held  to  apply 
to  manufacturing  as  well  as  to 
other  corporations.  Wallace  v.  Car- 
penter, etc.,  Co.,  supra.  Chief  Jus- 
tice Start  said:  "A  certificate  for 
paid-up  shares  in  a  corporation  is 
simply  a  written  statement  in  the 
name  of  the  corporation  that  the 
holder  thereof  is  a  stockholder,  and 
that  the  full  par  value  of  his  shares 
has  been  paid  to  the  corporation.  If 
the  shares  in  fact  have  not  been  so 
paid  for,  the  certificate  that  they  have 
been  is  a  false  representation  that  the 
assets  of  the  corporation  have  been 
increased  to  the  amount  of  the  par 
value  of  the  stock  so  issued.  And, 
when  a  corporation  represents  that  it 
has  a  paid-up  capital  of  a  given 
amount,  it  represents  to  the  business 
world  that  at  the  time  it  issued  the 
stock  it  received  money  or  property 
to  the  full  par  value  of  its  stock. 
The  issuing  of  the  stock  of  a  corpora- 
tion as  paid-up  when  it  is  not  so  in 
fact  is  a  public  and  a  private  wrong — 
a  cheat  and  a  fraud — which  enables 
the  corporation  to  obtain  credit  and 
property  by  false  pretenses.  Ethic- 
ally, the  legislature  might  with  the 
same  propriety  authorize  an  individ- 


358  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  34l! 

It  was  held  that  the  Illinois  provision  is  intended  to  guard 
against  the  placing  of  worthless  securities  upon  the  market 
and  not  to  interfere  with  the  usual  and  customary  methods  of 
raising  funds  by  railroad  corporations  for  legitimate  corporate 
purposes.1  But  stock  issued  in  direct  violation  of  a  prohibi- 
tory statute  is  void,2  and  the  holder  has  no  standing  in  a  court 
of  equity.3  It  has  been  held  that  one  who  pays  money  for 
such  stock  under  an  agreement  by  which  he  has  paid  but  fifty 
per  cent,  of  the  par  value  can  not  recover  back  the  money  he 
has  actually  paid,  as  he  is  in  pari  delicto.1  But,  somewhat  in- 
consistently, it  is  held  that  a  person  who  received  bonus  stock 
which  was  issued  contrary  to  a  prohibitory  statute  was  liable 
to  pay  therefor  in  full.5  If  stock  has  once  been  fully  paid  and 
comes  into  the  hands  of  the  corporation,  it  may  be  reissued  or 
li-tributed  among  the  stockholders  without  violating  the  stat- 
ate.6  Good  will  is  property  for  which  stock  in  a  corporation 
may  be  issued  under  the  New  York  statute,  which  provides 
that  no  stock  shall  be  issued  for  less  than  its  par  value  and  ex- 
cept for  money,  labor  done  or  property  actually  received  for  the 
use  and  lawful  purposes  of  the  corporation.7 

An  agreement  between  the  bondholders  of  an  embarrassed 
railroad   company   provided   that    trustees  should   buy  in  the 

ual  to  misrepresent  his  assets  for  the  given  was  void.     Rogers  v.  Gross,  67 

purpose  of  obtaining  credit  as  loan-  Minn.  224. 

thorize  a  corporation,  other  than  a  l Peoria,  etc.,  R.  Co.  v.  Thompson, 

mining  corporation,  to  issue  watered  103111.187.  See  Brown  v.  Dul uth,  etc., 

Rt'.rk.    Therefore,  while  the  meaning  R.  (V  (Minn.).  58  Fed.  Rep.  889. 

of  this  statute  is  not  entirely  clear,  il  *Wbod    v    Union,   etc,    Assn.,  »;:> 

oughl  not  to  be  construed,  unless  the  Wis.  9,  22  N.  W.  Rep.  7:>n\ 

express   language  used   leaves  us  no  8  Arkansas,  etc.,  R.  Co.  v.  Farmers', 

other  alternative,  so  as  to  Impute  \><  etc.,  Co.,  L3  Colo.  587. 

tin-  legislature  an  intention  to  legalize  4  Clarke  \ ,  Lincoln,  etc.,  Co.,  59  Wis. 

H  practice  denounced  by  courts  ami  655,  18  N.  W.  Rep. 492.  Bui  sec  <j  :v_'."i, 

texl   writers  as  immoral,  contrary  t"  and  cases  cited, 

j. ui, lie  policy,  and  Illegal,  independ-  'Richardson's   ESzs.  v.  Green,   L3S 

.•rit   of   any  statute  prohibiting  it."  U.  S.  30. 

Under  this  sa Btatute  il  was  held  •  Commonwealth  v.  Boston,  etc.,  R. 

that  an  agreement  between  the  sub-  Co.,  142   Mass.   L46 ;    Doris   Bros.   v. 

gcriben  thai  for  each  share  paid  for  Montgomery,  etc.,  Co.,  101   Ala.  il'7. 

a  certificate  foi  two  shares  should  be  '"Washburn  v.  National,  etc.,  Co.,  81 

Fed.  Rep.  17.    Bee  38  km.  L.  Rev.  581. 


§  342  CAPITAL   STOCK.  359 

mortgaged  property  on  foreclosure  and  convey  it  to  a  new  com- 
pany to  be  organized  by  the  bondholders  which  should  issue 
new  mortgage  bonds  to  pay  the  expenses  of  the  sale,  and  other 
new  mortgage  bonds  to  be  taken  by  the  bondholders  in  lieu  of 
their  old  bonds,  and  full  paid-up  stock  subject  to  the  mort- 
gage debt,  to  be  delivered  to  and  held  by  the  bondholders  with- 
out any  payment  of  money.  It  was  held  that  the  constitu- 
tional provision  that  "no  private  corporation  shall  issue  stock 
or  bonds  except  for  money,  on  property  actually  received,  or 
labor  done,  and  all  fictitious  increase  of  stock  or  indebtedness 
shall  be  void"  did  not  apply.1  "It  is  not  clear,"  said  the 
court,  "from  the  words  used,  that  the  framers  of  that  instru- 
ment intended  to  restrict  private  corporations,  at  least  when 
acting  with  the  approval  of  their  stockholders,  in  the  ex- 
change of  their  stock  or  bonds  for  money,  property  or  labor, 
upon  such  terms  as  they  deem  proper;  provided  always,  the 
transaction  is  a  real  one,  based  on  a  present  consideration,  and 
having  reference  to  legitimate  corporate  purposes,  and  is  not  a 
mere  device  to  evade  the  law  and  accomplish  that  which  is 
forbidden.  We  can  not  suppose  that  the  scheme  whereby  the 
appellant  acquired  the  property,  rights  and  privileges  in  ques- 
tion, for  a  given  amount  of  its  stock  and  bonds,  falls  within 
the  prohibition  of  the  state  constitution.  The  beneficial  owners 
of  such  interests  had  the  right  to  fix  the  terms  upon  which 
they  would  surrender  those  interests  to  the  corporation  of 
which  they  were  to  be  the  sole  stockholders." 

1  Memphis,  etc.,  Railroad  v.  Dow,  120  U.  S.  287. 


CHAPTER  14. 


STOCK    SUBSCRIPTIONS. 


343.  In  general. 

344.  Agreement  to  take  shares  in  a 

corporation  to  be  organized. 

345.  When   there  are  no  statutory 

provisions. 
345<r.  Statement  of  rules. 

346.  Who  may  subscribe. 

347.  Subscriptions  through  an  agent. 

348.  The  form  of  the  contract. 
34(>.    The  consideration. 

350.  Signing  articles  of  incorpora- 

tion. 

351.  Application,  allotment  and  no- 

tic.-. 

352.  Conditional  subscriptions. 

353.  Secret  conditions. 

354.  Subscription  of  amount  named 

in  charter  or  required  by  law. 

355.  Payment  of  deposit. 
366.   Tender  of  certificate. 
:;".7.   Conditional    delivery  of   sub- 
scription contract. 

358.  Performance    of    condition  — 

Waiver. 
369.   Conditions  subsequent. 
360.    Subscriptions   upon    special 

tei  Hi-. 

861.  Subscriptions  in  excess  of  au- 

thorized  capital. 

862.  A nut  of  subscription  by  one 

person. 
:;<;:;.   Who    max-    receive    subscrip- 
tion 

Subscriptions  necessary  to  ob- 
tain charter. 

Withdrawal  of  subscriptions  - 

860.  Implied  agreement  to  pay  for 
him  i 

(360) 


§  367.  The  New  England  rule. 

368.  Premature  contract  by  corpo- 
ration— Effect  upon  subscrip- 
tion. 

369.  Effect  of  fraud  upon  the  con- 
tract of  subscription. 

370.  The  English  doctrine 

371.  The  contract  voidable  merely— 
Authority  of  agent. 

372.  Fraudulent  representations  by 
promoters. 

373.  What  frauds  will  vitiate. 
374.     Expressions  of  belief  or  opin- 
ion. 

375.  Remedies  of  defrauded  stock- 
holders. 

376.  Rescission  —  Necessity  for 
prompt  action      baches. 

377.  Insolvency— The  rights  of  cred- 
itors—  English  doctrine. 

378.  Rule  in  the  United  States. 

379.  Right  to  rescind  after  insolv- 
ency continued. 

380.  Rights  of  creditors  before  in- 
solvency of  corporation. 

381.  Insolvency     Rule  of  diligence. 

382.  Enforcement  of  subscription 
contracts  by  action. 

883.    Calls. 

384.   ( 'all-  -  I  Uniformity     Demand. 
Release  of  subscribe]  -  By  con- 
sent . 

886.  Release  by  act  of  corporation. 

887.  By    forfeiture. 

888.  When    forfeiture  a    cumulative 

remedy. 

889.  Estoppel  of  subscriber. 

889a. The  statute  of  limitations. 


§  343  STOCK    SUBSCRIPTIONS.  361 

§  343.  In  general. — A  subscription  to  the  capital  stock  of  a 
corporation,  already  in  being,  is  a  contract  between  the  cor- 
poration and  the  subscriber,  and  to  be  effectual,  it  must  con- 
tain all  the  elements  of  an  ordinary  contract  such  as  competent 
parties,  mutuality  and  a  consideration.  But  a  subscription  or 
agreement  to  subscribe  to  the  stock  of  a  corporation  to  be  or- 
ganized in  the  future  is  a  mere  offer  to  enter  into  a  contract, 
and  is  not  binding  until  the  corporation  is  organized  and  the 
offer  accepted.  It  is,  therefore,  necessary  to  distinguish  be- 
tween contracts  of  subscription  for  the  stock  of  an  existing 
corporation  and  an  agreement  to  take  stock  in  a  corporation 
which  it  is  contemplated  shall  be  organized  in  the  future. 

§  344.  Agreement  to  take  shares  in  a  corporation  to  be  or- 
ganized.— Subscriptions  are  often  made  to  the  stock  of  a  cor- 
poration which  is  in  process  of  organization.  When  the  stat- 
ute provides  for  commissioners,  who  are  authorized  to  take 
subscriptions  under  such  circumstances  and  the  provisions  of 
the  statute  are  complied  with,  the  agreements  are  binding  with- 
out reference  to  the  question  of  consideration.1  A  preliminary 
agreement  by  a  number  of  persons  to  form  a  corporation  and 
to  take  stock  therein,  if  made  as  a  step  authorized  by  a  statute 
in  the  process  of  forming  a  corporation,  is  valid  by  virtue  of  the 
statute,  although  there  is  no  consideration  or  mutuality  prior 
to  the  organization  of  the  corporation,  and  is  binding  and  irre- 
vocable from  time  of  signing.2  Such  subscriptions  are  for  the 
benefit  of  the  corporation,  and  can  only  be  enforced  by  it, 
although  their  validity  is  determined  by  the  statute  and  not 
by  the  common  law  principles  which  govern  a  subscription  to 
the  stock  of  an  existing  corporation.  Thus,  where  the  sub- 
scription was  made  in  the  books  of  commissioners,  authorized 
by  statute,  to  take  subscriptions,  the  court  said:  "The  rules  of 
common  law  in  regard,  consideration  and  mutuality  do  not  apply 
to  the  case.  These  rules,  I  think,  may  be  regarded  as  superseded 
by  a  statute  which  not  only  expressly  authorizes  subscriptions  to 

1  Walter  A.  Wood,  etc.,  Co.  v.  Rob-    Caines  Cas.   (N.  Y.)  86;    Taggart  v. 
bins,  56  Minn.  48.  Western,  etc.,  R.  Co.,  24  Md.  563. 

2  Union,    etc.,   Co.    v.    Jenkins,    1 


362  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  344 

be  made  in  anticipation  of  the  existence  of  a  corporation,  but  im- 
pliedly at  least  recognizes  their  validity1-,  but  even  without  this 
clause  it  would,  I  think,  be  held  that  a  statute  which  authorizes 
subscriptions  in  view  of  subsequent  incorporation,  and  regulates 
the  manner  in  which  they  shall  be  made,  must  necessarily 
have  the  effect  to  give  validity  to  such  subscriptions,  if  made 
in  accordance  with  the  requirements  of  the  act.1  It  has  been 
held  that  the  agreement  to  associate  together  under  the  act  to 
implish  the  purposes  designed,  would  seem  a  sufficient  con- 
sideration. The  consideration  need  not  move  from  the  party 
with  whom  the  contract  is  made.  The  consideration  for  one 
promise  is  that  others  will  make  like  promises."  2 

A  promise  to  take  stock,  before  the  articles  of  incorpora- 
tion have  been  signed,  does  not  constitute  a  subscription,8  as 
such  preliminary  subscriptions  are  mere  offers  which  must 
be  accepted  by  the  corporation  before  they  become  binding 
contracts.4  "A  subscription  by  a  number  of  persons  to  the 
stock  of  a  corporation  to  be  thereafter  formed  by  them  has  in 
law  a  double  character.  First,  it  is  a  contract  between  the 
subscribers  themselves  to  become  stockholders  without  fur- 
ther act  on  their  part  immediately  upon  the  formation  of 
the  corporation.  As  such  a  contract  it  is  binding  and  irre- 
vocable from  the  date  of  the  subscription  (at  least  in  the 
absence  of  fraud  or  mistake),  unless  canceled  by  consent  of  all 
the  subscribers  before  acceptance  by  the  corporation.  Second, 
it  is  also  in  the  nature  of  a  continuing  offer  to  the  proposed 
corporation,  which,  upon  acceptance  by  it  alter  its  formation, 
becomes  as  to  each  subscriber  a  contract  between  him  and  the 
corporation.'"  A  mutual  agreement  to  subscribe  for  stock 
in  a  corporation  has  been  held  to  contemplate  the  further  act 

> Buffalo,  etc.,  B.  Co.  \.  Dudley,  n  Co.,  25  III.  840;  California,  etc.,  Co. 

N  r.336.    Bee  Sedalia,  etc.,  R.  Co.  v.  v.  8chafer,  67  Cal.  396. 

Wilkerson,83  Mo. 286,  Wilgus' Cases.  »Starret1  v.  Rockland,  etc,  Co.,  05 

anebec,  etc.,  R.  <  k>.  v.  Palmer,  Me.  874. 

:;i    Me.  ■"■'''''>:    Osborn   v.  Crosby,  63  » Minneapolis,  etc.,  Co.  v.  Davis,  40 

t;  West  v.  Crawford,  80  Cal.  Minn.  n<>;    Red   Wing,  «■!<■..  <'<>.  v. 

10;  Twin  Creek,  etc.,  Co.  v.  Lancas-  Friedrich,  26  Minn.   L12;    Richelieu, 

ter,  79  Kj  etc.,  Co.  v.  International,  etc.,  ('<».. 

Insurance,  etc.,  I v.  87  i  m  m.  248, 
Ohio  St,  3       :        u'  i  v.  Pike  Co.  B, 


§  345  STOCK    SUBSCRIPTIONS.  363 

of  executing  a  contract  of  subscription  upon  the  stock  books, 
and  until  this  is  done  there  is  no  offer  which  the  corporation 
can  accept.1 

§  345.  "When  there  are  no  statutory  provisions. — An  agree- 
ment by  a  number  of  persons  to  take  stock  in  a  corporation  to 
be  formed,  when  not  a  step  authorized  by  statute  in  the  organ- 
ization of  a  corporation,  is  not  a  contract  of  the  subscribers 
with  each  other,  but  is  a  mere  continuing  offer  to  the  corpora- 
tion by  each  subscriber,  and  may  be  revoked,  or  will  lapse  on 
the  subscriber's  death  or  insanity  at  any  time  before  the  corpo- 
ration is  organized.  If  the  organization  is  perfected  before  the 
offer  is  revoked,  it  operates  as  an  acceptance,  and  the  subscrip- 
tion becomes  irrevocable,  the  subscriber  is  a  stockholder,  and 
the  subscription  may  be  enforced  by  the  corporation.2  In  ju- 
risdictions where  an  action  can  be  maintained  by  a  third  per- 
son upon  a  contract  made  for  his  benefit,  the  corporation  after 
it  is  formed  may  maintain  an  action  upon  the  contract.3  In 
Massachusetts  it  was  said:  "In  agreements  of  this  nature  en- 
tered into  before  the  organization  is  formed  or  the  agent  con- 
stituted to  receive  the  amount  subscribed,  the  difficulty  is  to 
ascertain  the  promisee  in  whose  name  alone  suit  can  be 
brought.  The  promise  of  each  subscriber,  to  and  with  each 
other,  is  not  a  contract  capable  of  being  enforced,  or  intended 
to  operate  literally  as  a  contract  to  be  enforced  between  each 
subscriber  and  each  other  who  may  have  signed  previously,  or 
who  should  sign  afterwards;  nor  between  each  subscriber  and 
all  the  others  collectively  as  individuals.  The  undertaking  is 
inchoate  and  incomplete  as  a  contract  until  the  contemplated 
organization  is  effected  or  the  mutual  agent  is  constituted  to 

1  Athol,  etc.,  Co.  v.Carey,  116  Mass.  v.  Johnson,  93  Cal.  538;  Bullock  v. 
471;  Lake  Ontario,  etc.,  R.  Co.  v.  Turnpike  Co.,  85  Ky.  184;  McClure  v. 
Curtiss,  80  N.  Y.  219.  Railway  Co.,  90  Pa.  St.  269;  Shober's 

2  Athol,  etc.,  Co.  v.  Carey,  116  Admrs.  v.  Lancaster  Co.,  etc.,  Assn., 
Mass.   471;    Red  Wing,   etc.,   Co.   v.  68  Pa.  St.  429. 

Friedrich,  26  Wis.  112;  Buffalo,  etc.,  8 Marysville,  etc.,  Co.  v.   Johnson, 

R.  Co.  v.  Dudley,  14  N.  Y.  336;  Richi-  93  Cal.  538;  Int.,  etc.,  Assn.  v.  Wal- 

lieu,  etc.,  Co.  v.  International,  etc.,  ker,  83  Mich.  386,  47  N.  W.  Rep.  338. 
Co.,  140  111.  248;   Maysville,  etc.,  Co. 


364  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  345a 

represent  the  association  of  individual  rights  in  accepting  and 
acting  upon  the  propositions  offered  by  the  several  subscrip- 
tions. When  thus  accepted,  the  promise  may  be  construed  to 
have  legal  effect  according  to  its  purpose  and  intent,  and  the 
practical  necessity  of  the  case;  to  wit,  as  a  contract  with  the 
common  representative  of  the  several  associates."1  It  was  held 
that  an  action  might  be  maintained  in  the  name  of  the  corpo- 
ration after  it  was  organized  against  a  subscriber  upon  the  al- 
lotment to  him  of  the  shares  subscribed  for. 

§  345a.  Statement  01  rules. — Professor  Collin  states  the 
law  on  this  subject  as  follows:  "The  following  propositions 
are  given  as  the  substantially  harmonious  net  result  of  much 
confusion  in  cases  and  text-books.  Rambling  remarks  may  be 
found  contrary  to.each  proposition,  but  very  few  reported  cases 
have  been  decided  contrary  to  any  one  of  these  propositions 
upon  the  facts  coming  within  it,  and  I  believe  every  proposi- 
tion can  be  sustained  in  any  state  or  federal  court: 

"(a)  A  preliminary  agreement  to  form  a  corporation  and 
take  stock  therein  is  not  a  contract  by  the  subscribers  with 
each  other,  and  can  not  be  enforced  by  one  or  more  against 
any  other,  but  only  by  the  corporation. 

"(b)  Such  an  agreement  not  made  as -a  step  authorized 
by  statute  in  the  process  of  forming  the  corporation  is  a  mere 
offer  to  the  corporation  not  yet  in  existence,  and  is  revoca- 
ble by  any  subscriber  until  the  birth  of  the  corporation,  which 
operates  as  an  acceptance  of  the  offer,  and  thereafter  the  sub- 
scription, if  not  previously  revoked,  is  irrevocable,  and  may 
be  enforced  by  the  corporation. 

"(r)  Such  an  agreement  made  as  a  step  authorized  by 
ute  in  the  process  of  forming  the  corporation  is  made  valid 
by  the  statute,  and  is  binding  upon  each  subscriber  Erom  the 
time  'ling,  and  is  irrevocable  thereafter,  but  can  be  en- 

forced only  by  the  corporation. 

"(d)  An  agreement  to  pay  money  to  trustees  to  be  by 
them  paid  to  a  corporation  thereafter  to  be  created,  the  trus- 
to  return  to  the  subscribers  stock  in  the  corporation  ac- 
1  \tli..i.  etc.,  ( '".  v.  ( larey,  l  L6  Mass.  471. 


§  346  STOCK    SUBSCRIPTIONS.  365 

cordingly,  is  a  valid  contract  between  the  subscribers  and  the 
trustees. 

"(e)  The  distinction  made  between  a  present  subscription 
and  an  agreement  to  subscribe  to  the  stock  of  a  corporation 
thereafter  to  be  created  is  unsound  in  principle,  and  disap- 
pears as  mere  dicta  upon  a  thorough  sifting  of  the  cases.1 

"(f)  The  damages  recoverable  by  the  corporation  upon  a 
subscription  is  the  amount  of  the  subscription;  and  all  discus- 
sion of  any  other  measure  of  damages,  such  as  the  difference 
between  the  par  and  market  value  of  stock  subscribed,  arises 
from  a  misconception  of  the  situation  and  disappears  from  the 
net  result  of  the  authorities."2 

§  346.  Who  may  subscribe. — Any  one  who  is  competent  to 
enter  into  a  common-law  contract  may  make  a  valid  subscrip- 
tion to  the  stock  of  a  corporation.  But  the  corporation  can 
not  be  a  subscriber  to  its  own  stock,3  and  by  the  weight  of 
authority  a  corporation  can  not  subscribe  for  the  shares  of  an- 
other corporation  without  express  authority.  A  subscriber 
may  be  a  non-resident  or  an  alien;4  or  it  may  be  a  municipal 
or  public  corporation  when  acting  under  proper  statutory 
authority.5  A  state  may  debar  aliens  from  holding  shares  of 
stock  in  a  corporation,  or  it  may  admit  them  upon  prescribed 
conditions.6  A  subscription  may  be  made  by  a  person  under 
disability,  but  as  in  the  case  of  other  such  contracts  it  may  be 
repudiated  within  a  reasonable  time  after  the  disability  is  re- 
moved. Whether  a  valid  subscription  may  be  made  by  a  mar- 
ried woman  will  depend  entirely  on  the  extent  to  which  her 

1  This  distinction,  however,  is  still  tied  that  municipal  corporations  may 
recognized  in  the  late  case  of  Yonkers  lawfully  subscribe  to  the  stock  of  pri- 
Gazette  Co.  v.  Taylor,  30  App.  Div.  vate  corporations,  when  authorized 
Rep.  (N.  Y.)  334  on  337  (1898).  by  statute  to  do  so.     It  is  not  equally 

2  See  Cook.  Corp.  (4th  ed.),  §  75.         clear  that  one  private  corporation  may 
3Talmage  v.Pell,  7  N.Y.  328;  Frank-    subscribe  for  the  stock    in    another 

lin  Co.  v.  Lewiston  Inst,  for  Sav.,  68  corporation.     On   the  contrary   such 

Me.  43 ;  Holladay  v.  Elliott,  8  Ore.  84 ;  subscriptions  are  ultra  vires  and  void." 

Allibone  v.  Hager,  46  Pa.  St.  48.  Denny  Hotel  Co.  v.  Schram,  6  Wash. 

4  Commonwealth  v.Hemingway,  131  134. 

Pa.  St.  614,  18  Atl.  Rep.  990.  6 State  v.  Travelers,   etc.,   Co.,    70 

5  In  Nassau  Bank  v.  Jones,  95  N.  Y.     Conn.  590,  66  Am.  St.  Rep.  138. 
115, it  was  said :  "It  is  conclusively  set- 


366  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  34? 

common-law  disabilities  have  been  removed  by  statute.  By 
the  common  law  a  subscription  by  a  married  woman  is  in- 
valid.1 The  statute  imposing  individual  responsibility  to  the 
amount  of  the  par  value  of  their  shares  upon  all  stockholders 
in  national  banks  makes  no  exceptions  in  favor  of  married 
women;2  and  under  a  statute  which  provides  that  no  woman, 
during  coverture,  shall  be  capable  of  making  any  contract  to 
affect  her  real  and  personal  estate  without  the  written  consent 
of  her  husband,  it  was  held  that  a  purchase  of  stock  by  a  mar- 
ried woman  is  not  a  "contract"  within  the  terms  of  the  stat- 
ute, and  that  the  wife  is  liable  for  an  assessment,  although  the 
stock  was  purchased  without  the  consent  of  her  husband.  "If 
a  purchase  of  stock  in  a  national  bank  by  a  married  woman 
without  the  written  consent  of  her  husband  gives  her  the  owner- 
ship of  such  stock,  judgment  must  be  given  against  the  f<  me 
defendant.  If  she  owned  the  stock  at  the  failure  of  the  bank, 
she  is  liable  to  the  assessment;  if  she  did  not,  she  is  not  lia- 
ble. While  the  federal  government  exclusively  controls  the 
question  of  the  liability  of  stockholders  in  national  banks,  it 
i-  not  doubted  that  a  state  has  power  to  say  that,  for  reasons 
seeming  good  to  its  legislature,  and  not  in  conflict  with  organic 
law,  a  particular  class  of  persons  shall  not  be  permitted  to  own 
particular  classes  of  property.      *  *      It  certainly  is  no- 

where enacted  directly  that  a  married  woman  shall  not  own 
stock  in  national  banks,  or  stock  that  upon  the  failure  of  the 
corporation  shall  be  liable  to  assessment." '  The  right  to  take 
stock  in  a  certain  kind  of  corporation  may  be  restricted  by  ex- 
press provision  of  the  charter  to  persons  of  a  certain  nation- 
ality.' 

§  347.    Subscriptions  through  an  agent. — A  valid  contract  of 

JCriptiOE    may  be    made    through  a    duly  authorized    agent.5 
Ill  Bome    -tales  it    is    held    that  a    jierson   who  assumes  to  act  as 

lNat'l  Com.  Bank  v.  McDonnell,  92  •Blien   v.    Rand  (Minn.,  1899 

Ala.  N.  W.  Rep.  606 

2  Keyeer  v.  Hitz,  188  U.  -    188.  '  Burr  v.  Wilcox,  22  V  V.  551  ;  Mc- 

•  Robinson  v.  Tarrentine,  59   Fed.  Olelland  v.  Whitel;                Rep.332, 


§  348  STOCK    SUBSCRIPTIONS.  367 

an  agent  for  another  without  authority  binds  himself  as  a 
principal.  Under  such  circumstances,  the  agent  would  be- 
come a  stockholder  in  the  corporation.1  In  other  jurisdictions 
it  is  held  that  the  agent  does  not  become  a  stockholder,  and  is 
merely  liable  to  the  corporation  in  an  action  for  damages.2 

§  348.  The  form  of  the  contract. — A  contract  of  subscrip- 
tion for  shares  in  a  corporation  need  not  be  in  writing,3  al- 
though, under  particular  charters,  it  has  been  held  otherwise.4 
Irregularities  are  generally  disregarded,  and  if  it  is  clear  that 
the  party  intended  to  bind  himself  the  lack  of  form  will  not 
defeat  his  intention.  Thus,  a  party  was  held  bound  by  a  sub- 
scription made  in  a  memorandum  book,5  or  upon  a  loose 
sheet  of  paper,6  although  the  charter  provided  for  opening 
subscription  books.7 

Generally,  the  fact  that  the  form  of  subscription  prescribed 
by  the  charter  is  not  followed,  will  not  invalidate  the  subscrip- 
tion,8 although  a  form  provided  by  the  charter  is  of  course  suf- 
ficient.9 The  subscriber  can  not  escape  liability  by  showing 
that  he  has  not  performed  conditions  precedent  which  are 
prescribed  by  the  charter,  when  it  would  result  in  injury  to 
others  who  have  in  good  faith  acted  upon  his  agreement.10 

1  State  v.  Smith,  48  Vt.  266;  Nat'l  s  Buffalo,  etc.,  Co.  v.  Gifford,  87 
Com.  Bank  v.  McDonnell,  92  Ala.  387,     N.  Y.  294. 

9  So.  Rep.  149;  Allibone  v.  Hagar,  64  6Iowa,  etc.,  R.  Co.  v.  Perkins,  28 

Pa.  St.  48.  Iowa  281. 

2  Salem  Milldam  Corp.  v.  Ropes,  9  7  Ashtabula,  etc.,  R.  Co.  v.  Smith, 
Pick.   (Mass.)   187.      See  Perkins  v.  15  Ohio  St,  328. 

Savage,  15  Wend.  412.  8  Rensselaer,  etc.,  Co.  v*.  Barbon,  16 

3  York,  etc.,  Assn.  v.  Barnes  (Neb),  N.  Y.  457,  note;  Home,  etc.,  Co.  v. 
58  N.  W.  Rep.  440;  Colfax,  etc.,  Co.  Sherwood,  72  Mo.  461  ;  Webb  v.  Bal- 
v.  Lyon,  69  Iowa  683,  29  N.  W.  Rep.  timore,  etc.,  R.  Co.,  77  Md.  92;  Pitts- 
780;  Des  Moines  Bank  v.  Colfax  Ho-  burgh,  etc.,  R.  Co.  v.  Applegate,  21  W. 
tel  Co.,  88  Iowa  4;  Bullock  v.  Fal-  Ya.  172;  Illinois,  etc.,  R.  Co.  v.  Zim- 
mouth.  etc.,  Co.,  85  Ky.  184,  3  S.  W.  mer,  20  111.  654. 

Rep.    129;    National    Bank    v.    Van  9 Parker  v.   Northern,  etc.,  R.  Co., 

Drewerker,  74  N.  Y.  234.     See  §  286.  33  Mich.  23. 

4  Fanning  v.  Insurance  Co.,  37  l0  Wood  v.  Coosa,  etc.,  R.  Co.,  32 
Ohio  St.  339;  Galveston  Hotel  v.  Bol-  Ga.  273;  Boyd  v.  Peach  Bottom  R. 
ton,  46  Tex.  633;  Vreeland  v.  New  Co.,  90  Pa.  St.  169.  If  the  name  of 
Jersey,  etc.,  Co.,  29  N.  J.  Eq.  188.  a  person  appears  on   the  stock  book 


368  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  349 

§  349.  The  consideration. — A  subscription  for  shares  con- 
fers mutual  rights.  The  advantages  arising  from  membership 
in  the  corporation,  and  interest  in  the  property  and  franchises 
and  the  right  to  participate  in  dividends  is  a  sufficient  consid- 
eration to  support  the  contract.1  ''The  subscription  for  the 
st  k  constitutes  a  contract  with  the  company  which  is  sup- 
ported by  a  sufficient  consideration.  The  subscriber  thereby 
acquires  an  interest  in  the  corporation  and  there  is  an  implied 
promise  on  the  part  of  the  company  to  issue  the  proper  certifi- 
cates, as  evidence  of  his  interest,  whenever  the  terms  of  his 
subscription  shall  be  complied  with,  so  as  to  entitle  him  to  it. " 
When  the  subscription  contract  is  made  with  the  corporation 
or  its  agents,3  or  is  subsequently  accepted  by. the  corporation* 
the  implied  counter  promise  of  the  corporation  is  a  sufficient 
consideration  to  uphold  the  contract.5  The  legislature  may 
make  subscriptions  preliminary  to  the  organization  of  the  cor- 
poration binding  without  reference  to  the  consideration.6  Such 
subscriptions  are  binding  by  virtue  of  the  statute.  When 
subscriptions  were  made  in  the  books  of  commissioners  who 
were  provided  for  by  the  statute,  it  was  said  that  the  subscrip- 
tions could  not  be  revoked,  even  before  the  corporation  was 
organized.  The  court  said:  "The  rules  of  the  common  law  in 
regard  to  consideration  and  mutuality  do  not  apply  to  the  case. 
These  rules  may,  I  think,  be  regarded  as  superseded  by  the 
statute,  which    not  only  expressly  authorizes   subscriptions  to 

of  a  corporation    as    a  stockholder,  'Lake Ontario,  etc.,  R.  Co.  v.  Cnr- 

thongb  the  book  is  irregularly  kepi  tisa,  80  N.  Y.  219;  Wallace  v.  Town- 

and  does  not  contain  the  entries  pre-  send,  48  Ohio  St.  687;  Parkerv.  N. 

scribed  by  Btatate,  the  presumption  is  Cent.  R.  Co.  88  Mich.  23. 

that  he  is  the  owner  of  the  stock,  and  4  N.  Cent.  R.  Co.  v.  Eslow,  40  Mich, 

the  burden  is  on  bim  to  Bhow  thai  li"  222. 

tockholder.     Holland  v.  l>u-  »  Kennebec,  etc.,  R.  Co.  v.  Jarvifl, 

lath,  etc    i              tinn.  824.  :;i  Maine  860.    See  Starrattv.  Rock- 

>Mahanv.  Wood,   WCal.  W2;  Cot-  [and,  etc.,  Co., 65 Maine 874;  Dniver- 

-i  .  etc.,  Church  v.  Kendall,  121  aity  of  Dea  Moines  v.  Livingston,  67 

aiIh.I.  etc.,  Co.  v.  Carey,  [owa  807. 

116  Mass,  171.  '  See  f  844. 

alter  a.  \v I  etc.,  Co.  v.  Rob- 

56  Minn.  K  67  v  w.  Rep.  817. 


§  350  STOCK    SUBSCRIPTIONS.  369 

be  made  in  anticipation  of  the  existence  of  the   corporation, 
but  impliedly,  at  least,  recognizes  their  validity."1 

§  350.  Signing  articles  of  incorporation. — A  valid  subscrip- 
tion may  be  made  by  signing  the  articles  of  association  and 
writing  after  the  signature  the  number  of  shares  taken.  Such 
an  agreement  does  not  become  enforcible  until  the  articles 
are  acknowledged  as  required  by  statute.2  The  rule  stated  in 
the  preceding  section  applies  also  to  subscriptions  made  by 
signing  the  articles  of  incorporation,  or  a  formal  subscription 
paper  which  is  required  to  be  filed  by  the  statute.  It  can  not 
be  revoked,  as  the  subscription  is  presumed  to  be  accepted  by 
the  corporation  and  takes  effect  from  the  filing  of  the  certifi- 
cate required  by  statute. 

§351.  Application,  allotment  and  notice.  —  Where  the 
method  of  taking  stock  is  by  application,  allotment  and  notice, 
the  notice  is  of  the  essence  of  the  contract,  and  the  contract 
dates  from  the  mailing  of  the  notice  and  is  complete  whether 
it  reaches  the  allottee  or  not.3 

§  352.  Conditional  subscriptions. — A  conditional  subscrip- 
tion is  one  on  which  payment  can  be  enforced  by  the  corporation 
only  after  the  occurrence  or  after  the  performance  by  the  cor- 
poration of  certain  things  specified  in  the  subscription  itself.4 
Such  a  subscription  is  merely  an  offer  to  become  a  member  of 
the  corporation  after  the  condition  is  performed,  and  until 
the  condition  is  performed  the  subscriber  does  not  become  a 
stockholder    in    the    corporation.5     Thus,    a    subscription   for 

1  Buffalo,  etc.,  R.  Co.  v.  Dudley,  14  sPellatt's  Case,  2  Ch.  App.  Cas.  527 ; 

N.  Y.  336.  In  re  Northern,  etc.,  Co.,  Ch.  Div.  8 

2Coppagev.  Hutton,  124  Ind.401,7  R.  Corp.  L.  J.  177.    This  method  is 

L.  R.  A.  591 ;  Cravens  v.  Cotton  Mills,  peculiar  to  English  law. 

120  Ind.6;  Nultonv.  Clayton, 54 Iowa  4  Montpelier,    etc.,  R.  Co.  v.  Lang- 

425;  Phcenix,  etc.,  Co.  v.  Badger,  67  don,  46  Vt.  284. 

N.  Y.  294;  Dayton  v.  Borst,  31  N.  Y.  5Ticonic,  etc.,  Co.  v.  Lang,  63  Me. 

435;  Joy  v.  Manion,  28  Mo.   App.  55;  480.  There  can  not  be  such  a  thing  as 

Lake    Ontario,  etc.,  R.  Co.  v.  Mason,  a  "conditional  membership."    Pitts- 

16  N.  Y.  451 ;  Greenbrier  Ind.  Expo,  burgh,  etc.,  R.  Co.  v.  Biggar,  34  Pa. 

v.  Rodes,  37  W.  Va.  738.  St.  455. 
24 — Private  Cokp. 


370 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  352 


shares  in  a  railway  corporation,  upon  condition  that  the  road 
shall  be  located  upon  a  certain  route,  is  a  conditional  subscrip- 
tion, and  the  subscriber  does  not  become  a  member  until  the 
road  has  been  so  located.1  In  New  York  such  a  condition  to 
a  subscription  made  before  incorporation  renders  the  subscrip- 
tion void,2  while  in  Pennsylvania  it  is  held  that  "where  one 
subscribes  to  the  stock  of  a  private  corporation  prior  to  the 
procurement  of  its  charter,  such  subscription  is  to  be  regarded 
as  absolute  and  unqualified,  and  any  condition  attached  thereto 
is  void."3  Of  conditional  subscriptions  before  incorporation, 
the  supreme  court  of  the  United  States  said  that  where  "the 
law  prescribes  that  a  certain  amount  of  stock  shall  be  subscribed 
before  corporate  powers  shall  be  exercised,  if  subscriptions, 
obtained  before  the  organization  was  effected,  may  be  subse- 
quently rendered  unavailable  by  conditions  attached  to  them, 
the  substantial  requirements  of  the  law  are  defeated.  The 
purpose  of  such  a  requirement  is  that  the  state  may  be  assured 
'Swartwout  v.  Mich.,  etc.,  R.  Co.,    time,  is  a  conditional  sale  and  enforci- 


24 Mich.  389;  Taggart  v.  Western,  etc., 
R.  Co.,  24  Md.  563.  In  McMillan  v. 
Maysville,  etc.,  R.  Co.,  15  B.  Mon. 
i  Ky.)  218,  the  court  said  :  " When  the 


ble  between  the  parties. 

2  Butternuts,  etc.,  Co.  v.  North,  1 
Hill  (N.  Y.)  518;  Troy,  etc.,  R.  Co. 
v.  Tibbits,  18  Barb.  297;  In  re  Roch- 


road  was  *  *  *  located,  signers  be-  ester,  etc.,  R.  Co.,  50  Ilun  29;  Ft. 
came  unconditional  stockholders,  and  Edwards,  etc.,  Road  Co.  v.  Payne,  15 
as  aucb  were  entitled  to  all  the  corpo-  N.  Y.  583.  See  Putnam  v.  City  of  New 
rate  rights  and  privileges  of  members  Albany,  I  Biss.  365. 
of  the  company.  The  stock  itself  was  3  Caley  v.  Philadelphia,  etc.,  R.  Co  , 
not  conditional;  it  was  only  the  80  Pa.  St.363;  Boyd  v.  Peach  Bottom 
agreement  to  take  it  thai  was  condi-  R.  Co.,  90  Pa.  St.  169;  Burke  v. 
tional.  The  subscribers  were  not  Smith,  16  Wall.  390;  Pittsburgh,  etc., 
stockholders  until  the  company  had  R.  Co.  v.  Bigger,  34  Pa.  St.  155.  A 
performed  the  condition  upon  which  conditional  subscription  before  incor- 
their  undertaking  depended;  and  poration  may  be  treated  as  a  con- 
when  that  was  done  they  became  tinuing  offer  to  take  shares  upon  the 
stockholders  by  force  of  the  agree-  terms  indicated,  and  if  not  withdrawn 
mmit  of  the  parties."  In  Vent  v.  may  be  accepted  by  the  proper  agent 
Duluth,  etc.,  Co.,  64 Minn.  307,  it  was  of  the  corporation  alter  its  organiza- 
lield  that  an  agreemenl  for  the  pur-  tion.  A  subscription  upon  special 
from  the  corporation  of  its  terms,  received  after  organization  by 
-hares,  w  ith  a  provision  that  ihepnr-  an  agent  without  authority,  may,  if  no1 
r  may  return  the  Btock  and  re-  withdrawn,  be  accepted  bj  the  board 
ceive  his  money  back  within  a  certain  of  directors.     Red  Wing,  etc.,  Co.  v. 

drich,  26  Minn.  J 12. 


§  352  STOCK    SUBSCRIPTIONS.  371 

of  the  successful  prosecution  of  the  work,  and  that  creditors 
of  the  company  may  have,  to  the  extent,  at  least,  of  the  re- 
quired subscription,  the  means  of  obtaining  satisfaction  of 
their  claims.  The  grant  of  the  franchise  is,  therefore,  made 
dependent  upon  securing  a  specified  amount  of  capital.  If  the 
subscriptions  to  the  stock  can  be  clogged  with  such  conditions 
as  to  render  it  impossible  to  collect  the  fund  which  the  state 
requires  to  be  provided  before  it  would  assent  to  the  grant 
of  corporate  powers,  a  charter  might  be  obtained  without 
any  available  capital.  Conditions  attached  to  subscriptions, 
which,  if  valid,  lessen  the  capital  of  the  company,  thus  de- 
priving the  state  of  the  security  it  exacted  that  the  railroad 
would  be  built,  and  diminishing  the  means  intended  for  the 
protection  of  creditors,  are,  therefore,  a  fraud  upon  the  grantor 
of  the  franchise  and  upon  those  who  may  become  creditors  of 
the  corporation.  They  are  also  a  fraud  upon  unconditional 
stockholders,  who  subscribed  for  the  stock  in  the  faith  that 
capital  would  be  obtained  to  complete  the  projected  work,  and 
who  may  be  compelled  to  pay  their  subscriptions,  though  the 
enterprise  has  failed,  and  their  whole  investment  has  been 
lost.  It  is  for  these  reasons  that  such  conditions  are  denied 
any  effect."1  But,  after  incorporation,  conditional  subscrip- 
tions are  held  valid  in  all  the  states,2  and  a  conditional  sub- 
scription, which  the  corporation  has  no  authority  to  accept  at 
the  time,  will  constitute  a  continuing  offer,  and,  if  not  with- 
drawn before  the  conditions  are  performed,  it  will  become  ab- 
solute and  binding.3  A  stipulation  in  a  contract  of  subscrip- 
tion that  the  subscriber  shall  receive  bonds  of  the  corporation 
as  a  bonus  in  an  amount  equal  to  the  stock  for  which  he 
subscribes   does  not  make  the  issuance  of  the   bonds  a  con- 

1  Burke  v.  Smith,  16  Wall.  390.  Webb  v.  Railway  Co.,  77  Md.  92.    In 

2 Pittsburgh,  etc.,  R.  Co.  v.  Stewart,  New  York,  however,  it  is  held  that 

41  Pa.  St.  54;  Hanover,  etc.,  R.  Co.  v.  the  condition   that    a   railroad   shall 

Haldeman,  82  Pa.  St.  36;  Baltimore,  be  located  over  a  particular  route  is 

etc.,  R.  Co.  v.  Pumphrey  (Md.),  21  invalid  as  against  public  policy.    But- 

Atl.  Rep.  559;  Armstrong  v.  Karsh-  ternuts,  etc.,  R.  Co.  v.  North,  1  Hill 

ner,  47  Ohio  St.  276,  24  N.  E.  Rep.  897  ;  518. 

Carey  &    Co.  v.  Morrill,  61  Vt.  598;  3  Armstrong  v.  Karshner,   47  Ohio 

Taggart  v.  Railroad  Co.,  24  Md.  563;  St.  276,  24  N.  E.  Rep.  897. 


372 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§353 


dition  precedent  to  liability  on  the  subscription  contract.  The 
liability  exists,  although  the  corporation  fails  to  carry  out  the 
agreement.     Such  an  agreement  is  void.1 

§  353.  Secret  conditions. — Conditions  attached  to  subscrip- 
tions must  be  included  in  the  written  agreement,  as  oral  con- 
ditions can  not  be  shown.2  A  secret  agreement  between  the 
subscriber  and  the  corporation  which  in  effect  changes  the  os- 
tensible terms  of  the  subscription  is  void.  The  corporation 
may  disregard  the  collateral  agreement  and  hold  the  subscriber 
to  the  ostensible  contract.3  The  only  exception  to  this  rule 
seems  to  be  found  in  Pennsylvania,  where  it  may  be  shown  by 
oral  evidence  that  a  written  subscription,  absolute  on  its  face, 
was  in  fact  conditional.  But  an  agreement  to  which  the  corpo- 
ration and  all  the  subscribers  for  stock  are  parties  that  a  sub- 
scriber shall  not  be  required  to  pay  for  his  shares  is  binding 
when  there  are  no  creditors.  There  is  no  liability  as  between 
such  a  subscriber  and  the  other  shareholders.4  A  party  can 
not  defend  on  the  ground  that  his  subscription  was  feigned  and 
fraudulent,  and  that  the  corporation  was  a  party  to  the  fraud.6 


1  Morrow  v.  Nashville,  etc.,  Co.,  87 
Tenn.  262,  :;  J..  B.  A.  37. 

*  Minneapolis,  etc.,  Co.  v.  Davis,  40 
Minn.  1  10;  Masonic  Temple  Assn.   v. 

Ohannell,  ■*'■'>  Minn.  353;  Boskell  v. 
Bells,  1 1  Mo.  A|.p.'.»i ;  Nippenose,  etc., 
i  .  v.  Btadon,  68  Pa.  St.  256;  Miller 
v  I [anover  Junction,  etc.,  B.  ('"..  >s7 
i .  Baile  v.  Educational  Boci- 

i:  m.i.  H7;  Galena,  etc.,  B.  Co. 

nior,  l  n;  111.:..;  Downiev.  White, 

12  \\'i-  176;  Topeka,  etc.,  ('<>.  v.  Hale, 

Can.  28.     A.8  to  parol  declarations 

Seers  of  tin-  corporation  which 
amounl  to  fraud,  Bee  Martin  v.  Pen- 

i  etc.,  B.  Co.,  8  Fla.  :::<>.  By 
pro  to  t be  propo  ed  route  of 

a  railroad,  Braddocs  \  Philadelphia, 
etc,  i:   Oo  .  i ■'•  N  J.  I.    ' 

•  Meyer  v.   Blair,   109  N.   v.  600; 


White  Mountain  R.  Co.  v.  Eastman, 
34  N.  II.  124  ;  Jewell  v.  Rock  River  P. 
Co.,  101  111.  57 ;  Melvin  v.  Lamar,  etc., 
Co.,  80  111.  146;  Winston  v.  Dorsett, 
etc.,  Co.,  L29  111.  64 ;  Piscataqua,  etc., 
Co.  v.Jones.  39  N.  II.  191. 

•Winston  v.  Bock  River  P.  Co.,  129 
III.  64,  I  L.  B.  A.  507. 

•Graft1  v.  Pittsburg,  etc.,  B.  Co.,  31 
Pa.  st.  489;  Phoenix  w.  Co.  v.  Badger, 
ii7  N.  V.  294.  A  subscription  on  a 
Ma  nk  piece  of  paper  on  condition  that 
it  u  ill  not  be  attached  t«>  Hie  articles 
of  incorporation  until  they  are  pre- 
Bented  to  the  subscriber  for  lii*  ap- 
proval is  held  valid  in  Bucherv.  Dills- 
burg,  i  tc.,  B.  Co.,  76  Pa.  st.  306,  and 
Bee  Great,  etc.,  Co.  v.  Loewenthal,  164 
III.  261. 


§  354  STOCK    SUBSCRIPTIONS.  373 

§  354.  Subscription  of  amount  named  in  charter  or  re- 
quired by  law. — When  a  subscription  is  made  upon  condition 
that  a  certain  amount  of  stock  shall  be  subscribed,  the  sub- 
scriber can  not  be  called  on  until  the  full  amount  is  taken.1 
If  the  amount  of  capital  stock  of  a  corporation  is  named  in  its 
charter,  it  by  implication  has  no  authority  to  begin  business 
until  the  whole  amount  of  such  capital  has  been  subscribed, 
and  the  stockholders  can  not  be  required  to  pay  their  subscrip- 
tions until  the  full  amount  of  capital  is  legally  subscribed % 
by  solvent  persons  apparently  able  to  pay  for  the  shares.3 
"  It  is  an  implied  part  of  the  contract  of  subscription  that  the 
contract  is  to  be  binding  and  enforcible  against  the  subscriber 
only  after  the  full  capital  stock  of  the  corporation  has  been 
subscribed.  This  condition  precedent  to  the  liability  of  the 
subscriber  need  not  be  expressed  in  the  corporate  charter  or 
the  subscription  itself.  It  arises  by  implication  from  the  just 
and  reasonable  understanding  of  a  subscriber  that  he  is  to  be 
aided  by  other  subscriptions.  This  rule  is  supported  by  pub- 
lic policy,  in  that  corporate  creditors  have  a  right  to  rely  upon 
a  belief  that  the  full  capital  stock  of  a  corporation  has  been 
subscribed."  4 

Philadelphia,  etc.,  R.  Co.  v.  Hick-  Walker,  88  Mich.   62;  Katama,  etc., 

man,  28  Pa.  St.  318;  Union,  etc.,  Co.  Co.  v.  Jernegan,  126  Mass.  155;  John- 

v.  Hersee,  79  N.  Y.  454.    As  to  neces-  son  v.  Shar,  9  S.  Dak.  536;  Hendrix 

sary  allegation  in  the  complaint,  see  v.  Academy  of  Music,  73  Ga.  437  ;  All- 

Duluth,  etc.,  Co.   v.   Witt,   63  Minn,  man  v.  Havana,  etc.,   R.  Co.,  88  111. 

538.  521.  Contra,  Nelson  v.  Blakey,  54  Ind. 

2  Anderson  v.  Railroad  Co. ,  91  Tenn.  29. 

44,  17  S.  W.    Rep.  803;   Anvil,  etc.,  sLewey's,  etc.,  R.  Co.  v.  Bolton,  48 

Co.   v.    Sherman,   74    Wis.    226,    42  Maine  451. 

N.  W.  Rep.  226;  Masonic,  etc.,  Assn.  4Cook  I,  §  176;  Stoops  v.  Greens- 
v.  Channell,  43  Minn.  353;  Boston,  burgh,  etc.,  Co.,  10  Ind.  47.  The 
etc.,  R.  Co.  v.  Wellington,  113  Mass.  right  to  levy  a  preliminary  assess- 
79;  Denny,  etc.,  Co.  v.  Schram,  6  ment  to  defray  the  expenses  of  in- 
Wash.  134,  36  Am.  St.  Rep.  130;  corporation  does  not  imply  the  right 
Salem,  etc.,  Corp.  v.  Ropes,  6  Pick,  to  levy  subsequent  assessments  be- 
23,  19  Am.  Dec.  363;  Livesey  v.  Oma-  fore  the  full  required  amount  of  cap- 
ha  Hotel,  5  Neb.  50;  Peoria,  etc.,  R.  ital  is  subscribed.  In  Anvil,  etc., 
Co.  v.  Preston,  35  Iowa  118;  Atlantic,  Co.  v.  Sherman,  74  Wis.  226,  4  L. 
etc.,  Mills  v.  Abbott,  9  Cush.  (Mass.)  R.  A.,  232,  the  court  said:  "The 
423;  International  Fair,  etc.,  Assn.  v.  first  position,   that    before   the    cor- 


374 


THE    LAW    OF    TRIVATE    CORPORATIONS. 


§354 


Such  an  implication  is  overcome  if  the  terms  of  the  sub- 
scription contract  or  of  the  statute  under  which  the  corporation 
is  organized  is  inconsistent  with  the  existence  of  such  a  con- 
dition.1 But  the  rule  that  "when  the  capital  stock  is  fixed 
by  the  charter,  an  action  does  not  lie  to  enforce  a  subscription 
until  all  the  stock  is  taken,  does  not  apply  where,  from  the 
face  of  the  charter,  it  is  obvious  that  the  whole  of  the  capi- 
tal stock  was  not  necessary  to  the  organization  of  the  company, 
and  the  subscriber  knew,  or  had  reason  to  know,  this  at  the 
time  of  subscribing;  nor  does  it  apply  where  a  subscriber 
takes  part  in  carrying  on  the  business  of  the  company,  and 
votes  on  his  shares;  at  least,  when  the  suit  is  brought  by  the 
receiver  of  tie'  corporation  after  it  has  become  insolvent." 

Tie-  condition  may  of  course  be  waived  by  the  subscriber.8 
T!i''  amount  which  has  been  subscribed  may  be  shown  by  the 


poration  can  make  an  assessment 
after  the  first  for  preliminary  objects 
has  been  made,  the  whole  of  tin-  capi- 
tal Btock  must.have  been  taken  orsub- 
Bcribed,is  unquestionably  sustained  by 
nearly  all  tin-  authorities  in  this  coun- 
try. *  *  *  There  is  a  principle  recog- 
nized in  these  decisions  that,  outside 
the  lanL'uaL'e  of  the  subscription  itself, 

the   provisions   Of    the   charter  and  of 

the  statute  an-  to  he  considered  in 
construing  and  giving  effect  to  the 
contract  of  subscription.  From  the 
whole,  taken  together,  this  condition 
of  mil  subscription  ana  the  limital 
upon  the  liability  of  stockholders  are 
derived.  It  is  by  no  means  an  end 
of  the  question  tint  the  subscrip- 
tion itself  is  absolute  ami  uncondi- 
tional ;  and  yet  some  cases  cited  by 
the  insel  foi  the  respondent 

1  entirely  upon    the  lang 

,,i  the  conl  i  id  of  subscription,  and 

I-*. •  no  COndll  ion  i-  found  therein, 

they  hold  thai  there  is  none.  The 
distinction  in  all  the  cases  is  that  the 

-lent      Which     i-     Sllp- 
I    to  I..-    paid   at   once,   or  w  it  Inn    a 


verv  short  time,  is  unconditional,  and 
must  he  paid  in  order  to  meet  the 
preliminary  and  incidental  expenses 
of  organizing  the  corporation,  and 
getting  it  into  a  condition  to  transact 
its  general  business  and  carry  out  its 
general  objects.  The  leading  author- 
ity upon  this  question,  and  which  has 
been  followed  by  nearly  all  the  subse- 
quent cases  in  this  country,  is  the  case 
of  Salem,  etc..  Cor)',  v  Ropes,  <i  Tick. 
23,  19  \ni.  1  lee.  363." 

1  Lincoln,  etc..  Co.  v.  Sheldon,  It 
Neb.  279;  Anderson  v.  Railroad  Co., 
91  Tenn.  1  I  ;  Iowa,  eh'.,  R.  Co.  v. 
Perkins,  28  Iowa  281  ;  Arkadelphia, 
etc.,  Mill-  v.  Trimble,  54  Ark.  316; 
Port  Edward  R.,  etc.,  Co.  v.  A.rpin,80 
Wis.  21  I.  19  N.  W.  Rep.  828. 

•TayloT    1'riv.   Corp.,  §  618;    Mus- 

grave  v.   Morrison,  ".  I  Md.   161 , 

'■'  Ma  ionic,  etc..  Assn.  v.  Ohannell, 
i  ;  Minn.  853;  Cornell  a  Michler's 
Appeal,  HI  I'a.  St.  158;  Hamilton  v. 
Railroad  Co..  l  H  Pa.St.84  ;  Anderson 
v.  Railroad  <  !o.,  91  Tenn.  1 1 ;  Gibbons 
v.  Elli  .  B3  \\  is.  i::i. 


§  355  STOCK    SUBSCRIPTIONS.  375 

records  of  the  corporation.1  But  the  certificate  of  commission- 
ers appointed  by  the  legislature  to  take  subscriptions  that  the 
required  amount  has  been  subscribed  is  conclusive.2 

§  355.  Payment  of  deposit. — It  is  not  uncommon  for  the 
statute  or  corporate  charter  to  provide  that  a  certain  percent- 
age of  the  amount  of  the  subscription  shall  be  paid  at  the  time 
the  subscription  is  made.  It  is  held  by  one  line  of  decisions 
that  when  the  subscription  is  prior  to  incorporation  a  failure 
to  comply  with  this  requirement  renders  the  subscription  void.3 
Another  line  of  decisions  holds  that  the  provision  is  for  the 
benefit  of  the  corporation,  and  that  it  may  therefore  be  waived 
by  it,  and  that,  as  the  subscriber  will  not  be  permitted  to  take 
advantage  of  his  own  neglect,  the  contract  is  enforcible.4 
When  the  subscription  is  made  after  the  corporation  is  organ- 
ized, the  requirement,  being  for  the  benefit  of  the  corporation 
alone,  may  be  waived  by  it  unless  the  contrary  appears  to  have 
been  clearly  the  legislative  intention.5  Unless  the  law  ex- 
pressly requires  payment  to  be  made  in  cash,  it  may  be  made 
in  services  or  in  any  other  equivalent  of  cash.6  Thus,  payment 
may  be  made  in  a  promissory  note,  accepted  in  good  faith,  but 
not  in  a  check,  although  indorsed,  which  it  is  agreed  shall  not 
be  presented  for  payment.7 

§  356.  Tender  of  certificate. — It  is  not  necessary  that  a  cer- 
tificate of  stock  should  have  been  issued  in  order  to  make  a 
subscriber  a  member  of  the  corporation  and  liable  on  his  sub- 
scription.8    "A  certificate   of  the  shares  of  stock  in  a  corpora- 

1  Penobscot  R.  Co.  v.  Dumrner,  40  sett,  20  Minn.  536;  Illinois,  etc.,  R. 
Maine  172.  Co.  v.  Zimmer,  20  111.  654. 

2  Connecticut,  etc.,  R.  Co.  v.  Bailey,  5Taggart  v.   Railway   Co.,  24   Md. 
24  Vt.  465.  563 ;  Oler  v.  Railway  Co.,  41  Md.  593 ; 

3 President,  etc.,  Hibernia  Road  v.  Webb  v.  Railway  Co.,  77  Md.  92. 

Hinderson,   8    Sargt.    &   Rawle  (Pa.)  6Boyd  v.  Railway  Co.,  90  Pa.  St. 

219;  Beach   v.  Smith,   30  N.  Y.  116;  169;  Rothschild  v.  Hoge,  43  Fed.  Rep. 

Taggart  v.   Railway  Co.,  24  Md.  563;  97;  Beach  v.  Smith,  30  N.  Y.  116. 

New  York,  etc.,  Co.  v.  Van  Horn,  57  7Crocker  v.   Crane,  21  Wend.   (N. 

N.  Y.  473.  Y.)  211. 

4  Wight  v.  Railway  Co.,  16  B.  Mon.  8  Holland  v.  Duluth,  etc.,  Co.,  68  N. 

(Ky.)  4;  M.  &  St.  L.  R.  Co.  v.  Bas-  W.  Rep.  50;  Chaffin  v.  Cummings,  37 


37G  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  357 

tion  is  merely  a  solemn  affirmation  under  the  seal  of  the  com- 
pany that  a  certain  amount  of  shares  of  stock  stands  in  the 
name  of  the  individual  named  in  the  certificate."1  The  exe- 
cution of  notes  to  the  corporation  in  payment  of  an  installment 
due  on  a  subscription  under  a  contract  by  which  the  shares  are 
to  be  issued  and  held  by  the  bank  as  security  for  the  payment 
of  the  notes  makes  the  subscriber  a  stockholder,  although  the 
certificate  is  not  issued.2  It  is  no  defense  to  an  action  on  the 
subscription  that  a  certificate  of  stock  has  not  been  tendered  to 
the  subscriber.3  Such  a  subscription  is  not  a  contract  for  the 
purchase  of  certificates,  and  the  certificate  is  not  necessary  to 
make  the  subscriber  a  stockholder.  "When  a  subscriber  pays 
he  is  the  owner  of  the  stock;  it  is  the  payment  that  makes  him 
a  stockholder,  the  certificate  being  merely  evidence  of  his  right; 
that  he  is  a  full  stockholder,  with  all  the  rights  of  one,  even 
if  a  certificate  is  never  issued  to  him;  and,  therefore,  it  is  for 
him  to  demand  a  certificate  when  he  wishes  one,  and  not  for 
the  corporation  to  tender  it."  4  The  tender  of  a  certificate  may 
be  made  a  condition  by  the  terms  of  the  contract.5 

§  357.    Conditional  delivery   of    subscription   contract. — A 

written  subscription  may  be  delivered  to  a  third  person  to  take 
effect  only  on  the  performance  of  some  condition.  But  if  the 
delivery  is  to  the  corporation  or  its  agent  the  contract  is  bind- 

Maine  76;  Baynes  v.  Brown,  36  X.  II.  to  issue  t lie  certificate  before  it  can  re- 

Butler  University  v.  Scoonover,  cover  on  the  subscription.    Railway 

ill    iml.  381;  Mitchell  v.  Beckman,  Co.  v.  Knoxville,  98  Tenn.  1. 

i,|  Cal.  M7;  Pacific  Nat'l  bank  v.  Ea-  *Marson  v.  Deither,  49  Minn.  123; 

ton,  141   I'.  S.  227;    Ten              etc.,  Columbia, etc.,  Co.  v.  Dixon, 46 Minn. 

Co                    Tenn.),   13S.W.Rep.  163 ;  Walter  A.  Woods  Co.  v.  Bobbins, 

7ii.  56  Minn,  is,  ;,7  N.  w.  Rep.  .",17.  These 

1  Shropshire,  etc.,  R.  Co.  v.  Queen,  cases  overrule  St.  Paul,  etc.,  R.  Co.  v. 

L.  |;.  7  II.  L.  496.  Robbins,  23  Minn.  439,  and  Minneap- 

rough,  H  s.  < '.  i^l'.  olis,  etc.,  Co.  v.  Libby,  24  Minn.  827, 

•Chester,  etc.,   ('".  v.    Dewey,    16  where  the  court  adopted  the  view  that 

Mass.  94;  Wemple  v.  Railroad  < '".,  120  the  contract  was  for  the  purchase  of  the 

III.  196;  Ratter  v.  Cilpatrick, 63  N.  V.  certificates  of  stock  as  securities.    See 

604;  Webb  v.  Railroad  Co., 77  Md. 92;  Upton  v.  Tribilcock,  91   U.  S.  45;  Ful- 

Courtrighl    v.    Deed*       ■     towa   503;  gam  v.  Macon,  etc.,  R.  Co.,  44  Ga.  597. 

Mitchell  v.  Beckman, 64 Cal.  117.  Bui  sMarson  v.  Deither,  49  Minn.  423; 

oration  must  be  in  a  position  Courtright  v.  Deeds,  87  Iowa  503. 


§  358  STOCK    SUBSCRIPTIONS.  377 

ing  from  the  time  of  such  delivery.1  In  a  case  where  the  sub- 
scriber sought  to  escape  liability  by  asserting  that  there  had 
been  no  delivery  of  the  subscription  to  the  corporation,  the 
court  said  that  the  promoter  who  "solicited  and  obtained  the 
subscriptions  occupied  the  position  of  agent  for  the  subscribers 
as  a  body,  to  hold  the  subscriptions  until  the  corporation  was 
formed  in  accordance  with  the  terms  and  conditions  expressed 
in  the  agreement,  and  then  turn  it  over  to  the  company  with- 
out any  further  act  of  delivery  on  the  part  of  the  subscribers. 
The  corporation  would  then  become  the  party  to  enforce  the 
rights  of  the  whole  body  of  subscribers.  It  follows  then  that 
considering  the  subscriptions  as  a  contract  between  the  sub- 
scribers, a  delivery  to  [the  promoter]  by  a  subscriber  was  a 
complete  and  valid  delivery,  so  that  his  subscription  became 
eo  instanti  a  binding  contract.  The  case  stands  precisely 
as  a  case  where  a  contract  is  delivered  by  the  obligor  to  the 
obligee."2 

§  358.  Performance  of  condition — Waiver. — A  conditional 
subscription  must  be  accepted  by  the  corporation,  and  the  con- 
dition must  be  performed  within  a  reasonable  time.3  The  cor- 
poration has  the  burden  of  showing  that  the  conditions  have 
been  performed,4  or  that  performance  thereof  has  been  waived 
by  the  subscriber.5  A  waiver  may  be  implied  from  the  con- 
duct of  the  subscriber,  as  by  acting  as  a  stockholder  with  full 
knowledge  of  all  the  facts,  or  part  payment,  but  it  can  not  be 
presumed  from  mere  silence.6    The  subscriber  may  be  estopped 

1  Wight    v.    Railroad    Co.,    16    B.  4  Santa  Cruz  R.  Co.  v.  Schwartz,  53 

Mon.  (Ky.)  4.  Cal.  106;  People  v.  Holden,  82  111.  93. 

2 Minneapolis,  etc.,  Co.  v.  Davis,  40  50'Donald  v.  Railroad  Co.,  14  Ind. 
Minn.  110;  Thresher  v.  Pike  Co.  R.  259;  Hanover,  etc.,  R.  Co.  v.  Halde- 
Co.,  25  111.  340;  Quick  v.  Lemon,  105  man,  82  Pa.  St.  36;  Slipher  v.  Ear- 
Ill.  578.  But  see  Cass  v.  Pittsburg,  etc.,  hart,  83  Ind.  173 ;  Parks  v.  Evansville, 
R.  Co.,  80  Pa.  St.  31,  Wilgus'  Cases.  etc..    R.    Co.,   23  Ind.  567;   Thomp. 

3  Johnson  v.  Kessler,  76  Iowa  411 ;  Corp.,  §1336. 

Blake  v.  Brown,  80  Iowa  277,45  N.W.  6Buckport,  etc.,  R.  Co.  v.  Brewer, 

Rep.  751;  Stevens  v.  Corbitt,  33  Mich.  67   Maine    295;  Cornell  &    Michler's 

458;  Leev.  Imbrie,  13  Ore.  510;  Cali-  Appeal,  114  Pa.  St.  153,  6  Atl.  Rep. 

fornia,  etc.,  Co.  v.  Callender,  94  Cal.  258;  Mack's  Appeal  (Pa.),  7  Atl.  Rep. 

120.  481. 


37S  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  359 

by  his  actions  from  asserting  that  conditions  have  not  been 
performed.  Thus,  one  who  subscribes  for  shares  and  joins  in 
a  certificate  which  sets  forth  the  fact  that  all  conditions  prece- 
dent have  been  performed  will  not  be  heard  to  say  that  they 
have  not  been  performed  when  sued  on  his  contract  of  sub- 
scription.1 So  a  shareholder  who  has  participated  in  the  busi- 
ness  of  the  corporation  can  not  assert  that  the  entire  capital 
was  not  subscribed.'  A  substantial  compliance  with  the  con- 
dition is  sufficient*3 

§  •">•">'.).  Conditions  subsequent. — A  subscription  may  be  made 
with  an  independent  condition,  for  the  non-performance  of 
which  the  company  is  liable  in  damages,  although  the  sub- 
scription itself  is  absolute  and  unconditional  and  enforcible 
regardless  of  the  performance  of  the  condition.4  Whether  a 
condition  be  "precedent  or  subsequent  is  a  question  purely  of 
intention,  and  the  intention  must  be  determined  by  consider- 
ing not  only  the  words  of  the  particular  clause,  but  also  the  lan- 
guage of  the  whole  contract,  as  well  as  the  nature  of  the  act 
required,  and  the  subject-matter  to  which  it  relates."5  Thus, 
where  the  subscription  was  to  the  stock  of  a  hotel  company 
upon  condition  that  a  hotel  be  built  upon  a  designated  lot  or 
block,  it  was  held  that  the  building  of  a  hotel  was  not  a  con- 
dition precedent  to  the  right  of  the  company  to  collect  an  as- 
jmenl  upon  the  stock,  as  it  was  obvious  that  it  was  the  in- 
tion  of  the  parties  that  the  hotel  should  be  buill  by  the 
company  out  of  the  proceeds  of  the  stock  subscription.8  As  said 
in  another  case,  where  a  similar  defense  was  interposed,  "it  pre- 
supposes that  the  company  was  to  build  their  road  without  money, 

1  Bavington    ..    Pittsburg,  etc.,    I.'.  Maine661;  Mil  Id  am  Foundry  v.  Hov- 

i  ey,38  Mass.  1 17.     As  t « .  what  are  such 

llman  v.  Dougherty,  M  Md.S80.  conditions,  Bee  Kansas  City,  etc.,  R. 

■Taggart  v.  Western  Md.  I:   Co.,  24  Co.  v.  Alderman, 47 Mo. 349 ;  Kelsey  v 

M'l.  583;  Junction   R.  <'".  v.  Reeve,  Northern,  etc.,  Co.,  15  N    Y.  605. 
I51i                      :  lines,  etc.  R.  Co.v.       'Buckport,  etc.,  R.  Co.  v.  Brewer, 

D     enport,  etc.,  R.  67  Maine  295;  Lane  v.   Brainerd,  80 

('.,.  v    O'Connor,   i'»  [owa  177;   Mis-  Conn.  665. 
souriPac  R.Co.v  Tygard,84  Mo  263        'Red   Wing,  etc.,  Co.  v.  Friedrich, 

♦  Bi  >,   v.    Moore,    60  26  Minn    L12. 


§  360  STOCK    SUBSCRIPTIONS.  379 

and  to  deliver  it,  a  finished  work,  to  the  subscribers,  who  were 
then  to  pay  their  subscriptions."  '  The  courts  favor  conditions 
subsequent.2  Only  the  managing  agents  of  a  corporation  have 
authority  to  accept  subscriptions  upon  conditions  precedent. 
Such  contracts  can  not  be  made  by  commissioners  prior  to 
incorporation.  But,  in  general,  "subscriptions  to  the  capital 
stock  of  a  corporation  may  be  conditioned  as  to  the  time,  man- 
ner, or  means  of  payment,  or  in  any  other  way  not  prohibited 
by  statute  or  the  rules  of  public  policy,  and  not  beyond  the 
corporate  powers  of  the  corporation  to  comply  with."  If  the 
condition  is  ultra  vires  or  operates  as  a  fraud  upon  the  other 
stockholders  or  the  creditors  of  the  corporation,  it  is  unenforci- 
ble,  and  the  contract  of  subscription  is  enforcible  without 
reference  to  the  conditions.4 

§  360.  Subscriptions  upon  special  terms.— Subscriptions 
upon  conditions  subsequent  are  sometimes  called  subscrip- 
tions upon  special  terms.  The  subscription  in  such  cases 
is  absolute  and  the  subscriber  becomes  a  member  of  the 
corporation  as  soon  as  his  subscription  is  accepted.  An 
illustration  of  a  subscription  upon  special  terms  is  found 
where  there  is  a  subscription  for  shares  in  a  railway  company 
upon  condition  that  payment  may  be  made  in  railway  ties. 
As  said  in  one  case:  "  A  subscription  on  a  condition  subse- 
quent contains  a  contract  between  the  corporation  and  the 
subscriber  whereby  the  corporation  agrees  to  do  some  act, 
thereby  combining  two  contracts,  one,  the  contract  of  sub- 
scription, the  other,  an  ordinary  contract  of  a  corporation  to 
perform  certain  specified  acts.  The  subscription  is  valid  and 
enforcible  whether  the  conditions  are  performed  or  not.  The 
condition  subsequent  is  the  same  as  a  separate  collateral  con- 

1  Miller  v.  Pittsburg,  etc.,  R.  Co.,  Meyer  v.  Blair,  109  N.  Y.  600;  York 
40  Pa.  St.  237.  Park,  etc.,  Assn.  v.  Barnes,  39  Neb. 

2  Swartwout  v.  Michigan,  etc.,  Co.,  834,  58  N.W.  Rep,  440;  Upton  v.  Trib- 
24  Mich,  389.  ilcock,  91  U.  S.  45 ;  Winston  v.  Dorsett, 

3  Cook  Corps.,  §  83.  etc.,  Co.,  129  111.  64,  21  N.  E.  Rep.  514. 

4  Melvin  v.  Insurance  Co.,  80  111.  446 ; 


3S0  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  361 

tract  between  the  corporation  and  the  subscriber,  for  breach  of 
which  an  action  for  damages  is  the  remedy."  1 

If  there  is  any  doubt  as  to  whether  a  condition  was  intended 
to  be  a  condition  precedent  or  subsequent  it  will  be  held  to 
be  a  condition  subsequent,  that  is  a  subscription  upon  special 
terms.2  A  contract  of  subscription  provided  that  one  fourth 
of  the  amount  should  be  paid  when  the  road  was  completed 
to  the  county  line,  and  the  balance  "  to  be  paid  in  four  equal 
installments  of  four  months  as  the  work  progresses  through 
the  county,  provided  the  company  establishes  a  depot  on  said 
road,"  at  a  designated  point.  The  completion  of  the  road  to 
the  county  line  was  held  to  be  a  condition  precedent  to  lia- 
bility, but  the  provision  for  the  construction  of  a  depot  was  a 
collateral  contract,  the  non-performance  of  which  did  not  af- 
fect the  subscriber's  liability.3 

§  361.  Subscriptions  in  excess  of  .authorized  capital. — Such 
subscriptions  are  void  and  no  liability  thereon  attaches  to  the 
subscriber.4  Before  a  subscriber  can  be  required  to  pay  there 
must  be  a  distribution  of  the  shares  among  those  who  are  en- 
titled to  them.5  In  making  the  distribution  the  commissioners 
act  judicially.6  But  it  is  no  defense  to  an  action  against  a 
'•riber  for  shares  within  the  limit,  that  the  corporation  has 
issued  stock  in  excess  of  the  limit  allowed  by  law.7  Where 
the  commissioners  have  power  to  apportion  stock  no  subscrip- 
tion will  be  void,  as  each  subscriber  will  then  receive  (unless 
the  commissioners  in  the  exercise  of  a  lawful  discretionary  au- 
thority otherwise  determine)  such  a  proportion  of  the  whole 
capital  stock  as  his  subscription  bears  to  the  whole  amounl 
Bui  the  commissioners  must  have  statutory  au- 
thority to  make  Buch  apportionment.8 

•Morrow  v. Steel  Co.,  87  Tenn.  262.  Buffalo,  etc.,  Co.  v.  Dudley,  n  N.  Y. 

•Paducah,  etc.,  l:.  Co.  v.  Parks,  86  836. 

Tenn.  664,88.  W.  Rep.  842.  R('n.<-k<>r  v.  Crane,  21   Wend.  211. 

Paducah,  etc.,  B.  Co.  v.  Parka,  86       701erv.  Haiti re,  etc.,  R.  Co.,  n 

Tenn  Md.  583. 

•Lathropv.  Kneeland,46Barb.4S2;  ■  Buffalo,  etc.,  Co.  v.  Dudley,  M  N. 

Burrows  v.  Bmith,  10  N.  5            I  lark  Y.  836. 

v.  Tun                i.  I.  »Van  Dykev.Stout,  8N.  J.  Eq.838; 

Bmith,  L0  N.  Y.  560;  Lowell,  g  1 16. 


§  362  STOCK    SUBSCRIPTIONS.  381 

§  3G2.  Amount  of  subscription  by  one  person. — Commis- 
sioners to  take  subscriptions  may,  without  statutory  authority, 
limit  the  number  of  shares  that  one  person  may  take.1  Al- 
though at  common  law  one  person  might  subscribe  for  the  en- 
tire capital  stock.2 

§  303.  Who  may  receive  subscriptions. — A  subscription  to 
be  valid  and  binding  upon  the  corporation  must  be  taken  by 
an  authorized  agent  of  the  corporation  or  be  subsequently  rati- 
fied by  it.3  The  statute  sometimes  provides  that  subscriptions 
shall  be  received  through  commissioners,  but  such  provisions 
are  directory  only  and  subscriptions  taken  in  other  ways  are 
valid.4  The  authority  of  such  agents  is  determined  by  the 
statute.  Acts  in  excess  of  the  authority  conferred  by  the 
statute  are  of  no  effect  unless  adopted  by  the  corporation  if 
within  its  power.  A  promoter  of  a  proposed  corporation  who 
solicits  and  procures  stock  subscriptions  is  the  agent  of  the 
body  of  the  subscribers  to  hold  the  subscriptions  until  the  cor- 
poration is  formed,  and  then  turn  them  over  to  it  without 
further  act  of  delivery  on  the  part  of  subscribers.5 

§  364.  Subscriptions  necessary  to  obtain  charter. — Where 
the  law  requires  that  a  certain  amount  of  capital  stock  shall 
be  subscribed  before  a  charter  is  granted,  subscriptions  which 
are  merely  colorable,  or  by  persons  having  no  reasonable  ex- 
pectation of  being  able  to  pay,6  or  without  capacity  to  contract,7 

1  Brower    v.    Passenger  R.   Co.,   3  powers    of  such    commissioners,  see 

Phil.     161;     Perkins    v.    Savage,    15  Beach  on  Railways,  §  84;  Penobscot, 

Wend.  (N.  Y.)  412.  etc.,   R.   Co.  v.   White,   41   Me.  512; 

*  King  v.  Barnes,  109  N.  Y.  267.  Croker  v.  Crane,  21  Wend.  211. 

8  Walker  v.  Mobile,  etc.,  R.  Co.,  34  5  Minneapolis,  etc.,  Co.  v.  Davis,  40 

Miss.  245;  Taggart  v.  Western,  etc.,  Minn.  110. 

R.  Co.,  24  Md.  563.  6Holman   v.   State,   105   Ind.  569; 

4  Buffalo,  etc.,  R.  Co.  v.  Gifford,  87  Leweys  Island  R.  Co.  v.  Bolton,  48 

N.  Y.  294 ;  Croker  v.  Crane,'21  Wend.  Maine  451 ;  Penobscot  R.  Co.  v. White, 

211 ;  Stuart  v.  Valley  R.  Co.,  32  Gratt.  41  Maine  512. 

146.    Contra,  Schurtz  v.  Schoolcraft,  'Phillips   v.  Bridge    Co.,   2    Mete, 

etc.,  R.  Co.,  9  Mich.  269;  Unity,  etc.,  (Ky.)  219;  Appeal  of  Hahn  (Pa.),  7 

Co.    v.  Cram,  43  N.  H.  636.     As  to  Atl.  Rep.  482. 


3S2 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  305 


or  upon  special  terms,1  or  ultra  vires,2  or  conditional,  can  not  be 
counted.3  They  must  be  binding  subscriptions  or  they  can  not 
be  included  in  the  amount  necessary  to  enable  the  corporation 
to  collect  its  subscriptions  and  commence  business.  Subscrip- 
tions by  an  agent  without  authority  may  be  counted  in  those  ju- 
risdictions in  which  the  agent  in  such  case  binds  himself,  if 
not  his  principal.'  Before  conditional  subscriptions  can  be 
taken  into  account  the  person  seeking  to  enforce  the  subscrip- 
tion must  make  it  appear  that  the  conditions  have  been  per- 
formed, and  the  subscription  thus  become  absolute.5 

§  365.  Withdrawal  of  subscriptions — Notice. — A  subscription 
being,  by  the  weight  of  authority,  a  mere  offer,  maybe  withdrawn 
at  any  time  before  incorporation,  notwithstanding  the  fact  that 
the  subscriber  has  been  active  in  inducing  others  to  subscribe, 
and  thai  his  associates  have  incurred  obligations  upon  the 
strength  of  his  subscription.6  A  subscription  lapses  by  the  death 
of  the  subscriber  before  the  corporation  is  organized  and  accepts 
the  offer.7  The  right  to  withdraw  ceases  when  the  offer  is  ac- 
cepted. It  can  thereafter  be  withdrawn  only  with  the  consent  of 
the  corporation  and  all  the  other  subscribers.8  Notice  of  the  with- 
drawal is  usually  given  to  the  same  person  to  whom  the  appli- 
cation for  shares  was  made.     Where  the  articles  of  incorpora- 

1  Boston,  etc.,  If.  Co.  v.  Wellington, 
]  13  Mass.  79;  <  iscaloosa,  etc.,  Works 
v.  Parkhurst,  54  [owa  ":'7.  Contra, 
Phillips  v.  Covington,  etc.,  R.  Co.,  2 
Mete.    Ky.)219. 

:  I  »enny  Hotel  <  !o.  v.  Schram,  6 
Wash.  L34,  82  Pac.  Rep.  1002. 

8  Caley  v.  Philadelphia,  etc.,  R.  Co., 
km  Pa    3t.  863;  1 1  ualoo  a,  etc.,  Wi 
v    Parkhui  t,  54   [owa  '■'.:,! ;  Brand  v. 
i.  leville,  etc.,    R    Co.,   77  <  la. 

California,  etc.,  ('<>.  v.  Ru    i  11, 
277. 
t8alem,  etc.,    Corp.    v.    R 
Pick  I     lifornia,  etc.,  <  !o.  v.  Rus- 

sell,  B8  Oal.   277,  26   Pac.   Rep.   L05; 
Btate  v.  Smith,  18  Vt.  268 

trand  v.  Railroad  Co.,  77  Ga.  508 ; 
i,  etc.,  Woi l.  ■  v.  Pai khi 


54  Lowa  357,  6  N.  W.  Rep.  547 ;  South- 
ern, etc.,  Co.  v.  Russell,  88  Cal.  277. 

6  Hudson,  etc.,  Co.  v.  Tower,  156 
Mass.  82,  30  N.  E.  Rep.  165,  161  Mass. 
10,  36  N.  E.  Rep.  680;  Muncie,  etc., 
Co.  v.  Green,  143  Pa.  St.  269,  IS  Atl. 
Rep.  7  17;  Cook  v.  Chittenden,  25 
Fed.  Rep. 544;  Holl  v.  Winfield  Rank, 
25  Fed.  Rep.  ml";  Marysville,  etc., 
Co.  v.  Johnson,  93  Cal.  538 ;  Lew  is 
v.  Mill  Co.  (Texas  Civ.  App.),  23 
s.  W.  Rep.  838;  Plank,  etc.,  Co 
Burkhard,  87  Mich.  182,  19  N.  W. 
Rep. 

7  Wallace  v.  Townsend,  48  Ohio  St. 

3  V  E.  Rep.  601. 
■  Richelieu,  etc.,   < !o.  v.    Int.,  etc., 
Co.,  i  id    in.  248.    Bee   Minneapolis, 
etc.,  Co.  v.  Davis,  10  Minn.  I  id. 


§  305 


STOCK    SUBSCRIPTIONS. 


tion  are  executed  and  officers  elected,  oral  notice  to  the  president 
at  any  time  before  the  completion  of  the  incorporation  is  suf- 
ficient.1    Notice  to  the  promoters'  agent  who  secured  the  sub- 


1  In  Hudson, etc., Co.v.Tower(Mass.) 
36  N.  E.  Rep.  680,  the  court,  by  Allen, 
J.,  said:  "The  plaintiff's  requests  for 
instructions  raised  no  question  on 
this  point,  but  asked  the  court  to 
rule  that,  '  in  order  to  constitute  a 
valid  withdrawal,  the  defendants  must 
do  some  act,  or  make  some  unequivo- 
cal or  unconditional  statement,  to  the 
proper  officer  or  officers  of  the  associ- 
ates, which  shall  amount  to  a  public 
withdrawal  from  said  contract.'  The 
instructions  were  given  with  reference 
to  this  request,  and,  as  we  understand 
them,  they  amounted  to  this:  that 
Mr.  Tower,  having  been  chosen  as 
president,  and  acting  for  the  associ- 
ates, was,  on  August  31st,  a  proper  of- 
ficer to  be  notified  by  the  defendants 
of  their  withdrawal.  We  think  this 
instruction  was  right.  No  instruction 
was  asked  at  the  trial  that,  in  order  to 
withdraw  from  the  associates,  notice 
must  be  given  to  all  of  them  individ- 
ually, or  at  a  meeting  of  the  associ- 
ates. The  plaintiff  only  contended 
that  the  notice  must  be  given  to  the 
proper  officer  or  officers.  And  it 
would  plainly  be  impracticable  to  re- 
quire a  direct  personal  notice  to  them 
all.  The  right  to  withdraw  would  be 
nugatory  if  this  were  necessary.  A 
subscriber  who  has  a  right  to  with- 
draw may  not  know,  or  have  the 
means  of  knowing,  who  all  of  his  as- 
sociates are,  or  where  they  live.  If 
he  does  know,  they  may  be  many  in 
number,  and  widely  scattered,  or 
some  of  them  may  be  away  on  a  jour- 
ney. No  general  meeting  of  them 
may  be  called  which  he  can  attend 
without  leaving  the  state.  He  need 
not  wait  for  a  meeting  before  giving 
his  notice  of  withdrawal.     It  was  in- 


deed held,  in  an  early  case  in  Eng- 
land, that  all  of  the  other  subscribers 
must  not  only  have  notice,  but  must 
actually  consent,  before  one  of  (he 
subscribers  could  withdraw.  Canal  Co. 
v.  Raby,  2  Price  (Ex.)  93.  But  now, 
in  England  as  well  as  here,  no  such 
consent  is  necessary.  If  every  one  of 
the  other  subscribers  should  object, yet 
it  is  the  right  of  a  subscriber  to  with- 
draw before  the  corporation  is  formed. 
It  is  merely  a  question  of  giving  due 
notice  of  his  withdrawal.  And  in  Eng- 
land it  is  not  intimated  in  any  modern 
case,  so  far  as  our  examination  has 
gone,  that  notice  must  be  given  to  all 
the  other  subscribers,  or  to  a  meeting 
of  subscribers.  The  retraction  has  usu- 
ally been  made  to  the  same  person  to 
whom  the  application  for  shares  was 
made.  See  Lindl.  Partn. 99-105,  and 
numerous  cases  cited. 

"In  this  country,  no  case  has  been 
cited,  and  we  have  found  none,  dis- 
cussing the  question  what  notice  of 
withdrawal  will  be  sufficient.  In  some 
cases,  no  attempt  to  withdraw  was 
made  till  after  the  corporation  was 
formed.  See,  for  examples,  Associa- 
tion v.  Walker,  83  Mich.  386,  47  X. 
W.  Rep.  338;  Richelieu,  etc.,  Co.  v. 
International,  etc.,  Co.,  140  111.  248, 
29  N.  E.  Rep.  1044;  Shoe  Co.  v.  Hoit, 
56  N.  H.  548;  Shober  v.  Association, 
68  Pa.  St.  429.  It  is  said  in  Cart- 
wright  v.  Dickinson,  88  Tenn.  476,  12 
S.  W.  Rep.  1030:  'Before  the  organ- 
ization of  the  corporation  and  accept- 
ance of  the  subscription,  *  *  *  the 
promoters  might  perhaps  agree  to  re- 
lease a  subscriber  by  substituting 
other  names  for  his.'  This  goes  on 
the  idea  that  the  subscriber  has  not 
an   absolute  right  to   withdraw,  and 


384 


THE  LAW  OF  PRIVATE  CORPORATIONS. 


§  366 


scription  of  the  intention  to  withdraw,  and  a  request  that  the 
subscriber's  name  be  dropped  from  the  subscription  paper, 
which  facts  are  communicated  to  the  subscribers  at  one  of  their 
meetings  before  organization,  is  sufficient.1  There  can  be  no 
withdrawal  after  the  incorporation  is  completed. 

§  366.  Implied  agreement  to  pay  for  shares. — A  subscrip- 
tion for  shares  in  a  corporation  having  capital  stock  implies 
a  promise  to  pay  for  them,  which  will  sustain  an  action  to  col- 
lect without  proof  of  any  particular  consideration.2  This  rule 
applies  as  well  to  subscriptions  taken  before  as  after  incorpo- 

that  somebody's  assent  is  necessary,  made.  See,  in  addition  to  the  cases 
In  Tavern  Co.  v.  Burkhard,  87  Mich. 
182,  4t>  X.  W.  Rep.  562,  the  subscriber 
apparently  made  known  his  refusal  to 
the  persons  who  brought  a  second 
papei  t"  In-  Bigned  by  him,  and  it  was 
held  to  be  sufficient;  hut  the  proper 
mode  of  lmyhil'  such  notice  is  not  dis- 
I.  and  the  court  incidentally  re- 
marked that  'the  corporators  well 
knew,  when  the  company  was  organ- 


above  cited,  Auburn  Bolt  &  Nut  Works 
v.  Bchultz,  143  Pa.  St.  256,  22  All. 
Rep.  904;  Engine  Co.  v:  Green,  143 
Pa.  St.  269,  111  Atl.  Rep.  747;  Garrett 
v.  Railroad  Co.,  78  Pa.  St.  4G5;  Rail- 
road Co.  v.  Echternacht,  21  Pa.  St. 
220.  An  offer  of  reward  made  by 
public  proclamation  may  be  with- 
drawn in  the  same  manner,  and  the 
fact  that  a  claimant  of  the  reward 
ized,     *     *  that  the  defendants    was  ignorant  of  the  withdrawal  of  the 

expressly  repudiated  the  whole  ar-  offer  is  immaterial.  Shuey  v.  United 
rangement.'  It  is  held  that  the  death  States,  92  U.  S.  73.  And,  if  not  with- 
of  a  subscriber  before  the  formation  of  draw  n  by  any  express  notice,  a  with- 
the  corporation  is  a  revocation  of  the  drawal  is  implied  after  the  lapse  of  a 
subscription.    Phipps  v.  Jones,  20  Pa.    considerable  time.  Loring  v.  Boston, 


St.  260;  Wallace  v.  Townsend,  43 
Ohio  Bt.537,  3  N.  E.  Rep.  60/  ;  Pratl 
v.  Trustees,  93  III.  475;  Railway  Co. 
v.  Wilkei  Mo.  236.     [nsanity 

jv-    also    held     to   be    a    revocation    in 

Beacb  v.  Methodist ,  etc.,  < 'lunch,  96 
III.  177.  Death  is  a  public  fact,  of 
which  all  the  world  musl  take  notice. 


7  Mete.  (Mass.i  409." 

1  Bryant's,  etc.,  Co.  v.  Felt,  87  Me. 
2.°.  I,  :'.:;  L.  i;.  A.  593,  annotated. 

•Upton  v.  Tribilcock,  91  V.  S.  45; 
Busey  v.  Eooper,  35  Md.  15,  30;  Fort 
r.'iw aid,  etc.,  Co.  v.  Payne,  17  Barb. 
567;  N.  Y,  etc.,  Co.  v.  Martin,  13 
Minn.  117;  Walter  A.  Woods,  etc..  Co. 


though  the  above  decisions  were  not  v.  Bobbins, 56  Minn.  18,57  N.  W.  Rep. 

put  on  that  ground    Marletl  v.  .lack-  :;i7;  Penobscot,  etc.,  R.  Co.  v.  Dunn, 

man,  8  Allen  2s 7 |,  hut  insanity  1    not.  39  Me.  587  ;  Nulton  v.  Clayton,  ->\  low  a 

[n  most  of  the  cases  where  the  rfghl  425;  Mansfield,  etc.,  R.  Co.  v.  Brown, 

of  withdrawal  of  a  subscription  has  26  Ohio  St.  223 ;  Windsor,  etc.,  Co.  v. 

been  held  to  exist,  there  is  nothing  to  Tandy,  66  V*t.  248,  29  Ail.  Rep.  248; 

show  that   all  the  other  subscribers  Bavington  v.  Railroad  Co.,  84  Pa- St. 

were  notified,  and  there  has  been  no  858;  Buffalo,  etc.,  Co.  v.  Dudley    'I 

question  a-  to  the-  sufficiency  of  the  N.  Y 
mode  in  which   the   withdrawal  was 


§  307  STOCK    SUBSCRIPTIONS.  385 

ration,1  and  is  supported  by  the  weight  of  authority,  although 
it  has  been  held  that  the  corporation  can  not  maintain  an  ac- 
tion unless  the  preliminary  subscription  ran  to  the  corpora- 
tion.2 It  may,  however,  recover  damages  for  the  refusal  to 
take  the  stock.8  A  remedy  by  forfeiture,  if  it  is  meant  to  be  a 
mere  security  reserved  by  the  charter  or  statute  to  the  corpora- 
tion, is  merely  cumulative  and  does  not  affect  the  personal  lia- 
bility of  the  stockholder  to  pay  for  the  stock.4  But  if  it  is 
meant  to  be  a  true  forfeiture,  so  that  the  stock  is  reclaimed  by 
the  corporation,  the  shareholder  is  no  longer  liable.5 

§  367.  The  New  England  rule, — In  some  of  the  New  En- 
gland states  it  is  held  that  a  subscriber  can  not  be  required  to 
pay  for  the  stock  unless  he  has  expressly  promised  to  pay,  or 
the  charter  expressly  obligates  him  to  do  so.6  The  rule  in  New 
Hampshire  is  thus  stated  by  Mr.  Justice  Eastman:  "Where 
a  party  makes  an  express  promise  to  pay  the  assessments  he  is 
answerable  to  the  corporation  upon  such  promise  for  all  legal 
assessments,  and  may  be  compelled  to  its  performance  by  an 
action  at  law,  before  resorting  to  a  sale  of  the  shares.  It  is  a 
personal  undertaking  beyond  the  terms  of  the  charter.  Where, 
on  the  other  hand,  he  only  agrees  to  take  a  specified  number 
of  shares,  without  promising  expressly  to  pay  assessments, 
then  resort  must  first  be  had  to  a  sale  of  the  shares  to  pay  the 
assessments  before  an  action  at  law  can  be  maintained.  His 
agreement  merely  to  take  the  shares  is  an  agreement  upon  the 
faith  of  the  charter,  and  by  it  alone  is  he  to  be  governed  so  far 

1  Minneapolis,  etc.,  Co.  v.  Crevier,  Rutland,  etc.,  R.  Co.  v.  Thrall,  35  Vt. 
39  Minn.  417;  Minneapolis,  etc.,  Co.  536;  Carson  v.  Mining  Co.,  5  Mich. 
v.    Davis,   40   Minn.  110;    Richelieu,     288. 

etc.,  Co.  v.   International,  etc.,   Co.,        6 Mechanics',  etc.,  Co.  v.  Hail,  121 

140  111.  248,  29  N.  E.  Rep.  1044.  Mass.  272;  Worcester,  etc.,  Co.  v.Wil- 

2  Lake  Ontario,  etc.,  R.  Co.  v.  Cur-  lard,  5  Mass.  80;  Atlantic  Cotton  Mills 
tiss,  80  N.  Y.  219.  But  see  San  Joa-  v.  Abbott,  9  Cush.  423;  Katama,  etc., 
quin,  etc.,  Co.  v.  West,  94  Cal.  399,  Co.  v.  Holley,  129  Mass.  540;  Kenne- 
Wilgus'  Cases.  bee,  etc.,  R.  Co.  v.  Kendall,  31  Maine 

3  Quick  v.  Lemon,  105  111.  578.  470;  Belfast,  etc.,  R.  Co.  v.  Moore,  60 

4  Hartford,  etc.,  R.  Co.  v.  Kennedy,  Maine  561 ;  Penobscot,  etc.,  R.  Co.  v. 
12  Conn.  499.  Dunn,  39  Maine  587.     But  see  Wind- 
mills v.    Stewart,  41   N.  Y.   384;  sor,  etc.,  Co.  v.  Tandy,  66  Vt.  248. 

25— Private  Corp. 


3S6  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  368 

as  his  shares  are  to  be  affected.  He  takes  them  upon  the  con- 
ditions and  law  of  the  charter.  They  exist  only  by  virtue  of 
the  charter,  and  are  to  be  governed  by  the  provisions  therein 
contained."  ' 

§  368.  Premature  contract  by  corporation — Effect  upon  sub- 
scription.— The  liability  of  a  subscriber  for  an  assessment  does 
not,  as  a  rule,  arise  until  the  corporation  is  sufficiently  organ- 
ized and  qualified  by  the  subscription  of  the  required  capital 
stock  to  enter  upon  the  general  business.2  But  a  premature 
and  void  contract  made  by  a  corporation  before  the  amount  of 
capital  stock  required  by  the  statute  has  been  paid  in  will  not 
release  the  subscriber.  A  corporation  organized  to  construct 
water-works  entered  into  a  contract  for  the  construction  of  the 
works  before  the  amount  of  capital  stock  required  by  the  law 
before  it  could  begi-n  business  was  subscribed.  In  an  action 
brought  by  the  corporation  against  a  subscriber  to  collect  an 
assessment,  the  court  said:  "In  the  formation  of  a  private 
civil  corporation  there  are  two  classes  of  contracts  to  be  con- 
red.  One  is  the  contract  which  the  corporators  or  promo- 
ters make  each  with  all  the  others,  in  order  to  bring  the  cor- 
poration into  existence,  of  which  a  subscription  to  the  capital 
stock  is  an  example,  and  which  necessarily  antedates  its  com- 
pleted existence.  These  are  the  organizing  contracts.  The 
other  class  is  the  contract  which  the  corporation  itself  after  it 
comes  into  complete  existence  makes  will)  third  prisons.  Both 
these  classes  of  contracts  depend  upon  the  provisions  of  the 
charter;  and  it  is  usual  that  the  charter  of  every  corporation 
contains  provisions  relating  to  each.  The  organizing  con- 
tracts are  made  primarily  by  each  of  the  subscribers  with  each 
of  the  others.  They  are,  also,  in  a  sense,  made  with  the  cor- 
poration. Bui  the  making  of  them  is  not  an  exercise  of  any 
of  the  powers  or  privileges  granted  to  the  corporation,  because 
they  are  the  Bteps  nec<  Bsary  to  be  taken  before  the  corporation 
is  qualified  to  i  k<  p<  i  e  any  of  the  powers  or  privileges  granted 
to  it .     It  needs  hardly  to  be  said  thai  there  must  be  a  full  com- 

1  New   Hampshire,   etc.,    El.  Co.  v.       'Anvil,  etc.,   Co.  v.  Sherman,  <4 

John  Wi,.  226,  I  L.  i;  a.  282. 


§  369  STOCK    SUBSCRIPTIONS.  38? 

pliance  with  all  the  charter  provisions  relating  to  the  organiz- 
ing contracts  before  the  corporation  comes  into  such  a  legal 
existence  as  to  be  able  to  make  contracts  with  third  persons  at 
all.  Until  these  preliminary  steps  have  been  taken  there  is 
no  legal  person  in  being  capable  of  exercising  any  power  or 
privilege  whatever.  It  is  obvious  enough  that  any  omission  or 
failure  to  complete  the  organization  would  affect  any  contract 
with  a  third  person.  How  any  premature  contract  with  a 
third  person  could  interrupt  or  hinder  the  organization  is  not 
so  plain.  If  any  organizing  contract  was  by  its  terms  condi- 
tioned that  no  such  contract  should  be  entered  into,  or  if  it 
was  so  made  conditional  by  the  terms  of  the  charter,  then  it 
would  appear.  The  contract  of  subscription,  signed  by  the 
defendant,  is  not  by  its  terms  conditioned  upon  anything  relat- 
ing to  contracts  which  the  plaintiff  might  make  with  third 
persons,  unless  the  reference  to  it  in  the  charter  puts  it  in 
such  a  condition.  *  *  *  The  defendant  claims  that  that  pro- 
vision of  the  charter  above  quoted  is  such  a  condition  by  im- 
plication, because  it  forbids  the  plaintiff  to  exercise  any  of  the 
granted  privileges  and  powers  until  the  required  part  of  the 
capital  stock  should  be  paid  in.  It  does  not  seem  to  us  that  this 
claim  can  be  sustained.  *  *  *  The  provision  of  the  charter  clear- 
ly forbade  such  a  contract.     Being  forbidden,  it  was  void."1 

§  369.     Effect  of  fraud  upon  the  contract  of  subscription. — 

The  general  rule  is  that  whenever  the  agent  of  the  corporation 
duly  authorized  by  the  corporation  to  procure  subscriptions  to 
its  capital  stock  induces  persons  to  become  subscribers  to  such 
capital  stock  by  fraudulent  representations,  or  concealments, 
the  person  so  defrauded  will  be  entitled  to  claim  of  the  cor- 
poration a  rescission  of  the  contract  in  the  same  manner  as 
though  the  question  had  arisen  between  two  natural  persons, 
— whenever  the  question  arises  between  the  contracting  par- 
ties, and  the  rights  of  third  persons  are  not  involved.2     Or, 

^augatuck   Water  v.   Nichols,  58  205;  Prov.,  etc.,  Co.  v.  Brown,  9  TJ. 

Conn.  403,  8  L.  R.  A.  637.  C.  C.  P.  286.     A  transferee  of  shares 

2Thomps.  Corp.,  §  1361;  French  v.  can    not  .be    relieved    against  fraud 

Ryan,  104   Mich.  625;  Jewett  v.  Val-  which  induced  the  subscription  by  his 

ley  R.  Co.,  34 Ohio  St.  601 ;  Occidental,  transferrer.    Langer's  Case,  37  L.  J. 

etc.,  Co.  v.  Ganzhorn,  2  Mo.  App.  Ch.  N.  S.  292. 


3SS  THE    LAW    OF    PRIVATE    CORPORATIONS,  §  370 

as  stated  in  the  language  of  Lord  Romilly,  "contracts  of  this 
description  between  an  individual  and  a  company,  so  far  as 
misrepresentation  or  suppression  of  truth  is  concerned,  are  to 
be  treated  like  contracts  between  any  two  individuals.  If  one 
man  makes  a  false  statement  which  misleads  another,  the  way 
this  is  to  be  treated  affords  an  example  of  the  way  in  which  a 
contract  is  to  be  treated  where  a  company  makes  a  false  state- 
ment which  misleads  an  individual."1 

§  370.  The  English  doctrine.— The  early  English  cases  held 
that  a  subscriber  could  not  escape  liability  as  a  contributory 
by  showing  that  he  was  induced  to  subscribe  for  the  shares  by 
the  false  or  fraudulent  representations  or  concealments  of  the 
agent  of  the  corporation.  In  order  to  be  relieved  from  his  con- 
tract it  was  necessary  for  him  to  show  that  the  fraud  was  the 
fraud  of  the  company  itself.2  But  "whilst  the  results  reached 
in  these  cases  are  no  doubt  in  conformity  with  the  general  cur- 
rent of  the  authorities,  English  and  American,  there  is  now  lit- 
tle room  to  doubt  that  the  ground  taken  by  Lord  Romilly  and 
other  English  equity  judges  that  a  corporation  is  not  bound  by 
the  fraud  of  its  agent,  is,  where  no  other  rights  are  concerned 
than  those  of  the  company  and  the  person  defrauded,  funda- 
mentally wrong;  because  as  corporations  and  joint  stock  com- 
panies can  only  act  through  agents,  it  gives  them  an  immu- 
nity in  the  commission  of  fraud  not  extended  to  individuals."1 
But  the  English  courts  in  the  leading  case  of  Oakes  v.  Tur- 
quand4  adopted  the  rule  that  where  a  person  was  induced  to 
subscribe  f<>r  stock  in  a  corporation  by  (he  fraudulent  repre- 
sentations of  (he  directors  of  the  corporation  the  contract  was 
voidable,  and  although  the  persons  who  by  their  fraud  induced 
it  might  not  enforce  it,  yet  other  persons  may  in  consequence 
of  it  acquire  rights  and  interests  which  may  be  enforced 
against  the  party  who  has  been  so  induced  to  enter  into  it; 
thai  a  person  who  has  been  by  such  fraudulent  representations 
induced  to  enter  into  a  contracl  to  purchase  shares  in  a  com- 
pany may  have  the  same  rescinded  within  a  reasonable  time, 

•  Direcl  ■,   i.  i:    ■  II.  L.99.       •Thompe.  Corp.,  §  1862. 

■Esparto  Nicol,  5  Jar.  N.  8.  205;       1|!  Durquand  &  Harding,  L. 

Av-.      i  il8.  B.  2  ll.  I-  826. 


§  371  STOCK    SUBSCRIPTIONS.  389 

but  that  he  can  not  relieve  himself  from  liability  to  contribute 
to  the  payment  of  its  debts  on  the  ground  that  he  has  been  ig- 
norant of  something  which  with  proper  diligence  he  might 
have  known.  As  between  the  company  and  the  member,  the 
member  may  have  a  good  legal  or  equitable  defense,  but  he 
may  still  be  called  upon  to  contribute  to  the  assets  of  the  com- 
pany for  the  purpose  of  satisfying  the  corporate  creditors.1 

§  371.    The  contract  voidable  merely — Authority  of  agent. — 

A  contract  which  a  person  has  been  induced  to  enter  into  by 
fraud  is  voidable  only  at  his  election.2  Before  there  can  be  a 
rescission  on  the  ground  of  fraudulent  representations  by  the 
agent  of  the  corporation,  the  fact  of  agency  must  be  shown, 
but  it  is  not  necessary  that  the  agent  should  have  had  express 
authority  to  make  the  representation  or  commit  the  fraud. 
"  That  a  person  professing  to  act  as  the  agent  of  another  does 
so  wholly  without  authority,  or  transcends  the  authority  actu- 
ally conferred  upon  him  by  the  principal,  is  no  reason  for  en- 
forcing the  contract  against  the  other  party  when  obtained 
from  him  by  false  and  fraudulent  representations."3  The  cor- 
poration is  not  of  course  responsible  for  representations  made 
by  the  person  who  assumes  to  represent  it,  when  they  are  en- 
tirely beyond  the  scope  of  his  employment  and  the  results 
have  not  been  accepted  or  ratified  by  the  corporation.  In  a 
Pennsylvania  case  the  court  said:  "  The  principle  of  the  cases 
would  seem  to  be  this:  that, where  representations  made  by  an 
agent  to  procure  subscriptions  are  a  part  of  a  scheme  of  fraud 
participated  in  by  the  officers  authorized  to  manage  its  affairs, 
or  where  they  are  such  that  the  agent  may  reasonably  be  pre- 
sumed by  the  subscriber  to  have  the  authority  of  the  corpora- 
tion to  make  them,  his  representations  may  be  given  in  evi- 
dence to  show   the  fraud  by   means  of  which  the  subscription 

JSee  summary  of  this  case  Thomp.  3 Crump  v.  United  States,  etc.,  Co., 

Corp.,  §  1363.  7  Grat.  (Va.)  352,  56  Am.   Dec.   116; 

2Bosherv.  Richmond,  etc.,  Co.,  89  Waldo  v.   Chicago,   etc.,  R.  Co.,  14 

Va.  455,  37  Am.  St.  Rep.  879 ;  Wesiger  Wis.  625 ;  Tradesmen's  Nat'l  Bank  v. 

v.  Richmond,   etc.,  Co.,  90  Va.   795;  Looney,  99  Tenn.  278,  38  L.  R.  A, 

Upton  v.  Englehart,  3  Dill.  (C.  C.)  837. 
496;  Farrarv.Walker,3  Dill. (C.C.)506. 


390  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  372 

was  procured.  But  when  there  is  no  reasonable  presumption 
of  authority  and  no  actual  authority  to  make  them,  the  corpo- 
ration should  not  be  prejudiced  by  the  unauthorized  acts  of 
the  agent.  Hence,  when  the  representation  of  the  agent  is 
contrary  to  the  interest  and  duty  of  the  corporation,  as  that 
he  will  release,  or  has  authority  to  release,  the  subscription 
he  is  taking,  it  is  not  a  reasonable  presumption  that  he  has 
such  authority,  and  a  subscriber  on  such  terms  would  be  parti- 
ceps  criminis  and  held  to  all  the  responsibility  of  a  bona  fide 
subscriber."1  A  corporation  is  not  responsible  for  fraudulent 
representations  made  by  its  president  in  selling  stock  fraudu- 
lently issued  by  the  president,  of  which  he  was  the  owner  at 
the  time  of  the  representations.2 

§  372.    Fraudulent  representations  by  promoters. — Before  a 

subscriber  can  have  a  contract  of  subscription  rescinded  for 
fraudulent  representations,  he  must  make  it  appear  that  the 
representations  were  made  by  some  one  having  authority  to 
represent  the  corporation.  As  a  promoter  is  not  the  agent  of  the 
corporation  not  yet  in  being,  it  follows  that  the  corporation  is 
not  bound  by  his  representations  or  promises.3  In  order  to 
make  the  corporation  liable  in  damages  to  subscribers,  who 
have  been  led  to  take  shares  by  false  and  fraudulent  represen- 
tation- it  must  be  shown  that  such  representations  were  made 
by  agents  of  the  corporation  acting  within  the  scope  of  their 
authority.  In  an  action  for  damages  on  the  ground  of  fraudu- 
lent representations,  it  is  essential  to  prove  knowledge  by  the 
defendant  or  his  agent  of  the  falsity  of  the  statement  alleged 
to  have  deceived  the  plaintiff.  As  a  corporation  can  not  have 
before  it  exists,  it  follows  thai  it  is  not  liable  in  dam- 
-  for  misrepresentations  made  by  its  promoters  through 
prospi  '-til-'-  or  otherwise  before  it  comes  into  existence.1  Not 
having  made   the  representations  itself  or  by  its  agents,  it  is 

tar  v.  Titusville,  el       *       88  'Joy  v.  Mani  >n,  28  Mo.  A.pp 

r      -i    881     Bee,  also,   Robinson  v.  'Miller  v.  Wild  Oat,  etc.,  Co.,  -r>7 

l2Pa.St.884,  End.  241;  Kennedy  v.   McKay,  18  N. 

72  \m.  D  •'•  L.288;  Presby  \.  Parker,  66  N.  H. 

■     Bank,  59  Minn.221,  409. 
27. 


§  372  STOCK    SUBSCRIPTIONS.  391 

not  responsible  for  them.  But  the  promoters  may,  in  fact, 
after  its  formation,  act  as  its  agents  in  procuring  subscriptions 
for  shares.1 

The  fraud  of  promoters  in  procuring  a  subscription  to  the 
stock  of  a  corporation  is  not  a  defense  to  an  assessment  on  the 
stock  by  the  corporation  after  the  subscriber  has  carried  out 
his  contract  and  united  with  others  in  forming  a  corporation. 
His  remedy  is  then  restricted  to  an  action  against  the  person 
making  the  representations.2  The  defendant  united  with  others 
for  the  purpose  of  forming  a  corporation,  and  a  preliminary 
subscription  was  obtained  by  a  citizens'  committee,  which  was 
chosen  at  a  public  meeting.  The  subscription  was  followed  by 
the  adoption  and  signing  of  articles  of  incorporation.  Those 
who  subscribed  the  articles  became  the  stockholders.  The 
court  said:  "The  proposition  that  such  stockholder  could 
charge  the  association  with  fraud  because  he  was  misled  by 
the  fraud  of  interested  persons  is  suggestive  of  troublesome 
results.  If  this  can  be  done,  and  the  stockholder  thereby 
escape  payment  for  this  stock,  other  stockholders,  innocent  of 
the  fraud,  would  find  their  responsibilities  proportionately  in- 
creased, and  the  burdens  of  the  concern  would  be  shifted  to 
those  members  who  were  unable  to  show  that  they  became 
such  through  the  fraud  of  others.  There  would  be  little  stabil- 
ity to  corporations  and  little  safety  to  stockholders  if  this  doc- 
trine should  be  sustained.  In  this  case  there  not  only  was  not 
a  corporation  in  existence  to  be  a  principal,  but  the  facts  set 
up  in  the  notice  do  not  show  that  there  was  an  agent  of  the 
corporation.  The  promoters  were  persons  who  represented  the 
meeting,  or  possibly  themselves  or  some  prospective  stock- 
holder, who,  for  purposes  of  his  own,  desired  to  see  the  cor- 
poration organized.  They  can  not  be  said  to  be  agents  of  the 
corporation  in  any  sense."3 

False  representations  as  to  the  value  of  property,  made  by 
the  representatives  of  a  syndicate,  and  not  the  corporation,  is 

1  Alger,  Promoters  and  the  Promo-  3St.   John's,   etc.,   Co.  v.  Munger, 
tion  of  Corps.,  §  171.  106  Mich.  90,  29  L.  R.  A.  63.  64  N.  W. 

2  See  Franey  v.  Warner,  96  Wis.  222 ;  Rep.  3. 
Getty  v.  Devlin,  70  N.  Y.  504. 


392  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  373 

no  defense  to  a  promissory  note  given  for  the  stock  of  the  syn- 
dicate which  was  to  purchase  the  property  of  the  corporation, 
and  which  was  transferred  to  the  vendor  corporation  in  pay- 
ment for  the  property.1 

§  373.  What  frauds  will  vitiate. — In  order  to  avoid  a  con- 
tract of  subscription  on  the  ground  of  fraud,  the  party  must 
show  that  a  false  representation  or  wilful  concealment  of  a 
material  fact  was  made  with  an  intent  to  deceive;  and  that  the 
statements  were  relied  upon  and  actually  deceived  him  to  his 
injury.2  In  a  case  where  the  nature  of  such  misrepresenta- 
tions was  carefully  considered,  Lord  Romilly  said:3  "The  basis 
of  this  as  well  as  of  most  of  the  great  principles  on  which  the 
system  of  equity  is  founded  is  the  enforcement  of  a  careful 
adherence  to  truth  in  the  dealings  of  mankind.  This  princi- 
ple is  universal  in  its  application  to  cases  of  contract.  It  af- 
fects not  merely  the  parties  to  the  agreement,  but  also  those 
who  induce  others  to  enter  into  it.  It  applies  not  merely  to 
cases  where  the  statements  were  known  to  be  false  by  those 
who  made  them,  but  to  cases  where  statements,  false  in  fact, 
were  made  by  parties  who  believed  them  to  be  true,  if  in  the 
due  discharge  of  their  duty  they  ought  to  have  known,  or  if 
they  had  formerly  known  and  ought  to  have  remembered  the 
facts  which  negatived  the  representation  made.     *  With 

respect  to  the  character  or  nature  of  the  misrepresentation  it- 
self, it  is  clear  that  it  may  be  positive  or  negative;  that  it  may 
consist  as  much  in  the  suppression  of  what  is  due  as  in  the  as- 
sertion of  what  is  false;  and  it  is  almost  needless  to  add,  that 
it  must  appear  that  the  person  deceived  entered  into  the  con- 
tract  on    the   faith   of  it."     It    is   not   necessary,  at  least  in 

equity,  that     the    fraud    should    have    been  willful.      This   rule 

1  Tradesmen's  Nat'1  Banfc  v.Looney,  firmatively shown.  Firsl  Nat']  Bank  v. 

38  I..   I;.    \.  837.      In  Harford,    •-'!'   [owa  -r>7'.i;    Wenstrom, 

Hunter  v.  French,  etc.,  Co.,  96  l"\\;i  etc.,  Co.  v.  Parnell,  76  Md.  LIS. 

eeme  t<.  have  "Pulsfordv.  Richards,  22  I..  .1.  (Mi. 

been  rescinded  because  of  the  fraudu-  659.    Bee,  also,  Balem,  etc.,  Corp.  v. 

lent  representations  of  the  promoters.  Ropes,  9  Pick.  (Mass.)  L87,  19   Am. 

i    mnecticut, etc.,  R.  Co. v.Bailey,  Dec.  863;  Goodrich  v.  Reynolds,  81 

•ji  Vt.  165;  1 1 Irich  v.  Reynolds,  etc.,  III.  490,  88  Am.  Dec.  240. 

.1  in.  190.    The  traudmust  be  af- 


§  374  STOCK    SUBSCRIPTIONS.  393 

applies  in  an  action  for  rescission;  but  if  the  action  is  for  de- 
ceit against  the  persons  who  were  guilty  of  the  fraud,  it  is 
necessary  to  show  guilty  knowledge.  In  an  action  brought  on 
calls,  where  the  defense  was  fraud  in  procuring  the  subscrip- 
tion, the  court  said:1  "The  defendant,  no  doubt,  is  bound  to 
make  out  a  case  of  moral  fraud,  but  that  does  not  necessarily 
involve  a  knowledge  of  falsehood.  It  is  a  fraud  to  state  things 
which  are  untrue  for  the  purpose  of  gain;  whether  the  state- 
ment is  made  with  a  knowledge  of  their  untruth  or  with  a 
reckless  disregard  of  whether  they  are  true  or  false,  if  it  be 
with  the  intention  of  misleading  another.  To  state  things 
knowing  them  to  be  false,  or  not  knowing  whether  they  are 
true  or  false,  and  careless  whether  they  are  true  or  not,  is 
equally  fraudulent.  Utter  carelessness  of  truth,  where  the 
interests  of  others  is  concerned,  is  evidence  of  fraud."  A 
representation  as  to  matters  of  which  the  subscriber  is  bound 
to  take  notice,  as  of  a  matter  of  law,  the  extent  of  the  cor- 
porate powers  and  the  like  is  no  defense  to  an  action  on  the 
contract  of  subscription.2  So  it  is  no  defense  to  an  action 
based  on  fraudulent  representations  that  the  subscriber  might 
have  discovered  the  truth  had  he  made  proper  inquiry.3 

§  374.  Expressions  of  belief  or  opinion. — It  is  well  settled 
that  oral  statements  of  matters  of  opinion,  intention  and  be- 
lief are  not  such  representations  as  will  authorize  a  court  to 
set  aside  a  contract  of  subscription.4  But  ''we  will  not  say 
that  a  case  might  not  arise  where  a  statement  on  the  part  of 

1  Glamorganshire,  etc., Co.  v.  Irvine,  Md.  113.     For  illustrations  of  fraudu- 
4  Fost.  &  Fin.  947.  lent  statements  see  the  cases  collected 

2  Parker  v.  Thomas,  19  Ind.  213,  81  in  a  note  to  Fear  v.  Bartlett,  33  L.  R. 
Am.  Dec.  385;  Russell  v.   Alabama,  A.  721. 

etc.,  R.  Co.,  94  Ga.  510.     Matters  of  3  Directors  v.  Kisch,  L.  R.  2  H.  L. 

law.      Clem    v.   Newcastle,  etc.,    R.  99.     But  see  Mullen  v.  Beech  Grove 

Co.,   9   Ind.    488,  68  Am.    Dec.   653;  Park,  64  Ind.  202. 

Upton  v.  Tribilcock,  91  U.  S.  45.  Mis-  4  Richelieu,   etc.,    Co.    v.    Interna- 

statement  as  to  amount    of    capital  tional,  etc.,  Co.,  140  111.248,29  N.  E. 

that  has  been  subscribed,  and  of  the  Rep.  1044;  Armstrong  v.  Karshner,  47 

amount  paid  for  property.     Kent  v.  Ohio  St.  276,  24  N.  E.  Rep.  897  ;  Jeffer- 

Freeland,  etc.,  Co.,  L.  R.  4  Eq.  588;  son  v.  Hewitt,  95  Cal.  535. 
"Wanstrom,  etc.,    Co.   v.  Purnell,    75 


394  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  374 

the  agent  as  to  the  pecuniary  condition  and  prospects  of  his 
corporation  would  not  avoid  a  subscription,  but  it  must  be  a 
case  where  both  the  falsity  and  the  fraud  of  such  representa- 
tion are  clearly  shown,  and  where  it  is  manifest  that  the  con- 
dition of  the  enterprise  constituted  a  material  inducement  to 
the  subscription.  To  hold  that  every  subscription  to  an  in- 
choate undertaking  like  this  can  be  avoided  because  some  en- 
thusiastic or  reckless  agent  has  boasted  of  its  resources  or  pro- 
phesied its  speedy  completion  would  be  to  nullify  perhaps  the 
majority  of  such  contracts.  To  escape  from  a  subscription  on 
this  ground,  several  things  must  concur.  It  must  be  shown 
that  the  statement  was  not  uttered  as  an  opinion  but  as  an  as- 
certained and  existing  fact.  It  must  not  only  be  false  in  fact, 
but  must  also  be  either  known  to  be  so  by  the  party  uttering 
it,  or  his  position  must  be  one  that  made  it  his  duty  to  know 
the  truth.  The  resisting  subscriber  must  show  that  he  acted 
upon  such  statement;  that  his  position  was  such  as  warranted 
him  in  so  acting,  and  that  the  statement  was  as  to  a  fact  ma- 
terial to  the  question  of  his  subscription.  Even  with  these  limi- 
tations it  will  not  avail  if  the  representations  are  as  to  matters 
controlled  by  the  charter,  and  as  to  which  the  "subscriber  is 
legally  bound  to  know  that  the  agent  has  no  right  to  make 
p  presentations  inconsistent  therewith."1 

The  representation  must  be  as  to  a  matter  of  fact  and  not  of 
belief  of  a  present  fact  or  condition  or  of  expectation  of  the 
future.1  So  rescission  will  not  be  allowed  because  of  representa- 
tions as  to  the  legal  rights  or  powers  of  the  corporation,  such 
as  the  righl  <>|'  ;i  railway  company  1<>  construct  a  certain  road.3 
A  subscription  made  after  tin'  organization  of  the  corporation, 
which  was  induced  by  false  and  fraudulent  representations 
as  t.)   tin-   purposes  and  powers  of  the  corporation  will  not  be 

rgelma,  etc.,  B.  <'<>.  v.    Anderson,       'Columbia,  <■)<■.,  Co.  v.  Dixon,  46 

:,i   M  Wighl  v.  Shelby,  etc.,  Minn.  W3. 

R.  Co.,  16  B.  Mon.  (Ky.)  I;  Ellsonv.       'Jackson   v.  Stockbridge,  29  Tex. 

. ,    !;    (  .. 2;  Mont-  804,  94   Am.  Dec.  290;   Bish  v.  Brad 

gomery,  etc.,   B.  Co.  v.  Matthews,  77  ford,    17   End.  490  ;    Piecataqua,  etc. 

A  Am.  Bep.  80.  Co.  v.  Jones,  89  N.  II.  491. 


§  375  STOCK    SUBSCRIPTIONS.  395 

rescinded,  as  the  subscriber  is  bound  by  knowledge  of  the 
provisions  of  the  charter.1 

§  375.  Remedies  of  defrauded  stockholders. — A  person  who 
is  induced  by  fraudulent  representations  or  concealments  to 
subscribe  for  shares  in  a  corporation  is  entitled,  if  he  acts 
promptly,  to  a  rescission  of  the  contract,2  or  an  injunction  to  re- 
strain calls,3  or  he  may  assert  the  facts  as  a  defense  to  a  suit  on 
an  assessment,4  or  for  a  specific  performance  of  the  contract,  or 
in  an  action  for  damages  against  the  corporation.5  The  neces- 
sary elements  of  the  plea  of  fraud,  as  stated  by  Thompson,6  are: 

1.  A  distinct  allegation  of  the  matter  in  which  the  fraudu- 
lent representation  consisted. 

2.  That  he  used  reasonable  diligence  to  make  himself  ac- 
quainted with  the  matters  of  fact  in  respect  to  which  the  fraud 
is  charged,  and  that  within  a  reasonable  time  after  discovering 
the  facts  he  repudiated  his  contract  and  offered  to  surrender 
his  certificate. 

After  rescinding  the  .contract  the  defrauded  subscriber  may 
recover  from  the  corporation  the  money  which  he  has  already 
paid  under  the  contract.7 

§  376.    Rescission — Necessity  for  prompt  action — Laches. — 

A  subscriber  may  have  a  contract  of  subscription  which  was 
induced  by  fraud  rescinded  and  annulled,  if  he  acts  promptly 
and  before  the  rights  of  creditors  or  subsequent  stockholders 
have  accrued.     All  the  cases  agree,  however,  that  he  must  act 

1  Oil  City,  etc.,  Co.  v.  Porter,  99  Ky.     defense  to  an  action  on  a  note  given 
254.  for  the  subscription.  French  v.  Ryan, 

2  Waldo  v.  Chicago,  etc.,  R.  Co.,  14    104  Mich.  625. 

Wis.  G25;  Henderson  v.  Railway  Co.,  5  Bosley  v.  National,  etc.,  Co.,  123 

17  Tex.  560,  67  Am.  Dec.  675.  N.  Y.  550. 

8  Reese  River  Co.  v.  Smith,  L.  R.  4  6 Thompson  Corp.,  §  1431. 

H.  L.  64.  7Lare  v.  Westmoreland,  etc.,  Co., 

4  Davis   &  Co.  v.  Dumont,  37  Iowa  155  Pa.  St.  33.     May  proceed  by  at- 

47;  Crump  v.  United  States,  etc.,  Co.,  tachment  against  the  corporation  as 

7  Grat.  (Va.)  352, 56  Am.  Dec.  116 ;  Oc-  for  money  had  and  received.  Granger, 

cidental,  etc.,  Co.  v.  Ganzhorn,  2  Mo.  etc.,  Co.  v.  Turner,  61  Ga.  561.     But 

App.    205;    Provincial,    etc.,    Co.  v.  the  money  can  not  be  recovered  when 

Brown,  9  U.  C.  C.  P.  286;  Jewett  v.  the  fraud  was  that  of  the  promoter. 

Valley  R.  Co.,  34  Ohio  St.  601.   It  is  a  Perry  v.  Hale,  143  Mass.  540. 


396  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  377 

with  diligence  in  order  to  obtain  a  rescission.1  As  the  con- 
tract  is  merely  voidable  it  may  be  ratified,  after  which  it  can 
not  be  repudiated.2  He  can  not  wait  until  he  sees  whether  the 
enterprise  is  going  to  be  a  failure  or  a  success.  "He  can  not 
say,  'I  will  abide  by  the  company  if  successful,  and  I  will 
leave  the  company  if  it  fails,'  and  therefore,  whenever  a  mis- 
representation is  made  of  which  any  one  of  the  shareholders  has 
notice  and  can  take  advantage  of  to  avoid  his  contract  with  the 
company,  it  is  his  duty  to  determine  at  once  whether  he  will  de- 
part from  the  company,  or  whether  he  will  remain  a  member."3 

§  377.  Insolvency — The  rights  of  creditors — English  doc- 
trine.— As  to  the  right  of  a  subscriber  to  have  the  contract 
rescinded  after  the  corporation  has  become  insolvent,  or  third 
parties  have  become  creditors  of  the  corporation  upon  the  faith 
of  his  name  upon  the  register  of  corporate  books,  the  decis- 
ions are  conflicting.  It  is  the  settled  law  in  England  that  the 
insolvency  of  the  corporation  cuts  off  the  right  of  the  subscriber 
to  a  rescission  without  reference  to  his  laches.  He  must  act 
while  the  corporation  is  a  going  concern,  or  his  remedy  is  lost.* 
Thus  Lord  Bramwell  said:  "  Where  a  company  is  shown  by  a 
winding-up  to  be  insolvent,  and  where  the  remedies  of  the 
creditors  who  have  trusted  the  company  upon  the  strength  of 
the  uncalled  capital,  and  the  names  upon  the  register,  would 
be  interfered  with  by  the  withdrawal  of  members,  the  power 
to  rescind  the  contract  to  take  shares  is  gone."1 

"I  take  it  to  be  perfectly  clear,"  said  Vice-Chancellor 
Malins,1  "since  the  case  of  Oakes  v.  Turquand,  that  where 
there  is  a  question  of  whether  a  man  is  a  contributory  or  not, 
no  misconducl  of  the  company  or  false  representation  or  mis- 

•  Oakes  v.  Turqaand,  l..  B.  2H.  I..  Burgess's  Case,  L.  B.  L5Ch.Div.507j 

noteto  Fear  v.  Bartlett,  88  Be  Scottish,  etc.,  Co.,  L.  B.  23  Ch. 

I.  B.  \.  721.  l>iv.  ii:;. 

•City  Bank  v.  Bartlett,  71  Ga.  797.  "Stone  v.  City  and  County  Bank,  8 

•Lord  Bomilly  in  Ashley's  Case,  I..  0.  P.  Div.  282. 

I: ,9  i        163 ;  Ogilvie  v.  Cnox,  etc.,  'Pughand  Sharman's Case, L.  It.  18 

Co.,  22  How.  (U.  8.  Eq.   566     Sec,    also,    Henderson    v. 

'Oakee  v  Turquand,  L.  B.  2  II.  L.  Boyal  Brit.  Bank,  7  El  &  Bl.  866. 
L.  B.  L2  Eq.  881  ; 


§  378  STOCK    SUBSCRIPTIONS.  397 

representation,  made  by  them  as  a  means  of  inducing  him  to 
take  shares,  will  relieve  him  from  bearing  the  responsibility 
which  he  at  all  events  holds  to  creditors,  whatever  effect  it 
may  have  between  himself  and  other  shareholders." 

§  378.  Rule  in  the  United  States. — There  is  no  established 
rule  in  this  country  which  cuts  off  the  shareholder  from 
claiming  a  rescission  after  the  commencement  of  winding  up 
proceedings,  without  reference  to  the  diligence  he  has  exer- 
cised in  discovering  his  rights,  and  repudiating  his  contract 
on  account  of  the  fraud  practiced  upon  him.1  In  many  cases 
the  relief  has  been  denied  after  insolvency,  but  the  decisions 
ordinarily  turn  upon  the  question  of  estoppel  or  laches.  It  is 
admitted  that  if  the  subscriber  acts  promptly,  he  may  have  the 
contract  rescinded  at  any  time  before  the  corporation  becomes 
insolvent,  and  the  rights  of  creditors  attach.2  But,  after  the 
corporation  has  become  insolvent,  and  has  gone  into  liquida- 
tion and  is  making  calls  to  satisfy  the  claims  of  creditors,  it  is 
frequently  held  that  it  is  too  late  for  one  whose  name  had  ap- 
peared as  a  stockholder  to  repudiate  the  contract  and  escape 
liability  on  the  ground  that  his  subscription  was  obtained  by 
fraud.3  In  all  these  cases  the  evidence  showed  that  there  had 
either  been  lack  of  diligence  on  the  part  of  the  stockholder  in 
discovering  the  fraud  of  which  he  complained,  or  unreasonable 
delay  in  asserting  his  rights  after  the  discovery  of  the  fraud, 
or  active  participation  in  the  management  of  the  corporation, 
or  that  debts  had  been  contracted  by  the  corporation  subsequent 
to  the  subscription,  which  either  gave  to  corporate   creditors 

'SeeThomp.  Corp.,  §  1449.  Rep.  585;  Duffieldv.  Barnuin,etc,  Co., 

8  Marten  v.  Burns,  etc.,  Co.,  99  Cal.  64  Mich.  293 ;  Turner  v.  Grangers,  etc., 

355 ;  Dunn  v.  State  Bank  (Minn.),  61  Co.,  65  Ga.  649,  38  Am.  Rep.  801 ;  How- 

N.  W.  Rep.  27.     If  the  rights  of  inno-  ard  v.  Turner,  155  Pa.  St.  349;  Hurd 

cent  third  persons  require  that  the  sub-  v.  Kelley,  78  N.  Y.  588,  34  Am.  Rep. 

scription  be  enforced,  the  subscriber  567;  Mathis  v.  Pridham,  1  Tex.  Civ. 

will  not  be  permitted  to  repudiate  his  App.  58,  20  S.  W.  Rep.  1015;  Howard 

liability.     Dettra  v.  Kestner,  147  Pa.  v.  Glenn  (Ga.),  11  S.  E.  Rep.  610;  Up- 

St.  566.  ton  v.  Tribilcock,  91  U.  S.  45.     See 

8  Upton  v.  Tribileock,  91  U.S.  45 ;  Bis-  Upton  v.  Hansborough,  3  Biss.  (C.  C.) 

sell  v.  Heath,  98  Mich.  472,  57  N.  W.  417. 


398  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  378 

superior  equitable  rights,1  or  estopped  the  shareholder  as 
against  the  corporate  creditor  from  asserting  that  he  was  not  a 
shareholder.  Thus,  an  act  done  after  the  discovery  of  the 
fraud  which  is  inconsistent  with  disaffirmance  is  a  waiver  of 
the  right,  at  least  in  favor  of  creditors.2  A  subscriber  who  has 
served  as  a  director  of  the  corporation  can  not  thereafter  as- 
sert the  invalidity  of  his  subscription  for  stock.3  One  who, 
after  discovery  of  the  fact  that  his  subscription  was  induced  by 
fraud,  remains  silent  in  the  hope  of  receiving  a  large  dividend 
in  the  near  future,  can  not  after  failing  to  receive  it  withdraw 
from  the  company.4  One  who,  after  notice  of  the  fraud,  par- 
ticipates in  negotiations  looking  to  reorganization  can  not 
thereafter  rescind  as  against  creditors.5  Acting  as  a  share- 
holder, or  receiving  a  benefit  from  the  shares  after  notice  of 
fraud  will  estop  the  subscriber  from  rescinding  the  contract.6 
One  who  is  a  party  to  the  fraud  can  not,  of  course,  be  relieved 
from  its  consequences.7  But  the  payment  of  money  to  save 
money  already  paid  on  a  subscription  which  has  been  repudi- 
ated  for  fraud  will  not  necessarily  amount  to  an  affirmance  of 
the  subscription.8  Mere  delay  may  be  sufficient  to  defeat  the 
right  to  rescind.  The  application  for  relief  must  be  made  at 
the  earliest  possible  moment  after  discovery  of  the  fraud.9  The 
laches  does  not  begin  to  run  until  the  subscriber  is  chargeaM.' 
with  notice  of  the  fraud.10     A  subscriber  who  allows  his  name 

'See  Tamer  v.  Grangers,  etc,  Co.,  Case),L.  R.24Ch.Div.l49.     Delayol 

..  649,  38  Am    Rep.  801.  two  months  is  fatal,  Ogilvie  v.  Currie, 

■  Weisiger  v.  Richmond,  etc.,  Co.,  90  37  L.  J.  N.  S.  541;   six   months,  Ex 

V;1  ;  parte  Hale,  55  I..  T.  N.  S.  670,  and  see 

(American,  etc.,  A.sen.  v.  Rainboll  Upton   v.  Englehart,  ;:  Dill     I     I 

(Neb.  i,  67  N.  W.  Rep.  493.  196;  Farrar  v.  Walker.  3  Dill.  (C.  C.) 

nlvie  v.  Knox,  etc., Co.,  22  How.  506,  note;  delay  of  three  years,  Upton 

(C    g_    goo.  v.  Tribilcock,  91  U.S. 46;  seven  years, 

Howard  v   Turner,  156  Pa.  St.  349.  Dynes  v.  Shaffer,  19  [nd.  165;  Cedar 

•v  Bankv.  Bartlett,  71  Ga.  797;  Rapids,  etc.,  Co.  v.  Butler,  S3  Iowa 

Nicol                  D  l"' 

7  Litchfield  Bank  v  Church, 29 Conn.  l0Virginia  Land  Co.  v.  Haupt,90Va. 

137 ;  Southern, etc.,  R. Co   v.Hixon,5  533,44  Am.  St.  Rep.  939,    note.    See 

I,,,l.   166;  Schaeffer  v.  Missouri,  etc.,  notes,  3  Am.  St.    Rep.  797;    note,  9 

M,,  248.  \|M-  Dec.  96,  and  note,  81  A.m.  Dec 

I  ,  ,i  .    Bartlett,  81  Md.  135.  101. 

1 1„  re  London,  etc.,  Co.  (  Wallace's 


§  379  STOCK    SUBSCRIPTIONS.  399 

to  remain  on  the  books  of  the  corporation  for  years  and  receives 
dividends,  which  he  does  not  offer  to  return,  can  not  have  the 
contract  rescinded  on  the  ground  of  fraud.1 

§  379.    Right  to  rescind  after  insolvency  continued. —  The 

question  whether  a  stockholder  should  be  permitted  to  rescind 
his  subscription,  on  the  ground  of  fraud,  after  the  insolvency 
of  the  corporation,  is  attended  with  much  doubt  and  difficulty 
because  of  the  peculiar  relations  which  a  shareholder  sustains 
to  the  creditors  of  the  corporation.  Judge  Dillon,  in  discuss- 
ing the  question,2  suggested  that  the  rigid  English  rulewas  in- 
fluenced, in  a  measure,  by  the  provision  of  the  companies  act,3 
which  requires  a  "register  of  stockholders,"  to  which  the  pub- 
lic has  access.  As  no  similar  register  is  kept  in  this  country, 
the  English  decisions,  which  hold  that  the  commencement  of 
proceedings  to  wind  up  a  corporation  is  a  bar  to  a  suit  for  re- 
scission, are  not  strictly  applicable  in  this  country.  "I  am  in- 
clined to  the  opinion  that  if  a  company  has  fraudulently  mis- 
represented or  concealed  material  facts,  and  thus  drawn  an  in- 
nocent person  into  the  purchase  of  stock,  he  at  the  time  being 
guilty  of  no  want  of  reasonable  caution  and  judgment,  and 
afterwards  guilty  of  no  laches  in  discovering  the  fraud,  and  he 
thereupon,  without  delay,  notifies  the  company  that  he  repu- 
diates the  contract,  and  offers  to  rescind  the  purchase,  these 
facts  concurring,  I  am  inclined  to  the  opinion  that  the  bank- 
ruptcy of  the  company  subsequently  happening  will  not  enable 
the  assignee  to  insist  that  the  purchase  of  stock  is  binding 
upon  him." 

In  a  recent  case  it  was  held  that  the  insolvency  of  the  cor- 
poration will  not  prevent  the  cancellation  of  a  stock  subscrip- 
tion for  fraud  if  the  subscriber  acted  with  due  diligence  in  dis- 
covering the  fraud  and  repudiating  the  subscription  and  no 
considerable  amount  of  indebtedness  was  contracted  after  the 
subscription  was  made.  The  question  of  due  diligence  is  for  the 
jury.   "There  are  obvious  reasons,"  said  Judge  Thayer,4  "why 

1  Bissell  v.  Heath,  98  Mich.  472.  32o  and  26  Vict.  Ch.  89. 

2 Upton  v.  Englehart, 3  Dill.  (C.  C.)        *Newton   Nat']  Bank  v.  Newbegin, 
496.  20  C.  C.  A.  339,  74  Fed.  Rep.   135,  33 


400  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  379 

a  shareholder  of  a  corporation  should  not  be  released  from  his 
subscription  to  its  capital  stock  after  the  insolvency  of  the 
company,  and  particularly  after  a  proceeding  has  been  in- 
augurated to  liquidate  its  affairs,  unless  the  case  is  one  in 
which  the  stockholder  has  exercised  due  diligence  and  in 
which  no  facts  exist  upon  which  corporate  creditors  can  reason- 
ably predicate  an  estoppel.  When  a  corporation  becomes  bank- 
rupt, the  temptation  to  lay  aside  the  garb  of  a  stockholder  and 
assume  the  role  of  a  creditor  is  very  strong,  and  all  attempts 
of  that  kind  should  be  viewed  with  suspicion.  If  a  consider- 
able period  of  time  has  elapsed  since  the  subscription  was 
made;  if  the  subscriber  has  actively  participated  in  the 
management  of  the  affairs  of  the  corporation,  if  there  has 
been  any  want  of  diligence  on  the  part  of  the  stockholder, 
either  in  discovering  the  alleged  fraud  or  in  taking  steps  to 
rescind  when  the  fraud  was  discovered,  and  above  all  if  any 
considerable  amount  of  indebtedness  has  been  created  since 
the  subscription  was  made,  which  is  outstanding  and  unpaid; 
in  all  of  these  cases  the  right  to  rescind  should  be  denied, 
where  the  attempt  is  not  made  until  the  corporation  becomes 
insolvent.  But  if  none  of  these  conditions  exist  and  the  proof 
of  the  alleged  fraud  is  clear,  we  think  that  a  stockholder 
should  be  permitted  to  rescind  his  subscription  as  well  after  as 
before  the  company  ceases  to  be  a  going  concern.  There  is 
some  force,  doubtless,  in  the  view  which  lias  sometimes  been 
takeo  by  eminent  judges,  that  when  a  person  has  been  in- 
veigled into  making  a  stock  subscription  by  representations 
thai  were  clearly  false  and  fraudulent,  he  should  be  entitled 
to  rescind  his  subscription,  even  after  the  insolvency  of  the 
company,  under  the  Bame  circumstances  that  would  entitle 
him  to  rescind  a  contract  of  a  different  nature;  thai  is  to  say, 
by  proof  of  due  diligence  in  discovering   the   fraud,  and  of 

I..  I:.  L  727,  annotated.  To  the  same  do  rescission  after  the  rights  of  bona 

Dorsey  M m t <-t i  Co.  v.  M<--  fide  creditors  bad  intervened  or  the 

Caffrey,  L89  tnd.  645;  Stuffelbeam  v.  corporation  stopped  payment  and  be- 

De  Laahmutt,  83  Fed.  Rep.    149.     In  came  actually  insolvent,  at  least  with- 

•  ii  v.  South  Salem,  etc.,  <'".,  94  out  showing  diligence  in  discovering 

\':i.  28,  it  \v;ih  held  that  there  could  be  the  Fraud  and  repudiating  the  contract. 


§  380  STOCK    SUBSCRIPTIONS.  401 

prompt  action  after  its  discovery.1  The  case  in  hand,  however, 
does  not  require  us  to  go  to  that  length  even  if  we  felt  so  dis- 
posed." 

§  380.    Rights  of  rescission  before  insolvency  of  corporation. 

— Where  a  subscription  to  the  capital  stock  of  a  corporation 
was  procured  through  the  false  and  fraudulent  representation  of 
the  corporation,  and  the  subscriber,  without  laches  or  unrea- 
sonable delay  in  discovering  the  fraud  and  within  a  reasonable 
time  after  such  discovery,  and  before  the  execution  by  the  cor- 
poration of  a  deed  conveying  its  property  in  trust  for  the  benefit 
of  its  creditors,  notified  the  president  of  the  corporation  that  he 
repudiated  the  contract  and  refused  to  make  any  further  pay- 
ment on  account  of  his  subscription,  such  facts  constitute  a 
valid  defense  to  an  action  by  the  trustee  to  recover  from  the 
subscriber  the  unpaid  installments  due  upon  his  subscription. 
The  court  said:2  "The  defense  is  that  the  defendant  was  in- 
duced to  become  a  shareholder  upon  the  faith  of  certain  repre- 
sentations set  forth  in  a  prospectus  issued  by  the  company, 
and  that  these  representations  were  false  and  fraudulent,  and 
that  the  defendant  within  a  reasonable  time  after  the  discovery 
of  the  fraud,  and  before  the  execution  of  the  deed  of  trust,  re- 
pudiated the  contract  and  refused  to  make  any  further  pay- 
ments on  account  of  his  subscription.  *  *  *  As  against 
the  company  itself  it  is  well  settled  that  a  shareholder  may  re- 
scind a  contract  of  subscription  procured  through  the  fraud  of 
the  company  within  a  reasonable  time  after  the  discovery  of 
the  fraud.  *  *  *  This  well  settled  rule  applies  with  even 
greater  strictness  with  regard  to  representations  set  forth  in  a 
prospectus  issued  by  a  company  far  the   purpose  of  inviting 

1  See  Upton  v.  Tribilcock,  91  U.  S.  was  held  defective  because  it  did  not 
45 ;  Duffield  v.  Wire  Works,  64  Mich,  "show  that  the  defendant  made  use  of 
293;  Florida  Land,  etc.,  Co.  v.  Mer-  reasonable  diligence  to  make  himself 
rill,  2  U.  S.  App.  434,  52  Fed.  Eep.  77.  acquainted  with  the    matters  in   re- 

2  Savage  v.  Bartlett,  78  Md.  561;  spect  to  which  the  fraud  is  claimed, 
Dufheld  v.  Wire  Works,  64  Mich.  293,  nor  when  or  how  he  repudiated  the 
by  a  divided  court.     In  Upton  v.  En-  contract." 

giehart,  3  Dill.  C.  C.  496,  the  defense 
26 — Private  Corp. 


402  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  381 

persons  to  join  in  the  undertaking;  and  although  some  allow- 
ance must  be  made  for  the  manner  in  which  the  advantages 
which  are  likely  to  be  enjoyed  by  the  subscribers  are  described, 
yet  as  was  said  by  the  lord  chancellor  in  the  case  to  which  we 
have  just  referred,  'no  misstatement  or  concealment  of  any  ma- 
terial facts  or  circumstances  ought  to  be  permitted.''  After 
reviewing  many  cases  the  court  said:  "We  may  also  refer  to 
Farrar  v.  Walker,1  before  Mr.  Justice  Miller  on  appeal  to  the 
circuit  court,  in  which  that  learned  judge  recognizes  in  express 
terms  the  right  of  the  defrauded  shareholder  to  repudiate  the 
contract  and  to  repudiate  it  even  after  the  insolvency  of  the 
company,  if  he  has  not  had  reasonable  time  in  which  to  exam- 
ine into  the  affairs  of  the  company  before  the  appointment  of 
the  assignee." 

In  a  subsequent  case  upon  practically  the  same  facts,  the 
Savage  case  was  adhered  to,  and  it  was  said  that  there  was 
nothing  in  the  decision  in  conflict  with  the  theory  that  un- 
paid subscriptions  are  a  trust  fund  for  the  benefit  of  creditors, 
when  that  theory  was  rightly  understood.  It  could  have  no 
application  until  after  the  corporation  became  insolvent.2 

§  381.  Insolvency — Rule  of  diligence. — In  a  Minnesota  case 
the  court,  after  stating  that  it  was  unnecessary  to  determine 
whether  the  subscriber  is  bound  absolutely  as  between  him 
and  the  creditors  regardless  of  Laches,  or  whether  lie  is  bound 
only  when  he  has  not  been  guilty  of  laches,  said:  "To  say  the 
least  a  very  different  rule  of  diligence  is  required  as  between 
him  and  the  creditors  than  is  required  between  him  and  the 
corporation.  While  there  is  no  privity  of  contract  between 
him  and  the  creditors,  and  as  a  mere  stockholder  lie  is  not  an 
agenl  of  the  corporation,  still  be  is  to  a  considerable  extenta 
member  of  the  corporate  family.  He  has  a  right  while  it  is  a 
going  concern  to  inspect  the  books  and  investigate  the  affairs 
of  the  corporation.  He  has  visitorial  powers  and  duties  which 
the  creditor  has  not.  He  held  himself  out,  as  a  stockholder 
;m,l  it  [a  to  I"-  presumed,  after  the  lapse  of  time,  that  cFeditora 

■  Jferrarv.  Walker,  3  Dill.  C.  C.  .".or,.       *Fear  v.  Bartlett,  81  Md.  485,  8a  i 

R.  A.  721. 


§  382  STOCK    SUBSCRIPTIONS.  403 

became  such  on  the  faith  of  his  liability  as  a  stockholder. 
Under  these  circumstances  it  is,  to  say  the  least,  his  duty  to 
use  a  high  degree  of  care  and  diligence  to  see  that  creditors  are 
not  misled  and  deceived  by  his  conduct.  What  would  consti- 
tute laches  as  between  him  and  the  creditors  would  not  as  be- 
tween him  and  the  corporation  itself."  ' 

§  382.    Enforcement  of  subscription  contracts  by  action. — 

If  a  subscriber  neglects  or  refuses  to  pay  his  subscription  ac- 
cording to  its  terms,  the  corporation  may  maintain  an  action 
against  him  upon  the  contract.  It  is  generally  held  that  a  sub- 
scription raises  an  implied  promise  to  pay  the  assessments,  al- 
though in  the  New  England  states  it  is  held  that  an  express 
promise  is  necessary.  The  insolvency  of  the  corporation  is  no 
defense  to  an  action  to  collect  subscriptions.2 

§  383.  Calls. — Before  an  assessment  can  be  collected,  it  is 
ordinarily  necessary  that  there  shall  be  a  call  in  due  form.  If 
the  charter  of  a  corporation  or  the  contract  of  subscription 
makes  the  amount  of  the  subscription  payable  at  once  or 
at  a  stated  time,  it  is  not  necessary  that  the  directors  should 
make  a  formal  call  on  the  subscriber.3  But  when  a  formal 
call  is  made  necessary  by  the  charter,  by-law  or  contract, 
it  is  a  condition  precedent  to  liability  and  no  action  can  be 
maintained  to  collect  an  assessment  until  the  call  is  made 
by  the  proper  person  and  in  the  prescribed  manner.4  This 
rule  applies  when  the  charter  or  contract  is  silent,  and  when 
the  time  of  payment  is  left  to  be  determined  by  the  board  of 
directors*  If  there  is  no  determination  of  the  person  or  body 
by   which  calls  shall  be  made,  they  must  be  made  by  the  di- 

1  Dunn  v.  State  Bank,  59  Minn.  221,  Spangler  v.  Railway  Co.,  21  111.  275. 

61  N.  W.  Rep.  27.  See  Williams  v.  Taylor,  120  N.  Y.244. 

s  Dill  v.  "Wabash,  etc.,   R.   Co.,  21  When  the  contract  requires  a  call  the 

111.  90.  corporation  can  not  show  an  oral  con- 

3  Ruse  v.  Bromberg,  88  Ala.  619;  tract  to  the  effect  that  there  should  be 
Phoenix,  etc.,  Co.  v.  Badger,  67  N.  Y.  no  call:  Grosse,  etc.,  v.  I' Anson's 
294.  Ei'rs,  43  N.  J.  L.  442.     A  subscriber 

4  North,  etc.,  R.  Co.  v.  Spouleck,  88  can  not  question  the  necessity  of  a 
Ga.  283  ;  Glenn  v.  Howard,  65  Md.  40;  call.  Chouteau,  etc.,  Co.  v.  Floyd,  74 
Seymour  v.  Sturgess,  26   N.   Y.   134;  Mo.  286. 


404  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  383 

rectors.1  They  must  act  in  their  capacity  as  a  legally  consti- 
tuted board,2  and  in  the  manner  prescribed  by  the  charter. 
It  has  been  held  a  call  can  not  be  made  by  a  dc  facto  board  of 
directors,3  but  there  are  several  cases  to  the  contrary.4  If  the 
charter  or  by-law  provides  that  a  call  shall  be  made  by  a  cer- 
tain person  or  body,  a  call  made  in  any  other  manner  or  by 
any  other  person  is  invalid.5  In  the  absence  of  a  special  re- 
quirement, the  manner  of  making  the  assessment  is  within 
the  control  of  the  board  of  directors,  and  it  is  only  necessary 
that  their  acts  shall  be  sufficient  to  clearly  indicate  their  in- 
tention to  render  a  part  or  all  of  the  unpaid  subscription  due 
and  payable.6  A  call  may  be  made  upon  all  subscribers  for 
the  purpose  of  raising  money  for  preliminary  expenses,7  but 
thereafter  no  further  calls  can  be  made  until  the  corporation 
is  ready  to  begin  business.8  This  may  of  course  be  changed 
by  the  terms  of  the  contract  of  subscription  or  by  the  provi- 
sions of  the  charter.  After  a  subscriber  repudiates  his  subscrip- 
tion no  call  is  necessary  before  proceeding  to  enforce  the  contract.9 
An  unpaid  subscription  draws  interest  from  the  time  the  sub- 
scriber is  in  default.  If  a  call  is  necessary,  interest  begins  to  run 
from  the  time  fixed  for  the  payment  of  the  call.10  Under  a  statute 
providing  for  calls  on  "  giving  such  notice  thereof  as  the  by- 
laws may  prescribe,"  a  by-law  prescribing  such  notice  is  a 
condition  precedent  to  a  valid  call.11  The  directors  may  be  re- 
quired to  make  calls  at  the  instance  of  creditors,18  or  a  call 
may   be   made  by   the  court.13     A  call  for  an  assessment  need 

1  Budd  v.  Multnomah,  etc.,  R.  Co.,        6  Budd  v.  Multononiah,  etc.,  Co.,  15 

k.  Ore.   in.    The  directors  can   not  Ore.  413. 

delegate  the  power  to  make  calls.  Sil-       7Salem  Mill  Dam  Corp.  v.  Ropes,  9 

v.  i  Hook  Road  v. Greene,  L2  R.  I.  164.  Pick.  (Mass.)  L87,  L9  Am.  Dec.  363. 

'People,    etc.,    Co.    v.    WVscott,    14        8  Anvil,   etc.,   Co.   v.   Sherman,   74 

Gray  (Mass.)  WO;  Moses  v.  Tompkins,  Wis.226. 
84  Ua.  618.  "Cass  v.  Railroad  Co.,  80  Pa.  St.  81. 

'  Moses  v.  Tompkins,  84  Ala.  618.  "Gould  v.  Oneonta,  71  X.  Y.  298. 

■Chandler v. Sheep, etc., Co. (Utah,       uGermania,  etc.,  Co.v.    King,  94 

i'i  Pac.  Rep.  635;  Steinmete  v.  Wis.  439,  86  L.  R.  LSI. 
\ '•  i     >;<    ,  etc.,  Co.,  67  Ind.  467;  Ma-       u  Germantown,  etc.,  Co.v. Fitler,  60 

con,  etc.,  R.  Co.  v.  Vason,  57  Ga.  81  I.  Pa.  St.  124 ;  Scovill  v.  Thayer,  LOB  D 

*  People's,  etc.,  Co.  v.  Weseott,  1 1  S.  1 13. 
Gray  |  Mass.)  140.  ,:'  Marston  v.  Deither,  49  Minn.  v>3. 


§  384  STOCK    SUBSCRIPTIONS,  405 

not  name  the  time,  place  or  person  to  whom  the  payment  is  to 
be  made,  where  the  corporation  has  a  place  of  business  and 
an  officer  authorized  .to  receive  money  due  it,  as  the  time  un- 
der such  circumstances  is  on  demand  to  such  officer  at  such 
place  of  business.1 

§  384.  Calls — Uniformity — Demand. — A  valid  call  must 
operate  uniformly  upon  all  the  shareholders,  and  require  all  to 
pay  the  same  proportion  at  the  same  time.2  But  if  some  share- 
holders have  already  contributed  more  than  others,  it  would 
be  not  only  the  right  but  the  duty  of  the  directors  to  make 
calls  upon  other  shareholders  in  such  amounts  as  to  equalize 
the  contributions  of  all.3  No  notice  or  demand  is  necessary, 
unless  provided  for  by  the  charter  or  contract.4  But  when  re- 
quired it  is  a  condition  precedent  to  liability  unless  waived  by 
the  subscriber.5  A  general  provision  for  notice  requires  actual 
notice,  and  in  such  case  publication  is  not  sufficient.6  But 
actual  notice,  although  not  given  in  the  manner  provided  by 
the  by-laws,  is  always  sufficient.7 

§  385.  Release  of  subscriber— By  consent, — After  a  valid 
contract  for  subscription  to  shares  has  been  made  the  subscri- 
ber can  not  withdraw  or  be  released  from  his  obligations  with- 
out the  consent  of  the  corporation  and  all  the  stockholders,8 
and  not  with  such  consent  if  there  are  corporate  debts  unpaid.9 
But,  as  already  stated,  an  agreement  to  take  shares  in  a  corpo- 

An  assessment  made  under  an  order  s  Morawetz  Priv.  Corp.,  §  147. 

of  court  in  another  state  is  conclusive  4  Heaston  v.  Railway  Co.,  16  Ind, 

on  the  stockholders,   although    resi-  275. 

dents  in  another  state  and  not  served.  5  Rutland,  etc.,  R.  Co.  v.  Thrall,  35 

Mutual,  etc.,  Co.  v.  Phcenix,  etc.,  Co.  Vt.  536. 

(Mich.),  34  L.  R.  A.  694,  annotated;  6  Lake  Ontario,  etc.,  R.  Co.  v.  Ma- 
Glenn  v.  Liggett,  135  U.  S.  533.  son,  16  N.  Y.  451. 

'Western,  etc.,  Co.  v.  Des  Moines  'Jones  v.  Sisson,  6  Gray  288. 

Nat'l   Bank,   103    Iowa  455;    Distin-  8Selma,   etc.,  R.  Co.  v.  Tipton,  5 

guishing,  In  re  Cawley  &  Co.,  L.  R.  42  Ala.  787 ;  Payne  v.  Bullard,  23  (1  Cueh- 

Ch.   Div.  209;  North,  etc.,  R.  Co.  v.  man  88)  Miss.  88. 

Spullock,  88  Ga.  283.  9  Cartwright  v.  Dickinson,  88  Tenn. 

2  Great  Western,  etc.,  Co.  v.  Burn-  476;  Boutin  v.  Dement,  123  111.  143  14 
ham,  79  Wis.  47,  47  N.  W.  Rep.  373; 
Pike  v.  Railway  Co.,  68  Maine  445. 


406  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  38G 

ration  to  be  organized  is  a  mere  offer  which  may  be  withdrawn 
at  any  time  before  it  is  accepted. 

§386.  Release  by  act  of  corporation.  —  The  mere  mis- 
management of  the  affairs  of  a  corporation  by  its  officers 
and  agents  will  not  enable  a  stockholder  to  withdraw  and  be 
released  from  his  obligation,1  nor  is  he  released  by  the  fact  that 
the  corporation  has  violated  its  charter,  and  thus  subjected  it- 
self to  a  possible  forfeiture  at  the  suit  of  the  state.2  But  if  the 
right  to  amend  or  alter  the  charter  is  not  reserved  in  such  a 
way  as  to  make  it  a  part  of  the  contract  of  subscription3  an 
amendment  which  materially  changes  or  enlarges  the  purposes 
of  the  corporation  will  release  a  subscriber  who  did  not  consent 
thereto.1  It  is  generally  held  that  in  order  to  release  a  sub- 
scriber such  alteration  must  be  material,  although  much  con- 
flict exists  as  to  what  is  a  material  amendment  or  alteration.5 
In  some  states  it  is  held  that  if  the  alteration  is  of  such  a  char- 
acter as  to  facilitate  the  object  for  which  the  corporation  was 
originally  organized,  and  is  thus  for  the  benefit  of  the  sub- 
scriber, he  will  not  be  released  from  his  contract,  although  the 
alteration  is  a  material  one.6  A  radical  and  material  amend- 
ment never  accepted  and  which  became  inoperative  will  not 
release  a  subscriber.7  The  mere  granting  of  additional  priv- 
ileges will  not  release  a  subscriber,  although  the  effect  is  to 
increase  the  liabilities  of  the  corporation.8  When  no  lights  of 
creditors  are  involved,  a  complete  and  final  abandonment  of 
the  business  of  the  corporation  will  release  a  subscriber  from 
further  liability  on  his  subscription.9  In  such  case  it  is  neces- 
sary  for  the  subscriber  to  allege  and  prove  "a   final  abandon-* 

\    l.    Rep.  62;  Chouteau,  etc.,  Co.  v.  N.  Y.336;  Armstrong  v.  Karshner,  17 

Floyd,  71  Mo.  286;   Potts  v.  Wallace,  Ohio  St.  276,  24  N.  E.  Rep.  897. 

L46  i  5§488;Mauerv.Staples,82Minn.284. 

1  American,  etc.,  Assn.  v.  Rainbolt  '  >  186;   Illinois,  etc.,  I..  Co.  v.  Zim- 

(Neb.),  67  N.  W.  Rep.  198.  mer,  20  111.  664 ;  Hartford,  etc.,  R.  Co. 

1  Craven  v.  Mills  Co.,  120  Ind.  8, 21  v.  Crbswell,  6  Hill  (N.  Y.   388. 

Rep  981;  Taggarl  v.  Railroad  'Chattanooga,  etc.,  R.  Co.  v.  War- 
Co.,  24  M.l  then,  98  Ga.  599. 
1  Proprietors  Union  Locks  v.  Towne,  'Gray  v.  Navigation  Co.,  2  Watts.  & 
U    ii  •,  Hartford,  etc.,  R.  Co.  v.  Barg.  166. 

i  :i.  :.  Hill  (N.  Y  i  '  Phoenix,  etc  ,  Co.  v.  Badger,  67  N. 

♦  Bnflalo,  etc.,  R.  Co.  v.  Dudley,  u  V.  294. 


§  387  STOCK    SUBSCRIPTIONS.  407 

ment  of  the  work  by  the  company,  and  also  that  the  payment 
was  not  necessary  for  satisfying  any  existing  demand  against 
the  corporation."1  The  mere  failure  by  a  railroad  corporation 
to  complete  its  road  or  a  non-user  of  a  part  of  the  road  will  not 
release  a  subscriber  unless  some  provision  of  the  contract  of 
subscription  is  violated.2  There  may  be  a  release  by  mere  delay 
to  organize  the  corporation  and  accepting  the  offer  to  take 
shares.  A  subscription  for  shares  in  a  corporation  to  be  or- 
ganized can  not  be  enforced  by  the  corporation  where  the 
rights  of  creditors  have  not  intervened  where  no  notice  of  the 
organization  of  the  corporation  was  given  to  the  subscriber  and 
no  attempt  was  made  to  compel  him  to  take  the  stock  until 
more  than  two  years  after  the  organization  was  completed.3  A 
subscriber  can  not  be  held  liable  when  the  corporation  has  issued 
its  entire  stock  to  other  subscribers  and  received  pay  therefor.4 

§  3S7.  By  forfeiture. — A  corporation  has  no  inherent  power 
to  forfeit  shares  of  stock,  and  thus  release  the  subscriber  from 
further  liability  on  his  subscription  because  he  is  in  default  in 
the  payment  of  assessments.5  The  power  of  forfeiture  does 
not  exist  unless  it  is  conferred  by  the  charter  or  general  law, 
and  a  by-law  providing  for  forfeiture  which  does  not  rest  upon 
a  charter  provision  is  invalid.6  "We  must  look  to  the  charter," 
said  Mr.  Justice  Sharswood,7  "for  the  power  of  the  directors 
to  forfeit  the  stock.  No  .  doubt  the  power  given  must  be 
strictly  pursued,  and  if  any  restrictions  or  limitations   therein 

1  McMillan   v.   Railway  Co.,  15  B.  (Mass.)303;  Nickumv.  Burckhardt,  30 
Mon.  218.     See  Buffalo,  etc.,  R.  Co.  v.  Ore.  464,  60  Am.  St.  Rep.  822. 
Gifford,  87  N.  Y.  294.    The  sale  of  the  l  Level  Land  Co. v.  Hay  ward,  95  Wis, 
property  and  franchises  under  a  con-  109. 

tract  which   is   afterwards  rescinded  5Budd  v.  Multnomah,  etc.,  R.  Co., 

will  not  release  the  subscriber.    Chat-  15  Ore.  413,  3  Am.  St.  Rep.  169. 

tanooga,  etc.,  R.  Co.  v.  Warthen,  98  6In  Lesseps  v.  Architects'  Co.,  4  La. 

Ga.  599.  An.  316,  it  was  held  that  a  forfeiture 

2  Armstrong  v.  Karshner,  47  Ohio  in  pursuance  of  a  by-law  indorsed  on 
St.  276.  the  stock  certificate  was  binding  upon 

8  Carter,  etc.,  Co.  v.  Hazzard,  65  the  stockholder,  on  the  theory  that  it 
Minn.  432.  Such  a  subscriber  has  the  had  been  agreed  to  by  all  the  mem- 
right  to  take  part  in  the  organization,     bers. 

People's,  etc.,  Co.  v.  Balch,  8  Gray        7Germantown,  etc.,  R.  Co.  v.  Fit- 
ter, 60  Pa.  St,  124,  100  Am.  Dec.  546. 


408  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  388 

provided  have  been  disregarded,  the  alleged  act  of  forfeiture 
must  be  declared  invalid.  This  is  so  for  the  special  reason  that 
it  is  one  of  those  forfeitures  against  which,  if  regular,  equity- 
does  not  relieve.  The  right  to  forfeit  shares  in  any  joint  stock 
undertaking  must  come  from  the  law  and  can  only  be  exer- 
cised in  the  manner  provided  by  the  law.1  Hence,  if  the 
charter  provides  the  method  of  procedure,  it  must  be  strictly 
followed.2  "The  company  in  enforcing  the  payment  of  calls 
by  forfeiture  must  strictly  pursue  the  mode  pointed  out  in  the 
charter  and  the  general  laws  of  the  state.  This  is  a  rule  of 
universal  application  to  the  subject  of  forfeiture,  and  one 
which  the  courts  will  rigidly  enforce,  and  more  especially 
where  the  forfeiture  is  one  of  the  prescribed  remedies  given  to 
the  party  against  which  equity  does  not  relieve  when  fairly 
exercised."3  Where  the  manner  of  giving  notice  is  prescribed 
by  the  law  under  which  calls  are  made,  the  directors  "have  no 
right  to  dispense  with  the  mode  and  manner  of  notice  thus 
prescribed,  and  where  by  positive  law  personal  notice  is  re- 
quired, a  written  notice  through  the  mail  is  not  a  compliance 
with  the  statute."4  In  order  to  sustain  a  forfeiture,  every  con- 
dition precedent  must  be  strictly  and  literally  complied  with.6 
A  declaration  of  forfeiture  of  shares  in  an  incorporated  joint 
stock  company  or  partnership  is  void  where  the  articles  of  as- 
sociation provide  for  the  publication  of  notice  in  the  news- 
p;ijM-r~  of  two  designated  cities  for  thirty  days  before  declar- 
ing b  forfeiture,  and  the  notice  is  published  in  the  papers  of 
one  city  only.6 

§  088.  When  forfeiture  a  cumulative  remedy. — Whether  tlie 
right  to  forfeit  Bhares  for  non-payment  of  assessments  is  a 
cumulative  or  exclusive  remedy  will  depend  upon  tin'  language 

'Westcot  v.  Minnesota,  etc.,  Co.,  23  Md.  816;  Macon,  etc.,  (V  \.  Vason, 

Mich.  1 16;  in  re  Long  [aland  Co.,  L9  57  Ga.  31 1. 

Wend.    N.  r.)87,  82  Am.  Dec.  429.  »Morris  v.  Metalline,  etc.,  Co.,  164 

"Allen    v.    American,    etc.,  A  sen.,  Pa.  St.  826,  27  L.  R.  A.  805 ;  Mitchell 

v.  Ver it.  «'ii-..  ('".,  8  Jonea  A:  Bpen. 

»]  Etedfleld  Railways,  p.  211,  qnoted  W6;  Johnson  v.  Lytle,  etc.,  Agency, 

in  Morris  ▼.  Metalline,  etc.,  Co.,  164  L.  R.  5  Ch.  Div.  687. 

t,  826,  '^7  I,.  l,\  \  '  Morri    \.  Metalline,  etc.,  Co.,  Kit 

•Hoghea  v.  Antietam,  etc.,  Co.,  84  Pa.  Bt.  326,27  L.  R.  A.805. 


§  389  STOCK    SUBSCRIPTIONS.  409 

by  which  the  power  is  granted.  The  general  rule  in  the 
United  States  is  that  where  a  corporation  has  a  statutory  right 
to  declare  a  forfeiture  for  non-payment  of  calls,  it  may  exer- 
cise the  option  either  to  forfeit  the  shares,  or  bring  an  action 
to  collect  the  amount  of  the  call,  but  that  it  can  not  forfeit  the 
shares  and  afterwards  sue  at  law  on  the  contract.1  The  exer- 
cise of  the  option  to  forfeit  in  such  a  case  terminates  the  con- 
tractual relation  between  the  corporation  and  the  stockholder. 
The  corporation  can  not  even  collect  the  amount  of  a  prior  as- 
sessment after  a  forfeiture,  although  a  promissory  note  has 
been  given  for  the  amount.2  An  unsuccessful  attempt  to  for- 
feit shares  will  not  release  the  shareholder  from  personal  lia- 
bility as  it  has  no  effect  upon  the  relation  in  which  he  stands 
to  the  corporation.3  The  question  of  the  liability  of  the  stock- 
holder after  forfeiture  will  depend  upon  the  nature  of  the  stat- 
utory remedy.  If  there  is  an  absolute  forfeiture,  his  liability 
ceases,  but  if  the  remedy  provides  for  a  sale  of  the  shares,  and 
an  accounting,  the  amount  received  for  the  shares  must  be 
credited  upon  the  liability,  and  the  corporation  may  have  its 
action  to  recover  the  unpaid  balance.  The  sale  in  such  case 
is  in  the  nature  of  the  foreclosure  of  a  lien  held  by  the  cor- 
poration upon  the  shares.4  In  the  states  where  it  is  held  that  an 
action  can  not  be  maintained  on  a  subscription  contract  unless 
it  contains  an  express  promise  to  pay,  such  promise  is  neces- 
sary to  support  an  action  for  a  deficiency  after  a  foreclosure 
and  sale  of  the  shares.5 

§  389.  Estoppel  of  subscriber. — One  who  subscribes  for 
shares  can  not  avail  himself  of  the  irregularities  in  their  issue 
if  he  has  acquiesced   or  taken  part  in  the  transaction;6  has 

1  Mandel  v.  Swan,  etc.,  Co.,  154  111.  s  Instone  v.   Frankfort,  etc.,  Co.,  2 

177,  27  L.  R.  A.  313 ;  Macon  v.  Vason,  Bibb  (Ky.)  576. 

57  Ga.   314;  Lexington,   etc.,   Co.   v.  4  Small  v.  Herkimer,  etc.,  Co.,  2  N. 

Bridges,  7  B.  Mon.  (Ky.)  556,  46  Am.  Y.    330;     Rutland,    etc.,    R.    Co.    v. 

Dec.   528;   Carson   v.    Mining  Co.,  5  Thrall,  35  Vt.  536. 

Mich.  288;  Connecticut,  etc.,  R.  Co.  5  Mechanics',  etc,  Co.  v.  Hall,   121 

v.  Bailey,  24  Vt.  465.  Mass.  272;  Katama,  etc..  Co.  v.  Jer- 

*  Ashton  v.  Burbank,  2  Dill.  (C.  C.)  negan,  126  Mass.  155. 

435.  6  Clarke  v.  Thomas,  34  Ohio  St.  96; 


410  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  389 

voluntarily  paid  an  assessment  thereon,1  or  has  subscribed  after 
their  issue  under  circumstances  from  which  it  may  be  pre- 
sumed that  he  has  waived  such  irregularities.2  But  a  sub- 
scriber who  has  done  nothing  upon  which  an  estoppel  may  be 
based,  may  decline  to  receive  shares  improperly  issued,  and 
successfully  defend  a  suit  brought  to  recover  on  the  subscrip- 
tion contract.3  One  who  agrees  to  take  shares  in  a  corporation 
to  be  organized,  who  does  not  participate  in  the  organization, 
is  entitled  to  receive  shares  in  a  regularly  and  legally  organ- 
ized corporation.  The  right  to  membership  in  a  particular 
corporation  may  be  restricted  by  express  provisions  in  its 
charter,  but  a  stockholder  may,  under  certain  circumstances, 
be  estopped  to  assert  that  he  had  not  the  necessary  qualifi- 
cations. Thus,  where  the  defendants  subscribed  and  paid  for 
stock  and  accepted  certificates  therefor  in  a  corporation  which 
by  its  charter  restricted  the  right  to  hold  stock  therein  to  per- 
sons of  a  certain  nationality,  and  it  appeared  that  the  corpora- 
tion accepted  them  as  stockholders,  and  that,  without  objection 
on  their  part,  they  appeared  as  stockholders  on  the  books  of 
the  corporation  three  years,  during  which  time  debts  were  con- 
tracted and  the  corporation  became  insolvent,  it  was  held  that 
they  were  estopped,  as  against  creditors,  to  assert  that  they 
were  not  stockholders,  because  not,  in  fact,  eligible  to  mem- 
bership in  the  corporation.4 

In  mi  action  to  collect  a  subscription  for  the  benefit  of  the 
corporation  or  its  creditors,  the  stockholder  can  not  defend  en 
the  ground  thai  the  corporation  has  not  fully  complied  with 
tli'-    statutes    regulating    incorporation.8     An    estoppel    to    be 

Kansas  City,  etc.,  <'".  v.   Harris,  61  Hause  v.  Mannheimer,  67  Minn.  194, 

Mo.  164.  69  N.  W.   Rep.  sat;  State  Bank,  etc., 

lDelai Butler,  118  U.  8.  634.  Co.  v.  Pierqe,  92Iowa668;  Wadesboro, 

■K            I                  Co.  v.  Hunt,  57  etc.,  <'<>.  v.    Burns,    ill  N.   <'. 

Mm.  126.  Thompson   v.    Reno,   etc.,    Bank,    19 

American  Tube  WbrkBV.  Boston,  Nev.  L03;   Hamilton  v.  Clarion,  etc., 

etc.,  Co.,  139  Ma      5;  Reed  v.  Bo  ton,  R.  Co.,  in  Pa.  St.  84;  Swartwoul   \ . 

i.m.  Michigan,  etc  .  R.  Co.,  24   Mich 

'!'.'.•.    Rand  (Minn.),  79  N.  "W.  Butsei               City, etc., Co.  v. Hunt, 

...  Mo.  126. 
■  II;,     ling   ■.     Wil  oi  .   i"i    l!!    •'■I ; 


§  389a  stock  subscriptions.  411 

availed  of  must  be  pleaded.  Hence,  if  a  corporation  wishes  to 
prevent  defendants  from  controverting  its  corporate  existence 
on  the  ground  that  they  have  dealt  with  it  as  a  corporation,  it 
must  plead  the  estoppel.1 

§  389a.  The  statute  of  limitations. — There  is  some  conflict  in 
the  authorities  upon  the  question  as  to  when  the  statute  of 
limitations  begins  to  run  upon  contracts  of  subscriptions  to 
the  capital  stock  of  a  corporation.  The  supreme  court  of  the 
United  States  holds  that  the  statute  begins  to  run  against  an 
action  against  a  stockholder  in  an  insolvent  corporation  in  the 
hands  of  a  receiver  to  recover  unpaid  assessments  on  his  stock 
when  the  court  orders  the  assessment  to  be  made.2  The  weight 
of  authority  establishes  the  rule  that  some  adverse  action  on 
the  part  of  the  company  or  the  representative  of  its  creditors, 
such  as  the  making  of  a  call,  is  necessary  before  the  statute 
begins  to  run.3  An  assessment  is  necessary,  although  the  cor- 
poration is  insolvent  and  in  the  hands  of  a  receiver.  A  stat- 
ute is  considered  as  running  from  the  time  the  call  is  due  and 
payable.  Another  class  of  cases  holds  that  an  act  of  insolvency 
on  the  part  of  the  corporation  renders  the  obligation  of  the  sub- 
scriber to  pay  absolute,  and  that  the  statute  begins  to  run  from 
that  time  without  reference  to  a  call.4  Still  others  hold  that  if 
a  call  is  not  made  within  the  time  which  bars  actions  upon 
contracts  of  like  character,  the  company  is  presumed  to  have 
abandoned  the  contract.5  The  statute  of  the  state  by  which 
the  corporation  is  created  governs.6  The  liability  for  an  un- 
paid subscription  must  be  distinguished  from  the  additional 
liability  for  the  debts  of  a  corporation  which  is  sometimes  im- 

^ickumv.  Burckhardt,  30  Ore.  464,  Bank   v.   Bridges  (Pa.),  8  Atl.  Rep. 

60  Am.  St.  Rep.  822.  611;  Garesche  v.  Lewis,  93  Mo.  197. 

2  Glenn  v.  Marbury,  145  TJ.  S.  499.  5  Pittsburgh,  etc.,  R.  Co.  v.  Byers, 

"Scovill  v.  Thayer,  105  U.  S.  143;  32  Pa.  St.  22;  Morrison  v.  Mullin,  34 
Thomas  v.  Reno  Sav.  Bank,  19  Nev.  Pa.  St.  12.  If  a  subscription  is  con- 
171;  Carry  v.  Woodward,  53  Ala.  371  ;  ditional,  the  statute  runs  from  the 
Washington  Sav.  Bank  v.  Bank,  107  time  of  the  performance  of  the  con- 
Mo.  133 ;  Williams  v.  Taylor,  120  N.  Y.  dition.  Cornell  &  Michler's  App.,  114 
244.  Pa.  St.  153. 

4  Glenn  v.  Dorsheimer,  23  Fed.  Rep.  6 Glenn  v.  Liggett,  135  U.  S.  533. 
695,  24  Fed.  Rep.  536;  Franklin  Sav. 


412  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  389« 

posed  by  statute  upon  a  stockholder  for  the  benefit  of  creditors. 
It  has  been  held  that  when  the  statute  has  run  against  the 
corporation  it  also  bars  an  action  by  the  creditors.1  But  the 
better  rule  is  that,  as  against  the  creditors  of  the  corporation, 
the  statute  begins  to  run  from  the  date  of  their  judgments 
against  the  corporation.8 

1  Stilphen  v.  Ware,  45  Cal.  110.  See  *  Christensen  v.  Quintard,  36  Hun 
Blrat  Nat'l  Bank  v.  Greene,  64  Iowa  (N.  Y.)  334;  Christensen  v.  Colby, 
445.  43  Hun  (N.  Y.)  362. 


CHAPTER  15. 


THE    RIGHTS    OF    MEMBERSHIP. 


§390. 

391. 
392. 

393. 
394. 

395. 
396. 

397. 


398. 
399. 

400. 
401. 

402. 

403. 
404. 
405. 
406. 
407. 

408. 

409. 

410. 
411. 


Participation   in  the  manage-       (a) 
ment. 

General  rights  of  stockholders. 

Rights  in  the  corporate  prop- 
erty. 

Right  to  inspect  records. 

Conditions  upon  which  inspec- 
tion is  permitted. 

The  demand. 

Remedy  for  wrongful  refusal  to 
permit  inspection. 

Preference  in  subscription  for 
new  shares. 


I.   Dividends. 

Nature  of  dividends. 

Control  of  directors  over  divi- 
dends. 

Discretion  of  directors. 

Protection  of  corporate  prop- 
erty. 

When  dividends  may  be  legally 
declared. 

What  are  profits. 

Right  to  dividends  declared. 

To  whom  dividends  belong. 

Collection  of  dividends. 

How  payable — No  discrimina- 
tion. 

Right  of  a  pledgee  of  stock  to 
dividends. 

Unlawful  payment  of  divi- 
dends— Liability  of  officers. 

Set-off  by  the  corporation. 

Who  entitled  to  dividends. 


§412 
413 
414 


(6) 


As  Bel  ween  Sttccessive  Absolute 

Owners. 
In  general. 

Conditional  sales  and  transfers. 
Transfers   made    between    the 
date  of  declaration  and  pay- 
ment. 


As  Between  Life  Tenant  and  Be- 
mainder-Man. 

415.  General  statement. 

416.  The  English  rule. 

417.  The  Massachusetts  rule. 

418.  The  Pennsylvania  rule. 

419.  General  adoption  of  this  rule. 

Actions  by  Stockholders. 
Actions  against  third  persons — 

The   protection   of    collective 

rights. 
When  a  stockholder  may  sue. 
Conditions  precedent   to  right 

of  action. 
Exceptions  to  the  rule. 
Illustrations — Foss  v.  Harbot- 

tle. 

425.  Mozley  v.  Alston. 

426.  Hawes  v.  Oakland. 

427.  The  rights  of  transferees. 

428.  Discretionary  power. 

429.  Acquiescence. 

430.  Parties  to  the  suit. 

431.  Right   to    restrain    ultra   vires 

acts. 

432.  Control  by  the  majority. 

433.  Limitations  on  the  power  of  the 

majority. 


II 

420. 


421 
422 

423 
424 


(413) 


414  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  390 

§  390.    Participation  in  the  management. — The  members  of 

a  corporation  have  not  ordinarily  the  right  of  direct  partic- 
ipation in  the  management  of  the  corporation.  When  the 
stockholders  share  in  the  election  of  directors,  and  of  officers, 
if  the  election  of  officers  is  retained  by  the  shareholders, 
they  have  no  further  right  to  a  part  in  the  management  of  the 
corporation.1  Within  the  scope  of  their  authority  the  directors 
act  for  the  corporation.  And  in  the  exercise  of  the  ordinary 
powers  which  are  granted  to  the  corporation  their  discretion 
can  not  be  controlled  by  the  stockholders.2  But  powers  which 
are  extraordinary,  and  which  change  the  original  contract  of 
membership,  such  as  the  sale  of  the  entire  corporate  property, 
or  the  acceptance  of  a  material  amendment  to  the  charter,  can 
not  be  exercised  by  the  directors  without  express  authority 
from  the  stockholders.3 

§  391.  General  risrlits  of  stockholders. — The  rights  of  stock- 
holders,  as  slated  by  a  learned  judge,  are  "to  meet  at  stock- 
holders' meetings,  to  participate  in  the  prolits  of  the  business; 
and  to  require  that  the  corporate  property  and  funds  shall  n..' 
be  diverted  from  their  original  purpose.  If  the  company  be 
comes  insolvent,  it  is  the  right  of  the  stockholders  to  have  the 
property  applied  to  the  payment  of  its  debts.  I  do  not  know 
of  any  other  rights,  except  incidental  ones  subsidiary  and 
auxiliary  to  these.  Of  course,  the  stockholder  has  ordinarily 
the  right  to  a  certificate  for  his  stock,  to  transfer  it  on  the 
company's  books,  and  to  inspect  these  books.  For  the  in- 
vasion of  these  rights  by  the  officers  of  the  company,  he  may 
sue  at  law  or  in  equity,  according  to  the  facts  in  the  case."1 

!     Wights  in  the  corporate  properly. — A  shareholder  in 
a  corporation  has  no  legal  title  to  the  property  or  profits  in  the 

Corporation    Until    a    division     18    made  or  a  dividend  declared. 

lb  acquires  no  right  or   title  to  the  accumulated  gains  from 

1  \w  to  the  righl  to  vote,  Bee  §  171.  Conn.  579     Bee  ch.   18,  on  the  man- 

i  -.  etc  .  I '".,  agemenl  of  corporations. 

::i  \v.  Va.  798,  -  -    I     Rep  570.  *^Yood8,J.,  in  Forbes  v,  Memphis, 

l   ..  v.  Smith,  2    etc.,  R.  Co.,  2  W Is  C.  C.  823 


§  393  THE    RIGHTS    OF    MEMBERSHIP.  415 

the  revenues  of  the  corporation  which  entitles  him  to  sue  for 
his  undivided  share  of  the  dividends.  Until  divided  by  the 
directors  or  trustees  of  the  corporation,  all  of  its  property 
is  held  by  the  corporation  itself,  and  no  several  right  is 
possessed  by  the  individual  stockholder  until  a  dividend  is 
declared.  The  declaration  of  a  dividend  from  a  surplus  or  a 
division  of  profits  is  within  those  discretional'}'-  powers  of  the 
directors  or  trustees,  which  will  not  be  controlled  by  the 
courts.1  Under  proper  circumstances,  however,  the  courts 
will  recognize  the  fact  that  although  the  legal  title  to  the  prop- 
erty is  in  the  corporation,  the  beneficial  interest  is  in  the 
stockholders.  A  court  of  equity  will  not  permit  the  theory  of 
the  separate  identity  of  the  corporation  to  be  used  for  the  pur- 
pose of  consummating  a  fraud  or  injuring  the  rights  of  the 
stockholders.0 

§  393.  Right  to  inspect  records. — A  stockholder  in  a  corpo- 
ration has  at  common  law  the  right  to  inspect  and  copy  the 
books  and  records  of  the  corporation  at  a  convenient  time  and 
place3  for  proper  purposes,  in  person  or  by  his  attorney-in- 
fact.4     The  right  is  very  generally  secured  by  statute,  and  in 

1  Parker    v.    Bethel    Hotel   Co.,  96  furtherance  of  the  ends  of  justice,  a 

Tenn.  252,  31  L.  R.  A.  706;  Beveridge  debtor  corporation  and  the  owner  of 

v.    New  York,  etc.,   R.  Co.,   112    N.  all  its  stock  and  assets  will  be  treated 

Y.  1,2   L.  R.  A.  648;    In  re  Kerno-  as  identical.   Pott  &  Co.  v.  Schmucker, 

chan,  104  N.  Y.  618;  Spooner  v.  Phil-  84  Md.  535,  57  Am.  St.  Rep.  415.     A 

lips,  62  Conn.   62,   16   L.  R.    A.  461;  stockholder  is   not  a  trustee   for  the 

Gibbons  v.   Mahon,   136   U.    S.    549.  corporation.  Rogers  v.  Nashville,  etc., 

See  §400.   In  some  cases  it  is  held  R.  Co.,  91  Fed.  Rep.  299. 
that  a  stockholder  has  an   insurable        3  In  re  Steinway,  159  N.Y.  250,  53  N. 

interest  in  the   property  of  the   cor-  E.  Rep.  1103;  Lewis  v.  Brainerd,  53  Yt. 

poration.     Seaman  v.  Insurance  Co.,  519;    Huylar  v.  Cragin,  etc.,  Co.,  40 

18  Fed.  Rep.  250,  although  the  con-  N.  J.    Eq.    392;     Commonwealth    v. 

trary  has  been  held.     A   stockholder  Phoenix,  etc.,  Co.,  105  Pa.  St.  Ill,  23 

has  such  an  interest  in  a  conveyance  Am.  Law  Reg.  (N.  S.)  388  and  note; 

to  or  from  a  corporation  as  will  dis-  Bourdette  v.  New  Orleans,  etc.,  Co., 

qualify  him  to  take  an   acknowledg-  49  La.  Ann.  1556. 

ment  as  a  notary.   The  authorities  are        4  Foster  v.  White,  86  Ala.  467  ;  State 

collected  in  Kothe  v.  Krag-Reynolds  v.  Bienville,  etc.,  Works,  28  La.  Ann. 

Co.  (Ind.  App.),50  N.  E.  Rep.  594.  204;   Stone  v.  Kellogg,  165  111.    192; 

Contra,  by  statute,  Minn.  Gen.  Laws,  Deaderick  v.  Wilson,  8  Bax.  (Tenn.) 

1899, ch  62.  108. 

*  Thus,  in  an  appropriate  case  and  in 


416  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  394 

some  cases  the  persons  who  refuse  a  stockholder  the  right  to  in- 
spect the  books  are  liable  to  a  penalty  which  may  be  recovered 
without  showing  actual  damages.1  In  Alabama  it  is  provided 
that  "the  stockholders  of  all  private  corporations  have  the 
right  of  access  to,  of  inspection  and  examination  of,  the  books, 
records  and  papers  of  the  corporation,  at  reasonable  and  proper 
times."  Under  this  statute  the  stockholder  "is  not  required  to 
show  any  reason  or  occasion  rendering  an  examination  oppor- 
tune and  proper,  or  a  definite  or  legitimate  purpose.  The  cus- 
todian of  the  books  and  papers  can  not  question  or  inquire 
into  his  motives  and  purposes.  If  he  has  reason  to  believe  that 
they  are  improper  or  illegitimate,  and  refuses  the  inspection  on 
this  ground,  he  assumes  the  burden  to  prove  them  as  such."2 
Where  the  statute  provided  that  the  stock  books  should  "be 
open  for  the  inspection  of  stockholders,"  it  was  held  that  man- 
damus would  not  lie  when  the  demand  was  made  by  the  stock- 
holder's attorney.3  But  generally  the  right  of  the  stockholder 
may  be  exercised  in  person,  or  through  his  agent  or  attorney.4 
The  books  must  not  be  appropriated  to  an  unreasonable  extent, 
but  access  to  them  can  not  be  denied  simply  because  it  would 
be  inconvenient  to  grant  it. 

§  304.    Conditions   upon   which   inspection  is  permitted. — 

Where  there  is  no  statute  regulating  the  matter  it  is  generally 
necessary  that  there  should  be  some  particular  matter  in  dis- 
pute between  the  members  or  between  the  corporation  and  in- 
dividuals in  it,  in  which  the  applicant  is  interested,  and  in 
respect  of  which  the  examination  of  the  books  is  necessary.5 
The  stockholder  must  Bhow  a  Bpecific  and  proper  purpose.    As 

'Kelsey  v.   Fermentation  Co.,   51  *  Foster  v.  White,  86  Ala.  467,  6  So. 

Hun  (N.  Y.)  686;  Lewis  v.  Brainerd,  Rep.  88;  State  v.  Bienville,  etc.,  Works, 

53  \t.  510.  28  La.  Ann.  204  ;  Phoenix,  etc.,  Co.  v. 

•Foster  v.  White,  86  Ala.  167.    See  Commonwealth,  LIS  Pa.  St.  663. 

Baldwin,  89  Ma.  188;  BLyon  v.  American,  etc.,  Co.,  16  R. 

State    v.    Bergenthal,    72    Wis.    814;  I.  472;  Commonwealth  v.  Iron  Co., 

State  v.  St.  Louis,  etc.,  R.  Co.,  29  Mo.  106  Pa.  St.  Ill;  Phcenix,  etc.,  Co.  v. 

.\|,p.  801 .  Commonwealth,  1 18  Pa.  St.  563  :  Com- 

ople  v.  i'.  8.,  etc.,  Co.,  20  A.Vb.  monwealth  v.  Pass.  R.  Co.,  L84  Pa.  St 

NewCaa.  L92;  State  v.  8t.  Loui8,etc.,  287, 19  Atl.  Rep.  629;  State  ▼.  Einstein, 

Mo.  .\|.|..  801.  !••  N.  J.  L.  479. 


§  394  THE    RIGHTS    OF    MEMBERSHIP.  417 

said  by  the  Pennsylvania  court,  the  right  is  not  to  be  exer- 
cised to  gratify  curiosity  or  for  speculative  purposes,  but  in 
good  faith,  and  for  a  specific  honest  purpose,  and  where  there 
is  a  particular  matter  in  dispute,  involving  and  affecting 
seriously  the  rights  of  the  stockholder.1  The  right  of  inspec- 
tion does  not  exist  merely  for  the  purpose  of  gratifying  an  idle 
curiosity  "at  the  caprice  of  the  curious  and  suspicious."2 
The  fact  of  general  dissatisfaction  with  the  management  of  the 
enterprise,  based  upon  a  vague  belief  that  it  is  being  improper- 
ly conducted,3  or  that  the  stockholder  wishes  to  discover  grounds 
on  which  to  base  charges  against  the  corporate  body,4  or  to  use 
the  information  for  speculative  or  fraudulent  ends,5  or  to 
prove  a  plea  of  justification  in  an  action  against  the  stock- 
holders for  libel  in  imputing  insolvency  to  the  company,  is 
not  sufficient  to  justify  a  demand  for  inspection.6  But  an  in- 
spection may  be  granted  to  a  stockholder  on  a  prima  facie 
showing  of  fraud  to  secure  information  for  a  bill  to  obtain  re- 
lief against  the  fraud.7 

Asa  general  rule  mere  suspicion  that  there  has  been  misman- 
agement is  not  sufficient  to  entitle  a  stockholder  to  a  writ  of 
mandamus,  although  it  has  been  held  on  good  grounds  that  a 
stockholder  is  entitled  to  examine  the  records  in  order  to  learn 
whether  the  affairs  of  the  corporation  are  being  properly  con- 
ducted by  the  directors.  ""To  say  that  they  have  the  right,  but 
that  it  can  be  enforced  only  when  they  have  ascertained  in 
some  way  without  the  books  that  their  affairs  have  been  mis- 
managed, or  that  their  interests  are  in  danger,  is  practically 
to  deny  the  right  in  the  majority  of  cases.     Oftentimes  frauds 

'Phcenix,    etc.,    Co.    v.    Common-  6M.S.  O.  Co.  v.  Hawkins,  4  Hurl, 

wealth,  113  Pa.  St.  563.  &  N.  146. 

'People  v.  Walker,  9  Mich.  328.  7Phcenix,    etc.,    Co.    v.    Common- 

8 Lyon  v.   American,  etc.,  Co.,  16  wealth,  113  Pa.  St.  563.     As  to  right 

R.  I.  472.  to  order  the  corporate  books  brought 

4 Commonwealth   v.   Phoenix,   etc.,  within   the  state  for  inspection,  see 

Co.,  105  Pa.  St.  111.  Mitchell  v.  Rubber  Co.  (N.  J.  Ch.), 

5  In  re  Sage,  70  N.   Y.  220;   Com-  24  Atl.  Rep.  407;  Swift  v.  Richardson, 

monwealth  v.  Iron  Co.,  105  Pa.  St.  7  Houst.  (Del.)  338. 
111. 

27— Private  Corp. 


418 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  395 


are  discoverable  only  by  examination  uf  the  books  by  an  ex- 
pert accountant.  The  books  are  not  the  private  property  of 
the  directors  or  managers,  but  are  the  records  of  their  trans- 
actions as  trustees  for  the  stockholders.1 

§  395.  The  demand. — If  the  stockholder  desires  to  examine 
the  records  of  the  corporation,  it  is  his  duty  to  make  proper 
demand  upon  the  officers  in  charge  of  the  same,  and  to  state 
the  reason  for  which  he  wishes  to  make  the  examination,  and 
the  specific  and  particular  books  and  records  he  desires  to  in- 
spect. A  demand  of  the  privilege  of  inspecting  all  the  books 
and  records  of  a  corporation  is  too  broad  and  indefinite,  and 
need  not  be  complied  with.2 

§  396.    Remedy  for  wrongful  refusal  to  permit  inspection. — 

If  a  stockholder  is  wrongfully  refused  the  privilege  of  inspect- 
ing the  books  and  records  of  the  corporation  upon  a  proper 
demand  made  at  the  proper  time,  he  may  maintain  an  action  for 
damages  against  the  corporation,  or  petition  for  a  writ  of  man- 
damus to  compel  the  custodian  to  permit  the  inspection.3     The 

1  Huylar  v.  Cragin  Cattle  Co.,  40  N.  Lord  Kenyon,  in  rendering  judgment 

.1.  Eq.  392,  2  Atl.  Rep.  274.  in  Rex  v.  Babb, assumed  "that  in  cer- 

■  Foster  v.  White,  86  Ala.  467.  tain  cases  the  membersof  acorpora- 

1  The  right  of  a  corporator,  who  has  tionmaybe  permitted  to  inspect  all 

an  interest,  in  common  with  the  other  papers  relating  to  the  corporation." 

corporators,  to  ins] I  the  books  and  In  Gery  v.    Hopkins,   the  court,  on 

papers  of  the  corporation,  for  a  proper  granting  the  order  to  produce,  said: 

purpose  and  under  reasonable  circum-  "There  is  great  reason  for  it.  for  they 

-.  was  recognized  by  the  courts  me  hooks  of  a  public  company  and 

of  king's  bench  and  chancery  from  an  kept  tor  public  transactions,  in  which 

early  day,  and  enforced  by  motion  or  the    public  are   concerned,  and  the 

mandamus,  but  always  with  caution,  hooks  are  die  title  of  buyers  of  stock, 

-  to  prevenl  abuse.     Rex  v.  Fra-  by  act  of  parliament."   tnRexv.Fra- 

ternity  of  Boatmen,  2  Strange   1223,  ternity    of     Hostmen,    the    reporter 

and  note;    Gery  v.  Hopkins.  7   Mod.  states  that   the  court   said:     "Every 

L29,  case  L75;  Richards  v.  Pattinson,  member  of  tin rporalion  had.  as 

P,:ni,  I  ;:.;     Young    v.     such,  a    righl    to    look    into    the   hooks 

!i.  i  W.B1.27;  Rex  v.  Shelley,  8  tor  any  matter  thai  concerned  him- 

R.  in;  Res  v.  Babb,  id.  579,  self,  though  it   was  in  dispute  with 

v.   Merchant,  etc.,   Co.,  2  others."     in  re  Steinway  (N.  Y.),  53 

Barn   A  Adol.  115;  In  re  Burton, L.  J,  v   E.   Rep,    1103;   Com.  v.    Phoenix, 

!    B  B2;InreWes1  Devon  Greal  etc.,   Co.,    105   Pa.  St.    Ill;    Lyon   v. 

Console  Mine,  I     B  2i  Ch    Div.  106.  American,  etc.,  Co.,   KJ  R.   t.  472,17 


$  397  THE    RIGHTS    OF    MEMBERSHIP.  410 

granting  of  the  writ,  however,  is  not  imperative,  but  rests 
within  the  sound  discretion  of  the  court.1  The  corporation  is 
not  a  necessary  party,  as  the  writ  may  issue  against  the  officer 
having  the  custody  of  the  books  and  records  in  question.2  It  is 
also  held  that  a  stockholder  who  is  wrongfully  denied  the  right 
to  inspect  the  corporate  records  may  recover  the  damages  he 
sustains  thereby  from  the  corporation,3  or  recover  a  penalty 
which  is  provided  by  statute.4 

§  397.  Preference  in  subscription  for  new  shares. — When  a 
corporation  increases  its  capital  stock,  the  members,  at  the  time 
of  the  vote  to  issue  the  new  stock,  are  entitled  to  the  privilege 
of  subscribing  for  the  new  stock  in  proportion  to  their  respec- 
tive shares  of  the  old.5  The  right  is  now  commonly  secured 
by  statute,6  and  passes  to  the  transferee  of  the  original  stock. 
The  option  may  be  sold.7 

Each  of  the  stockholders  in  a  corporation  formed  by  the 
union  of  two  corporations  under  an  agreement  that  the  capital 
stock  shall  be  divided  into  four  different  classes,  with  provis- 
ions for  the  payment  of  different  dividends  on  each  class,  on 
an  increase  of  the  capital  stock  is  entitled  to  purchase  in  pro- 
portion to  the  amount  of  stock  held  by  him.8 

Atl.  Rep.  61;  Foster  v.  White,  86  Ala.  5Gray   v.  Portland   Bank,  3  Mas?. 

467,  6  So.  Rep.  88;  Stone  v.  Kellogg,  364;  Jones  v.  Morrison,  31  Minn.  140; 

62  111.  App.444;  Huylar  v.  Cattle  Co.,  Dousman  v.  Wisconsin,  etc.,  Co.,  40 

40  N.  J.  Eq.392,  2  Atl.  Rep.  274;  Stet-  Wis.  418;  Humboldt,   etc.,  Assn.  v. 

tauerv.  New  York,  etc.,  Co.,  42  N.  J.  Stevens  (Neb.),  52  N.  W.  Rep.  568; 

Eq.  46;  Cockburn  v.  Union  Bank,  13  Ohio,  etc.,  Co.    v.   Nunnemaeher,  15 

La.  An.  289.  Ind.  294;    Mason   v.  Davol  Mills,  132 

1  Rex  v.  W.  &  B.  C,  etc.,  Co.,  3  Ad.  Mass.  76;  Eidman  v.  Bowman,  58  111. 

6  El.  477;  People  v.  Walker,  9  Mich.  444;  Jones  v.  Concord,   etc.,  R.  Co. 
328;    Foster  v.  White,   86  Ala.   467;  (N.  H.),  38  Atl.  Rep.  120. 

People  v.  Paton,  20  Abb.  N.  Cas.  195;        6 Cunningham's  Appeal,  108  Pa.  St. 

In  re  Sage,  70  N.  Y.  221.  546.      The  stockholders   can   not   be 

s  State  v.  Bergenthal,  72  Wis.  314,  39  charged  a  bonus  on  the  stock  to  which 

N.  W.  Rep.  566;  Swift  v.  Richardson,  they  are  given  a  right  to  subscribe. 

7  Houst.  (Del.)  338;  Foster  v.  White,        'Baltimore,  etc.,  R.  Co.  v.  Hamble- 
86  Ala.  467.  ton  (Md.,  1893),  26  Atl.  Rep.  279;  Bid- 

3Legendre  &  Co.  v.  Association,  45    die's  Appeal,  99  Pa.  St.  278. 
La.  An.  669.  8  Jones  v.  Concord,  etc.,  R.  Co.,  67 

*  Lewis  v.  Brainerd,  53  Vt.  519.  N.  H.  119,  38  Atl.  Rep.  120. 


420  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  398 

This  rule,  however,  does  not  apply  where  the  stock  is  issued 
for  the  purchase  of  property  which  will  become  a  part  of  the 
common  property  of  the  corporation.1 

I.     Dividends. 

§  398.  Nature  of  dividends. — Dividends  are  the  moneys 
paid  by  corporations  to  the  shareholders  out  of  the  profits 
earned  in  the  business.2  They  are  said  to  be  the  corporate 
funds  derived  from  the  business  and  earnings  of  the  corpora- 
tion, appropriated  by  a  corporate  act  to  the  use  of  and  to  be 
divided  among  the  stockholders.8  A  distinction  is  thus  made 
between  dividends  and  profits.  Profits  belong  to  the  corpora- 
tion and  not  to  the  stockholder  until  after  they  have  been 
declared  by  some  proper  corporate  act.  After  a  dividend 
is  declared,  the  amount  apportioned  to  the  individual  stock- 
holder becomes  a  debt  of  the  corporation  and  the  stockholder 
may  sue  the  corporation  to  recover  it  in  the  same  manner  as 
any  other  debt.  After  a  dividend  is  declared,  it  becomes  the 
property  of  the  individual  stockholder,  but  an  accumulated 
surplus  in  existence  at  the  time  of  the  insolvency  of  a  corpora- 
tion goes  to  the  corporate  creditors  and  not  to  the  stockholders.4 
In  a  case  where  certain  stockholders  of  an  insolvent  insurance 
company  claimed  the  surplus  funds  of  the  company  beyond 
the  capital  stock,  Chancellor  Walworth  said:5  "The  claim  is 
founded  on  the  erroneous  supposition  that  it  is  the  duty  of  the 
directors  of  an  insurance  company  to  divide  all  its  surplus 
funds  beyond  its  capital  stock  periodically  among  the  stock- 
holders; leaving  such  capital  stock  alone  as  the  fund  to  which 
the  creditors  of  the  company  who  become  such  by  the  loss  of 
property  insured  are  to  look  for  remuneration,  but  *  *  * 
the  capita]  stock  of  au  incorporated  insurance  company  is  not 
the  primary  or  natural  fund  for   the    payment  of  losses  which 

1  Meredith  v. New  Jersey,  etc.,  Go.,  Conn.  17;  Lockharl  v.  Van Alstyne, 

i    Bq.  211.  :;|    Mich.  76;  Beveridge  v.    Railway 

•Hyatt  v.  Alton,  66  V  B.  668.  Co.,  112  \\  V.  1. 
•Hagarv. Union Nat'l  Bank, 63 Me.       »Scott  \.  Eagle,  etc., Co., 7 Paige N. 

I  herein  cited.  V.  L9£ 
4  Beei  -  •■  ■  Bi  idgeporl  Spi  ing  < '".,  12 


§  399  THE    RIGHTS    OF    MEMBERSHIP.  421 

may  happen  by  the  destruction  of  the  property  insured.  The 
charter  of  the  company  contemplates  the  interest  upon  the 
capital  stock,  and  the  premiums  received  for  insurance,  as 
the  ordinary  fund  out  of  which  losses  are  to  be  paid.  And  the 
surplus  of  that  fund,  after  paying  such  losses,  is  surplus 
profits  within  the  meaning  of  the  charter;  which  surplus 
profits  alone  are  to  be  divided,  from  time  to  time,  among  the 
stockholders." 

§  399.  Control  of  directors  over  dividends. — The  stockhold- 
ers have  no  absolute  right  to  have  a  dividend  declared,  as  the 
matter  rests  ordinarily  in  the  discretion  of  the  directors.  So 
long  as  this  discretion  is  honestly  exercised,  it  will  not  be  con- 
trolled by  the  court.1  "The  directors  of  a  corporation,  and 
they  alone,  have  the  power  to  declare  a  dividend  of  the 
earnings  of  the  corporation  and  to  determine  the  amount."2 
The  discretion  must  not  be  abused,3  but  it  is  necessary  to  make 
a  very  strong  case  before  the  courts  will  interfere.4  The 
supreme  court  of  the  United  States  recently  said:5  "Money 
earned  by  a  corporation  remains  the  property  of  the  corpora- 
tion and  does  not  become  the  property  of  the  stockholders  un- 
less and  until  it  is  distributed  among  them  by  the  corporation. 
The  corporation  may  treat  it  and  deal  with  it  either  as  profits 
of  its  business  or  as  an  addition  to  its  capital.  Acting  in 
good  faith  and  for  the  best  interests  of  all  concerned,  the  cor- 
poration may  distribute  its  earnings  at  once  to  the  stockhold- 
ers as  income;  or  it  may  reserve  part  of  the  earnings  of  a 
prosperous  year  to  make  up  a  possible  lack  of  profit  in  future 

'Gibbons  v.  Mahon,  136  U.  S.  549;  Mich.  63;  Grant  v.  Ross  (Ky.),  37  S. 

Kaufman  v. Woolen  Mills   Co.  (Va.),  Wi  Rep.  263. 

25  S.  E.  Rep.  1003  ;  Fourgeray  v.  Cord,  3  Laurel  Springs,  etc.,  Co.  v.  Fouge- 

50  N.  J.  Eq.  185;  Pratt  v.  Pratt,  etc.,  ray,  50  N.  J.  Eq.  756;  Miner  v.  Bell 

Co.,  33  Conn. 446;  Beers  v.  Bridgeport,  Isle  Ice  Co.,  93  Mich.  97. 

etc.,  Co.,  42  Conn.  17.    The  directors  4New  York,  etc.,  R.  Co.  v.  Nickals, 

may  make  any  distribution  of  profits  119  U.  S.  296;   Park  v.  Grant,  etc., 

which  they  deem  judicious,  when  they  Works,  40  N.  J.  Eq.  114;  McNab  v. 

are  not  restrained  by  the  charter  or  by  McNab,  etc.,  Co.,  62  Hun  (N.  Y.)  18; 

contract.     Park  v.  Grant,  etc.,Works,  Zellerbach  v.  Allenberg,  99  Cal.  57. 

40  N.  J.  Eq.  114.  s  Gibbons  v.  Mahon,  136  U.  S.  549. 

2  Hunter  v.   Roberts,  etc.,.  Co.,   83 


422  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  3&9 

years;  or  it  may  retain  portions  of  its  earnings  and  allow  them 
to  accumulate  and  then  invest  them  in  its  own  plant,  so  as  to 
secure  and  increase  the  permanent  value  of  its  property.  Which 
of  these  courses  is  to  be  pursued  is  to  be  determined  by  the 
directors  with  due  regard  to  the  conditions  of  the  company's 
property  and  affairs  as  a  whole;  and,  unless  in  case  of  fraud  or 
bad  faith  on  their  part,  their  discretion  in  this  respect  can  not 
be  controlled  by  the  courts,  even  at  the  suit  of  owners  of  pre- 
ferred stock,  entitled  by  express  agreement  with  the  corpora- 
tion to  dividends  at  a  certain  yearly  rate  in  preference  to  the 
payment  of  any  dividend  on  the  common  stock  but  dependent 
on  the  profits  of  each  particular  year  as  declared  by  the  board 
of  directors.  By  becoming  a  member  of  a  corporation,  a  stock- 
holder impliedly  contracts  with  the  corporation  that  his  inter- 
ests shall  be  subject  to  the  direction  and  control  of  the 
corporate  authorities  of  the  corporation  for  the  purpose  of 
accomplishing  the  ends  for  which  the  corporation  was  created.1 
"The  directors  of  such  corporations  have  opportunities  not 
ordinarily  possessed  by  others  of  knowing  the  resources  and 
conditions  of  the  property  under  their  control;  and  are  in  a 
better  position  than  stockholders  to  determine  whether,  in 
view  of  the  duties  which  the  corporation  owes  to  the  public 
and  of  all  liabilities,  it  will  be  prudent  in  any  particular  year 
to  declare  a  dividend  niton  the  stock.  While  their  authority 
in  respect  of  these  matters  may,  of  course,  he  controlled  or 
modified  by  the  company's  charter,  and  while  the  power  of  the 
courts  may  be  invoked  lor  the  protection  of  the  stockholders 
against  bad  faith  upon  the  pari  of  (lie  directors,  we  should  hesi- 
tate  to  assume  that  either  the  legislature  or  the  parties  intended 
to  deprive  a  corporation,  by  its  managers,  of  tie  power  to  pro- 
tect the  interests  of  all,  including  the  public,  by  using 
earnings  when  necessary,  or  when  in  good  faith  believed  to  ],<• 
3sary,  for  the  preservation  or  improvemenl  of  the  prop- 
intrusted  to  its  control."1     Hence  mandamus  will  no!  lie 

■Clearwater  v.  Meredith,  I  Wallace       :'  New  York,  •■)«•.,  R.  Co.  v.  Nickels, 
(Tj,  £  L19U.  8.  296. 


§  400  THE    EIGHTS    OF    MEMBERSHIP.  423 

to  compel  the  directors  to  declare  a  dividend  unless  there  is  a 
manifest  abuse  of  discretion  or  a  lack  of  good  faith.1 

§  400.  Discretion  of  directors. — The  free  exercise  of  dis- 
cretion by  the  directors  in  reference  to  the  declaration  of  divi- 
dends can  not  be  interfered  with  by  contracts  of  promoters, 
unless  such  contracts  were  ratified  by  the  corporation  after  its 
organization.2  As  above  stated,  the  rule  is  that  the  directors 
are  the  sole  judges  of  the  propriety  of  declaring  a  dividend; 
but  they  are  not  allowed  to  act  illegally,  wantonly  or  oppres- 
sively. When  the  right  to  a  dividend  is  clear  and  there  are 
funds  from  which  it  can  properly  be  made,  a  court  of  equity 
will  compel  the  company  to  declare  it.3  The  mere  fact  that 
the  income  of  the  corporation  exceeds  its  liabilities  for  the  year 
does  not  entitle  the  stockholder  to  have  a  dividend  declared.4 
As  the  directors  "are  bound  to  exercise  a  proper  discretion  in 
making  a  dividend  of  surplus  profits,  if  they  abuse  that  powei 
*  *  they  may,  in  case  of  any  extraordinary  loss,  *  *  * 
make  themselves  personally  liable  to  the  creditors  of  the  com- 
pany. On  the  other  hand,  should  they,  without  reasonable 
cause,  refuse  to  divide  what  is  actually  surplus  profits,  the 
stockholders  are  not  without  remedy  if  they  apply  to  the  proper 
tribunal,  before  the  comoration  becomes  insolvent."5 

§  401.  Protection  of  corporate  property. — It  is  the  duty  of 
the  directors  to  set  aside  a  fund  sufficient  to  make  good  the  de- 
preciation of  the  property  of  the  corporation.6  The  fund 
available  for  dividends  is  ascertained  by  taking  into  account 
the  cost  of  repairs  and  a  reasonable  allowance  for  depreciation 
for  wear  and  tear  or  constant  use,  giving  credit  for  all  actual 
improvements.7     But  this  principle  does  not  apply  when  the 

1  March  v.  Eastern  R.  Co.,  43  N.  H.  Maine  445;  Fougerary  v.  Cord,  50  N. 

515;  King  v.  Bank,  etc.,  2  Barn.  &  J.  Eq.  185. 

Aid.  620.  5  Scott  v.  Eagle,    etc.,  Co.,  7  Paige 

2 Coyote,  etc.,  Co.  v.  Ruble,  8  Ore.  (N.  Y.)  198. 

284.  6  Davidson    v.    Gillies,    L.     R.     16 

3  Richardson   v.  Vermont,  etc.,  R.  Ch.  Div.  347. 

Co.,  44  Vt.  613.  7  Wliittaker  v.  Amwell  Nat'l  Bank, 

4  Belfast,   etc.,   Co.  v.   Belfast,    77     52  N.  J.  Eq.  400. 


424  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  402 

corporation  is  operated  for  the  purpose  of  using  up  certain 
property,  such  as  a  mine.  Under  such  circumstances  the 
transaction  of  business  necessarily  reduces  the  value  of  the 
property  which  gives  value  to  the  stock.  Hence,  a  mining  cor- 
poration may  distribute  as  dividends  the  net  profits  of  its  oper- 
ations without  reference  to  the  depreciation  of  its  property 
caused  by  removing  its  ore.1  A  mining  company  which  has 
paid  interest  out  of  capital  on  debentures  during  the  time  when 
the  mine  was  closed  by  reason  of  an  accident  is  not  bound  to 
apply  profits  in  replacing  the  amount  so  paid  before  declaring 
a  dividend  to  stockholders.2  In  estimating  the  profits  for  a 
year  for  the  purposes  of  a  dividend,  it  is  not  necessary  to  take 
into  account  the  decrease  in  the  value  of  the  assets  and  the  im- 
pairment of  the  capital  stock  prior  to  that  year.3  When  the 
capital  of  a  corporation  is  reduced  under  authority  of  law,  the 
corporation  must,  before  it  distributes  the  fund  thus  created 
among  the  stockholders,  retain  enough  to  make  the  reduced 
capital  of  the  actual  value  of  the  face  of  the  stock.4 

§  402.  When  dividends  may  be  legally  declared. — Ordina- 
rily a  dividend  can  only  be  paid  outof  net  profits,5  although,  if 
there  are  no  creditors  and  no  dissenting  stockholders,  there  is 
no  objection  to  the  corporation  distributing  its  capital  among 
its  stockholders  in  the  form  of  dividends.6  Generally,  how- 
ever, if  there  are  no  accumulated  profits,  a  dividend  which 
necessarily  results  in  a  partial  distribution  of  the  assets  to  the 
detriment  of  creditors  and  stockholders  is  illegal. 

§  40:!.  What  are  profits. — The  "profits,"  oul  of  which  divi- 
dend- alone  can  properly  1m-  declared,  means  simply  what  re- 
mains after  defraying  every  expense.7     It  generally  means  the 

>l                 etc.,  Co.  v.    Pierce,  90  s  Main  v.  Mills,  6  Bias.  (C.  C.)  98. 

Gal.  l81,27Pac.  Rep.  n.  '  People  \.  Barker,  in   N.  Y.  251. 

tosanquel   v.  si.  John,  etc.,  Co.  Under  statutory  authority,  see  ll.  1>. 

(Ch.),  77  Uw  T.  Rep.  206.  75  Law  T.  Rep.  8. 

Iton  v.  Natal,  etc.,  Co.,  65  Law  'Mobile,  etc.,  R.  Co.  v.  Tennessee, 

T.  Rep.  (N.  60  786.  L58    U.    8.    186.     For   definitions  ol 

i.  Bank,    78    N.    V.    608; 

Strong  v.  Railway  Co.,  98  N.  Y.  426. 


§403 


THE    RIGHTS    OF    MEMBERSHIP. 


425 


gain  which  comes  or  is  received  from  any  kind  of  an  invest- 
ment where  both  receipts  and  expenses  are  taken  into  account. 
Thus,  profits  for  the  year  means  the  surplus  receipts  after  pay- 
ing expenses  and  restoring  the  capital  to  the  condition  it  was 
in  on  the  first  day  of  the  year.  The  net  earnings  of  a  railroad 
are  the  gross  receipts,  less  the  operating  expenses  of  the  road 
to  earn  such  receipts,  and  among  the  expenses  should  be  in- 
cluded the  interest  on  its  debt.  The  net  profits  of  an  insur- 
ance company  are  the  difference  between  the  amount  of  the  loss- 
es and  the  sum  of  the  premiums  earned  and  received  from  in- 
surance and  the  interest  on  the  capital.     The  capital  stock  of 

profits,  see  St.  John  v.  Erie  R.  Co.,  10    200;    Earl   v.    Rowe,   35   Maine   414. 

Profits  are  divided  by  writers  on  po- 
litical economy  into  gross  and  net, 
the  former  being  the  difference  be- 
tween the  value  of  advances  and  the 
value  of  returns,  and  the  latter  so 
much  of  this  difference  as  arises  ex- 
clusively from  the  capital  employed. 
In  People  v.  Board  of  Supervisors,  4 
Hill  (N.  Y.)  20,  Bronson,  J.,  said  :  "It 
is  undoubtedly  true  that  profits  and 
income  are  sometimes  used  as  synony- 
mous terms ;  but,  strictly  speaking, 
income  means  that  which  comes  in  or 
is  received  from  any  business  or  in- 
vestment of  capital  without  referenceto 
the  outgoing  expenditure  ;  while  prof- 
its generally  mean  the  gain  which  is 
made  upon  any  business  or  invest- 
ment when  both  receipts  and  pay- 
ments are  taken  into  account.  In- 
come, when  applied  to  the  affairs  of 
individuals,  expresses  the  same  idea 
that  revenue  does  when  applied  to  the 
affairs  of  a  state  or  nation.  In  St. 
John  v.  Erie  R.  Co.,  10  Blatch.  271,  it 
was  said :  'Net  earnings  are  properly 
the  gross  receipts,  less  the  expense  of 
operating  the  road  or  other  business 
of  the  corporation.  Interest  on  debts 
is  paid  out  of  what  thus  remains ; 
that  is,  out  of  the  net  earnings.  The 
remainder  is  the  profit  of  the  share- 
holders.' " 


Blatch.  (U.  S.)  271;  Warren  v.  King, 
108  U.  S.  389;  Eyster  v.  Centennial 
Board,  94  U.  S.  500;  Phillips  v.  East- 
ern R.  Co.,  138  Mass.  122;  Richard- 
son v.  Buhl,  77  Mich.  632;  Hubbard 
v.  Weare,  79  Iowa  678.  In  People  v. 
San  Francisco  Sav.  Union,  72  Cal. 
199,  the  court  said:  "The  word  prof- 
its signifies  an  excess  of  the  value  of 
returns  over  the  value  of  advances, 
the  excess  of  receipts  over  expendi- 
tures; that  is,  net  earnings."  Con- 
nolly v.  Davidson,  15  Minn.  519,  Gil. 
428.  The  receipts  of  a  business  de- 
ducting current  expenses.  It  is  equiv- 
alent to  net  receipts.  Eyster  v  Cen- 
tennial Board,  94  U.  S.  500.  In  com- 
merce it  means  the  advance  of  goods 
sold  beyond  the  cost  of  purchase.  In 
distinction  from  the  wages  of  labor,  it 
is  well  understood  to  imply  the  net 
returns  to  the  capital  or  stock  em- 
ployed after  deducting  all  the  ex- 
penses, including  not  only  the  wages 
of  those  employed  by  the  capitalists 
but  the  wages  of  the  capitalist  himself 
for  superintending  the  employment  of 
his  capital  stock.  Smith,  Wealth  of 
Nations,  book  1,  ch.  6;  Mill,  Politi- 
cal Economy,  ch.  15.  The  rents  and 
profits  of  an  estate.  The  income  or 
net  income  are  all  equivalent  ex- 
pressions. Andrews  v.  Boyd,  5  Maine 


426  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  403 

such  a  company  is  not  the  primary  fund  from  which  losses 
are  to  be  paid.  Unearned  premiums  on  insurance,  which  is 
still  subject  to  the  risk,  are  not  surplus  profits  out  of  which 
dividends  can  be  declared.  The  unearned  premiums  re- 
ceived by  the  company  upon  which  the  risks  are  still  running, 
and  which  may  therefore  all  be  wanted  to  pa}T  losses,  are  not 
surplus  profits  which  the  directors  are  authorized  by  the  char- 
ter to  distribute  among  the  stockholders.  The  capital  stock 
of  the  company  is  a  special  fund  provided  by  its  charter  to 
secure  the  assured  against  great  and  extraordinary  losses 
which  the  primary  funds  may  be  found  insufficient  to  meet. 
And  if  it  becomes  necessary  at  any  time  to  break  in  on  this 
special  fund  to  pay  extraordinary  losses,  it  must  be  made  good 
from  the  future  profits  of  the  company  before  any  further 
dividends  of  those  profits  can  be  made.1  A  mutual  insur- 
ance company,  when  not  restricted  by  statute  or  by-law,  may 
pay  a  dividend  to  the  members  under  certain  circumstances, 
although  the  effect  is  to  reduce  the  assets  of  the  company  pro- 
vided for  the  payment  of  losses.2  Money  paid  on  stock  as  a  part 
payment, which  is  afterwards  forfeited,  is  not  to  be  considered  as 
profits.'  Money  paid  to  compensate  a  corporation  for  land  taken 
under  the  power  of  eminent  domain  becomes  part  of  the  capital 
and  '•••in  not  be  distributed  as  profits.4  Generally,  in  order  to 
determine  whether  there  are  any  profits,  it  is  necessary  to  de- 
duct from  the  capital  the  amount  of  the  capital  stoek  and  the 
expenses  and  Losses  sustained.1  Borrowed  money  is,  of  course, 
not  profits,6  although  it  has  been  held  that  under  a  statute 
which  restricted  the  payment  of  dividends  to  surplus  profits, 
where  earnings  which    might   properly    have   been   used    for 

1  Lexington,  etc.,  Co.  \.  Page,  17  B.  neBS  venture*  after  deducting  the  capi- 
Mon.  (Kj  I1-;  Scot!  v.  Fire  Ins.  tal  invested  in  Hie  business,  the  ex- 
Co.,  7  Paige  Ch.  (N.  Y.)  198.  penses  incurred  in  its  conduct,  and  the 

•  McKeanv.  Biddle,  181  Pa.St.861.  losses  sustained  in  its  prosecution." 

,i/   .    Redd,  i  l'-  Won.  L78  197.     Park  v.  Grant,  <•!<■..  Works,  id  N.  .1. 

•  Heard  I  Iredge,  L09  M  Eq.  114;  Main  v.  Mills,  6  Bissell  98. 
12  \i,,.  Etep.  6  Miller  v.  Bradish,  69  [owa  278; 

Pbe    words    net    profits    define     Hubbard  v.  Weare,  79  Iowa  678. 
then  They  mean   what  shall       'Davis  v.  Mining  Co.,  2  Utah  74. 

remai  laai  pain  t  of  anj  I 


§  404  THE    RIGHTS    OF    MEMBERSHIP.  427 

dividends  were  used  for  improving  the  property  of  the  corpo- 
ration, it  could  borrow  money  to  pay  the  dividends.1  In  this 
case  it  used  the  legitimate  profits  for  the  purpose  for  which  it 
could  properly  have  borrowed  the  money.  An  agreement  to  pay 
a  fixed  dividend  on  stock  is  valid  so  long  as  there  are  profits 
out  of  which  to  pay  it,2  but  it  can  not  be  enforced  where  there 
are  no  profits  and  its  payment  would  result  in  a  distribution 
of  the  capital.3  A  bank  can  not  declare  dividends  out  of  inter- 
est not  yet  received.  "  Money  earned  as  interest,  however  well 
secured  or  certain  to  be  eventually  paid,  can  not  in  fact  be  dis- 
tributed as  dividends  to  stockholders  and  does  not  constitute 
surplus  profits."4  They  do  not  become  such  until  actually 
paid. 

§  404.  Right  to  dividends  declared. — As  already  stated,  a 
stockholder  has  no  title  to  profits  accumulated  by  a  corpo- 
ration, so  long  as  a  dividend  is  not  actually  declared  out  of 
such  surplus.5  Until  this  is  done  the  title  to  the  fund  remains 
in  the  corporation.  As  soon,  however,  as  the  dividend  is  de- 
clared, the  title  passes  to  the  shareholders  as  individuals  and 
the  amount  thus  placed  to  the  credit  of  the  shareholder  be- 
comes a  debt  due  to  him  from  the  corporation.  Thereafter  the 
relations  between  the  corporation  and  the  stockholder  as  to  the 
dividend  is  that  of  debtor  and  creditor.  The  dividend  is  the 
property  of  the  stockholder  and  can  not  be  taken  by  the  cred- 
itors of  the  corporation  in  the  event  of  the  insolvency  of  the 
corporation.6  In  case  of  insolvency,  no  specific  dividend  fund 
having  been  set  aside,  the  shareholder  must  come  in  and  share 
with  the  other  creditors.7  After  a  dividend  is  declared  a  cor- 
poration has  no  power  to  revoke  its  action  and  refuse  to  pay  the 

Excelsior,  etc.,   Go.  v.  Pearce,  90  5  Kaufman  v. Woolen,  etc.,  Co.  (Va.), 

Cal.  131.  25  S.  E.  Rep.  1003. 

2  McLaughlin  v.  Railroad  Co.,  8  6  LeRoy  v.  Insurance  Co.,  2  Edw. 
Mich.  99.  Ch.  N.  Y.  657 ;  Van  Dyck  v.  McQuade, 

3  Painesville  R.  Co.  v.  King,  17  Ohio  86  N.Y.  38 ;  Peckham  v.  Van  Wagenen, 
St.  534.  83  N.  Y.  40.     Dividends  declared  can 

4 People  v.  San  Francisco,  etc.,  not  he  taxed  as  the  property  of  a  cor- 
Union,  72  Cal.  199;  Miller  v.  Brad-  poration.  Pollard  v.  First  Nat'l  Bank, 
ish,  69  Iowa  278.  47  Kan.  406. 

7  Curry  v.  Woodward,  44  Ala.  305. 


42S  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  405 

dividend,  in  order  to  carry  the  account  to  a  surplus  fund.1 
But  it  was  held  in  Massachusetts  that  a  vote  declaring  a  divi- 
dend could  be  rescinded  at  any  time  before  the  fact  that  a  div- 
idend had  been  declared  was  made  known  to  the  public  or 
communicated  to  the  stockholders.2 

§  405.  To  whom  dividends  belong. — The  general  rule  is  that 
dividends  belong  to  the  owner  of  the  stock  at  the  time  when 
they  are  declared,  without  reference  to  the  time  when  earned 
or  payable.  The  declaration  of  a  dividend  is,  in  legal  contem- 
plation, the  separation  of  the  amount  thereof  from  the  assets 
of  the  corporation,  and  the  corporation  thereafter  holds  the 
amount  as  the  trustee  of  the  party  who  was  a  stockholder  at 
the  time  it  was  declared.3  The  dividends  are  treated  as  though 
earned  at  the  time  they  are  declared,  and  hence  the  vendee  of 
the  shares  is  entitled  to  all  dividends  declared  alter  the  trans- 
fer.4    The  ownership  of  dividends  may,  of   course,  be  made 

1  Beers  v.  Bridgeport  Spring  Co.,  42  2  Font  v.  Thread  Co.,  158  Mass.  84. 
Conn.  17;  King  v.  R.  Co.,  29  N.  J.  See  In  re  Le  Blanc,  75  N.  Y.  598. 
Law  82;  In  re  Le  Blanc,  75  N.  Y.  'Hopper  v.  Sage,  112  N.  Y.  530,  8 
Ford  v.  Thread  Co.,  158  Mass.  Am.  St.  Rep.  771 ;  Boardman  v.  Lake 
84,  32  N.  E.  Rep.  1030;  Wheeler  v.  Shore,  etc.,  R.  Co.,  84  N.  Y.  157;  In 
Sleigh  Co.,  39  Fed.  Rep.  347.  The  re  Karnochan,  104  N.  Y.  618 ;  Good- 
purchaser  of  stock  upon  which,  before  win  v.Hardy,57  Maine  143,  99  Am. 
its  delivery,  a  dividend  has  been  «le-  Dec.  758,  and  note, 
clared  has  no  right  to  refuse  to  pay  for  4Jermain  v.  Lake  shore,  etc.,  R. 
the  Btock  until  the  Beller  gives  him  an  Co.,91  N.Y.  483;  Hill  v.  The  Newicha- 
ron  the  corporation  for  the  pay-  wanick  Company,  -1  X.  Y.  593;  Ryan 
ment  of  the  dividend,  [f  he  ie  en-  v.  Leavenworth,  etc.,  R.  Co.,  21  Kan. 
titled  tothepaymenl  of  the  dividend  365;  Gemmell  v.  Davis  &  Co.,  75  Md. 
H1,.|,  an  order  is  unneces  ary  and  he  546;  Cook  v.  Mfanroe,  15  N<  b.  349.  A 
no  right  to  exact  it.  By  insisting  transfer  passes  all  dividends  declared 
upon  the  order,  and  refusing  to  make  subsequent  to  the  transfer,  although 

payment  withoul   it,  he  rescinds  the    earned  before.     Kane  v.   Bl Igood, 

contract  and  loses  both  the  Btock  and  7  Johnson's  Ch.  90;  Currif  v.  White, 

the  dividend,     ff,  after  the  contract  is  15  N.  Y.822.  No  matter  when  payable. 

made  ror  the  Bale  of  the  shares  of  Wheeler  7.  Sleigh  Co.,  39  Fed.  Rep. 

stock,  but   before  the  time  appointed  847i    Bright    v.    Lord,  51    Ind.  272; 

refor,  a  dividend  is  de-  Hopper  v.  Sage,  112  N.  V  530.     Con- 

clared.the  purchaser  is  entitled  thereto  tra,    Burrows    v.   North  Carolina   R 

nn  complying  with  his  contract  to  pur-  Co.,  67  N.  0.  876. 
chase.    Phinizy  v.  Mm  1                  717, 
•jo  \.u   St.  R<  p.  842. 


§  406  THE    RIGHTS    OF    MEMBERSHIP.  429 

the  subject  of  contract  between  the  vendor  and  the  purchaser 
of  shares.1  The  corporation  is  entitled  to  rely  upon  its  regis- 
ter, and,  if  it  has  no  notice  of  the  rights  of  any  other  person, 
it  will  be  protected  if  it  pay  its  dividends  to  the  person  in 
whose  name  the  shares  stand  on  its  books.2  After  notice  of  a 
transfer,  however,  it  must  pay  subsequent  dividends  to  the 
transferee,  although  the  shares  have  not  been  transferred  on 
its  books.3  Corporations  commonly  provide  that  their  trans- 
fer books  shall  be  closed  a  certain  number  of  days  before  a 
dividend  is  declared.  Such  regulations,  in  the  absence  of  re- 
strictive statutes,  are  valid.*  Membership  in  a  corporation  does 
not  depend  upon  the  possession  of  a  certificate  of  stock,  and 
therefore  a  person  who  is  actually  a  stockholder  is  entitled  to 
a  dividend,  duly  declared,  although  he  may  never  have  re- 
ceived a  certificate.5 

§  406.  Collection  of  dividends,  —  A  dividend  already  de- 
clared may  be  recovered  in  an  action  at  law  by  the  stockholder 
against  a  corporation.6  A  suit  to  enforce  the  declaration  of  a 
dividend  must  be  in  equity.  The  action  to  recover  a  declared 
dividend  should  be  against  the  corporation  and  not  the  cor- 
porate officers.7  It  can  not  be  against  an  individual  stock- 
holder who  has  received  a  dividend  which  it  is  claimed  belongs 
to  the  plaintiff.8     Mandamus  is  not  the  proper  remedy  to  com- 

1  Union,  etc.,  Co.  v.  American,  etc.,  Nat'l   Bank,   84   N.   Y.  393;    Dow  v. 

Co.,  11  R.  I.  569,  13  R.  I.  673;  Kauf-  Gould,  etc.,  Co.,  31  Cal.  629. 

man  v.  Woolen  Mills  Co.,  93  Va.  673.  6  Winchester,  etc.,  Co.  v.  Wickliffe, 

"Brisbane  v.  Delaware,  etc.,  R.  Co.,  100  Ky.  531,  66  Am.  St.  Rep.  356;  Jack- 

94  N.  Y.  204;  Donnally  v.  Hearndon,  son   v.   Newark,  etc.,  Co.,  31  N.   J. 

41  W.  Va.  519;  Bank  of  Com.  Appeal,  Law  277;  Westchester,  etc.,  R.  Co.  v. 

73  Pa.  St.  59.  Jackson,  77  Pa.  St.  321 ;  Hall  v.  Rose 

8  Robinson    v.    New     Berne    Nat'l  Hill,  etc.,  Co.,  70  111.  673;  Southwest- 
Bank,  95  N.  Y.  637.  ern,  etc.,   R.  Co.  v.  Martin,  57  Ark. 

4  Jones  v.  Terre  Haute,  etc.,  R.  Co.,  355;  Hill  v.  Atoka,  etc.,  Co.,  21  S.  W. 
57  N.  Y.  196  ;  Robinson  v.  New  Berne  Rep.  508. 

Nat'l  Bank,  95  N.  Y.  637.  7 French  v.  Fuller,   40  Mass.   108; 

5  Ellis  v.  Essex  Bridge,  19  Mass.  243.     Smith  v.  Poor,  40  Maine  415. 

As  to  the  right  of  corporation  to  pay        8  Peckham  v.  Van  Wagenen,  83  N. 
dividends  to  husband  of    the  owner    Y.  40. 
of  the   shares,  see  Graham  v.  First 


430 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


1407 


pel  payment  of  a  dividend.1  Before  suit  is  brought  a  demand  is 
necessary,2  although  it  has  been  held  that  the  bringing  of  a 
suit  is  a  sufficient  demand.3  A  dividend  draws  no  interest  un- 
til a  demand  for  its  payment  has  been  made  and  refused.4  It 
is  generally  held  that  the  statute  of  limitations  begins  to  run 
from  the  time  of  the  demand,5  although  some  courts  hold  that 
it  begins  to  run  from  the  time  when  the  right  to  make  the  de- 
mand accrues.6  In  an  action  brought  to  enforce  the  payment 
of  dividends  which  have  been  declared  the  corporation  can 
not  raise  the  question  of  the  validity  of  the  dividend.7  If  a 
stockholder  is  unlawfully  excluded  from  participation  in  a 
dividend,  his  remedy  is  against  the  corporation.8  Where  a 
corporation  declares  a  dividend  on  all  its  stock  except  the 
shares  named  in  a  certain  certificate,  the  exception  is  void  and 
the  owner  of  the  certificate  ma}'  sue  the  corporation  to  recover 
the  dividend.9  Dividends  are  payable  within  a"  reasonable 
time  after  they  are  declared.10 


§  407.    How   payable — No  discrimination. — When   not  re- 
stricted by  charter  the  manner  of  paying  a  dividend  is  under 


1  Van  Norman  v.  Central  Car,  etc., 
Co.,  II  Mich.  166. 

1  Winchester,  etc.,  Co.  v.  Wickliffe, 

100  Ky.  531,  66  Am,  St.  Rep.  356;  Ha- 

gar  v.  Onion   Nat']   Bank,  <'.:;  Maine 

King  v.  Paterson,  etc.,  R.  Co., 

29  X.  .1.  Law  r.iii;   Ford  v.  Easthamp- 

t'.n.  etc.,  < '".,  168  Mass.  84,  35  Am.  St. 

Rep.   Mil';  Landis  v.  Baxton,  105  Mo. 

■I    \m.  st    Rep.  W3;  Fee  v.  Fee, 

in  Ohio   169,  36   Am.    Dec.   103.    See 

Lwin  v.  Hardy,  99  Am.  !»>•<■.  758, 

ami  null'. 

8  Robinson  v.  Newburne  Nat'l  Bank, 
Y.  637. 

'  Philadelphia,  etc.,  I.'.  ('".  v.  Cow- 
ell,  28  I'm.  st  ! .,,.  Dec.  L28; 
Thompson  Corps.,  §  l'l1:'.;  Board  man, 
v.  Lake  i  34  N.  Y. 
157  i  I '..i nk  <-t   Louisville  v.  i 

lint       Mill    on    ;| 

dividend  which    hai    tw  en   attached 


prior  to  the  time  of  the  demand   foi 
its  payment.    Mustard  v.  Onion  Natl 
Flank,  Sfi  Maine  177. 
5  Bank  of  Louisville  v.  Gray,  84  Ky. 

•Winchester,  etc.,  Co.  v.  Wickliffe, 
100  Ky.  531,  oil  Am.  St.  Rep.  356. 

7  Stoddard  v.  Foundry  ('<>..  34  <  lonn. 
542. 

8 1'cckliam  v.  Van  Wagenen,  83  N. 
Y.  M);  Jonee  v.  Railway  Co.,  -"'7  N.  Y. 
196. 

"  Hill  v.  Atoka,  etc,  Co.  I  Mo.),  21 
B.W.  Rep.  608.  When-  the  corpora- 
tion refuses  to  transfer  the  certificate 

to  the  niic  entitled    to    it .  lie    may  sue 

the  corporation  ami  recover  the  divi- 
dend without  first  bringing  an  action 
to  compel  tin'  t ransfer.    See  I [ughea 

v.  Vermont,  etc  ,  ('<>.,  72  X.  Y.  •_lo7. 

10  Beers  v.  Bri  i        12 

Conn.  17. 


§  408  THE    RIGHTS    OF    .MEMBERSHIP.  431 

the  control  of  the  directors  and  may  be  in  cash,  property  or 
in  dividend  stock.  In  a  New  York  case  it  was  said: 1  "  There 
is  no  statute  which  requires  dividends  in  telegraph  companies 
or  in  companies  generally  to  be  made  in  cash.  Whether  they 
shall  be  made  in  cash  or  property  must  always  rest  in  the 
discretion  of  the  directors.  There  is  no  rule  of  law  or  reason 
founded  upon  public  policy  which  condemns  a  property  divi- 
dend. The  directors  could  convert  the  property  into  cash  for 
a  dividend  and  divide  that.  So  the  stockholders  can  take 
the  property  divided  to  them  and  sell  it  and  thus  realize  the 
cash.  Within  the  domain  of  law  it  can  make  no  material  dif- 
erence  which  course  is  chosen.  If,  however,  a  dividend  is 
made  payable  in  cash,  or  payable  generally,  the  corporation 
becomes  a  debtor  and  must  discharge  such  debts  as  it  is  bound 
to  discharge  all  its  other  debts,  in  lawful  currency.  It  is  true 
that  a  stockholder  can  not  be  compelled  to  take  property  di- 
vided to  him;  he  can  not  be  compelled  to  take  cash  dividends. 
In  case  of  his  refusal  to  take  the  cash  dividends,  the  corpora- 
tion may  retain  it  until  he  shall  demand  it.  In  case  he  shall 
refuse  to  take  a  property  dividend,  the  corporation  may  retain 
it  and  hold  it  in  trust  for  him,  or  possibly  sell  it  for  his  bene- 
fit." But  there  can  be  no  discrimination  between  stock- 
holders,2 and  this  applies  to  stock  which  has  not  been  paid  in 
full.3  Thus,  where  stock  is  issued  to  contractors  before  they 
have  completed  their  work,  they  are  entitled  to  the  dividends 
thereafter  declared.4  After  paying  a  part  of  the  dividend,  a 
corporation  can  not  refuse  to  pay  the  other  stockholders  be- 
cause the  money  has  been  invested  in  improvements.5 

§  408.  Rights  of  a  pledgee  of  stock  to  dividends. — A  pledgee 
wdiose    name   appears  upon   the   books   of   the  corporation  or 

1  Williams  v.  Western  U.  Tel.  Co.,  etc.,  R.  Co.  v.  Hambleton,  77  Md.  341, 

93  N.  Y.  162.  a  distinction  is  made  between  orig- 

1  State   v.  Baltimore,  etc.,  R.  Co.,  inal  and  increased  stock. 

6  Gill.  (Md.)  363;  Luling  v.  Atlantic,  4 Central,  etc.,  R.  Co.  v.  Papot,  59 

etc.,  Co.,  45  Barbour  (N.  Y.)  510 ;  Hale  Ga.  342,  67  Ga.  675. 

v.  Republican,  etc.,  8  Kan.  466.  5 Beers  v.  Bridgeport,  etc.,  Co.,  42 

3 Oak  Bank,  etc.,  Co.  v.  Crnm,  L.  Conn.  17. 
Rep.  8  App.  Cas.  65.     In  Baltimore, 


432 


THE    LAV\"    OF    PRIVATE    CORPORATIONS. 


§409 


whose  rights  are  otherwise  known  to  the  corporation  is  as  be- 
tween himself  and  the  corporation  entitled  to  dividends  declared, 
and  the  corporation  is  liable  to  him  if  it  pays  the  dividends  to 
the  pledgor.1  As  between  the  vendor  and  the  vendee  and  the 
pledgor  and  pledgee  of  shares,  a  transfer  on  the  books  of  the 
corporation  is  not  necessary  to  perfect  an  equitable  title  in  the 
vendee.  Hence,  dividends  declared  during  the  continuance  of 
a  pledge  belong  to  the  pledgee,  although  the  shares  have  not 
been  transferred  to  him  on  the  books  of  the  corporation.  But 
if  the  transfer  is  not  registered  and  the  corporation  in  good 
faith  pays  the  dividends  to  the  pledgor,  it  will  be  protected.2 
The  knowledge  of  the  president,  secretaiy  and  treasurer  of  the 
corporation  is  the  knowledge  of  the  corporation. 

§  400.  Unlawful  payment  of  dividends — Liability  of  offi- 
cers.— In  the  absence  of  a  statutory  provision  the  directors 
of  a  corporation,  when  they  act  in  good  faith,  are  not  liable  to 
the  shareholders  or  creditors  of  the  corporation  for  damages 
resulting  from  the  payment  of  illegal  dividends.3  An  absolute 
liability  is  sometimes  imposed  by  statute.1  The  directors  are 
in  all  cases  liable  if  they  act  fraudulently  or  are  guilty  of 
gross  negligence.5  It  would  seem  upon  well  settled  general 
principles  that  "if  dividends  were  made  under  a  misconcep- 
tion on   the  part  of  the  directors  of  what  constituted   profits, 


^oyd  v.  Worsted  Mills,  L49  Pa.  St. 
363,   24    Ail.    Rep.   287;  Gemmell  v. 
Davis  &  Co.,  75  Md.  546;  Central,  etc., 
Co.v.Wilder,32Neb.  154.49N.W.  Rep. 
The  pledgee  is  as  a  general  rule 
cntitN'.l  in  the  >li\ idends  unless  1 1"' 
I  is  reserved  t  i  the  pledgor,   "The 
dividends   follow   the  stock   into  the 
hands  o!  the  person  \\  1i"  is  the  legal 
holder  >»!'  the  stock.     While  the  ?_r < ■  1 1 - 
eral  property  in  the  stock  remains  in 
the  pledgor,  the  pledgee  has  such  a 
title  therein  as  « ;11  authorize  and  re- 
quire him  i"  colled   tin-  di\  idends." 
<  luaranty  < '".  v.  Ea  I   etc.,  T.  Co.,  96 
\  rmour  &  <  to.  v.  Bast,  <■!<■., 
i    I  I..  Rep.604. 


■Gemmell  v.  Davis  &  Co.,  In  M<1. 
547;  Hill  v.  Mewichawanick  Co.,  71 
N.Y.  593;  Cecil  Nat'l  Bank  v. Watson- 
town  Bank,  105  I'.  S.  217. 

:'  Excelsior,  etc.,  Co.  v.  Lacey,  63  N 
Y.  422;  Lexington,  etc.,  R.  Co.  v 
Bridges,  17  B.  Mon.  (  Ky.)  556. 

•See  I 'ark  v.  Thomas,  66  N.  V.  559; 
Van  Dyck  v.  McQuade,  86  V  Y.  38; 
Sec  Whittaker  \.  Amwell  Nat'l  Hank, 
52N.  J.  Eq.  100; Chamberlain v.Huge- 
I...I.  etc.,  ('<»..  lis  Mass.  532. 

*  Excelsior,  etc.,  Co,  v.  I  iacey,  63 
N.  Y  i  •  Oral  v.  Redd,  I  B,  Mon. 
I7s,  L95;  Scotl  v.  Eire,  etc.,  Co.,  7 
i  e  N.  Y.  198;  Btringer'a  Case,  L 
R.  I  eh.  A.pp.  175. 


§  410  "       THE    RIGHTS    OF    MEMBERSHIP.  433 

and  under  a  belief  that  there  were  profits  to  divide,  when  in 
fact  there  were  none,  they  might  be  reclaimed;  because  the 
stockholders  who  received  them  were  not  entitled  to  them  and 
they  had  been  paid  over  and  received  under  the  operation  of  a 
mutual  mistake."  1  But  when  dividends  are  wrongfully  paid 
out  of  the  capital  the  money  can  not  be  recovered  by  the  corpo- 
ration, although  it  may  be  by  its  creditors,  or  by  its  receiver  act- 
ing in  the  rights  of  its  creditors,  and  it  is  no  defense  to  such  an 
action  that  the  directors  acted  in  good  faith  in  paying  the  divi- 
dend.2 An  officer  of  a  corporation  is  bound  to  know  its  condi- 
tion and  has  no  right  to  receive  a  dividend  unless  it  is  legiti- 
mately earned.  A  dividend  paid  in  violation  of  this  rule  may 
be  reclaimed  by  an  assignee  of  the  insolvent  corporation.3  A 
stockholder  who  assents  to  the  payment  of  a  salary  to  an  offi- 
cer of  the  corporation  in  excess  of  that  allowed  by  a  resolution 
of  the  board  of  directors,  can  not  participate  in  a  dividend  de- 
clared out  of  the  funds  resulting  from  the  repayment  by  the 
officer  of  the  excess.4  Where  the  directors  of  a  national  bank 
placed  a  fictitious  valuation  on  the  assets  in  order  to  declare  a 
stovjk  dividend,  they  are  liable  to  the  receiver  for  the  par  value 
of  the  stock  for  the  benefit  of  creditors.5 

§  410.  Set-off  by  the  corporation. — The  rights  of  parties  to 
dividends  are  fixed  and  determined  at  the  time  the  dividend  is 
declared.6  The  corporation  may,  therefore,  retain  dividends 
which  have  been  apportioned  to  a  stockholder,  and  set  the 
amount  off  against  a  debt  due  from  the  stockholder  to  the  cor- 
poration.7    Thus,  a  bank  which  has  no  implied  lien  upon  the 

1  Lexington,  etc.,  Co.  v.  Page,  17  B.    terial.     Grant  v.  Ross  (Ky.),  37  S.W. 
Mon.  (Ky.)  412.  Rep.  263. 

2  Minnesota,  etc.,  Co.  v.   Langdon,        s  Main  v.  Mills,  6  Biss.  C.  C.  98. 

44  Minn.  37.     Contra,  as  to  receiver  of  4  Brown  v.  DeYoung,  167  111.  549,  47 

a  national  bank,   McDonald  v.  Will-  N.  E.  Rep.  863. 

iams,  174  U.  S.  397.     See  Lexington,  5  Cockrill  v.  Abeles,86Fed.  Rep. 505. 

etc.,  Co.  v.Page,  17B.  Mon.  (Ky.)  412,  6Gemmell  v.  Davis  &  Co.,  75  Md. 

and  Grant  v.  Ross  (Ky.),  37  S.W.. Rep.  546;  §404. 

263.     The   fact  that  the  payment  in  7  Hagar  v.   Union   Nat'l   Bank,   63 

question  was  made  under  authority  of  Maine  509;  Sargent  v.  Frank  Ins.  Co., 

a  resolution  of  stockholders  is  imma-  8  Pick.  (Mass.)  90;  Donnally  v.  Hern- 

28—  Private  Corp.  don>  41  w-  Va.  5195  King  v-  Pater- 


434  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  411 

shares  of  its  stockholders  may  retain  dividends  actually  de- 
clared, and  apply  the  amount  on  the  debt  of  the  stockholder, 
as  a  dividend  is  simply  so  much  money  in  its  possession.  But 
the  corporation  can  not  retain  such  money  for  a  debt  for  which 
the  stockholder  is  liable  only  as  a  surety,  and  which  is  not  yet 
due.1 

§  411.  Who  entitled  to  dividends. — It  has  already  been 
stated  that  the  right  to  dividends  is  fixed  at  the  time  they  are 
declared.  They,  therefore,  belong  to  those  who  are  stockhold- 
ers at  that  time  without  reference  to  the  time  when  the  profits 
out  of  which  the  dividend  is  to  be  paid  were  earned.2  "The 
purchaser  of  a  share  of  stock  in  a  corporation  takes  the  stock 
with  all  its  incidents,  and  among  these  is  the  right  to  receive 
all  future  dividends,  that  is,  the  proportionate  share  of  all 
profits  not  then  divided;  and  as  we  understand  the  law  and 
the  usage  of  such  corporations,  it  is  wholly  immaterial  at  what 
time  or  from  what  sources  these  profits  have  been  earned:  they 
are  an  incident  to  the  shares,  to  which  the  purchaser  becomes 
at  once  entitled,  provided  he  remains  a  member  of  the  cor- 
poration until  a  dividend  is  made."3  It  is  settled  law  that 
"dividends  must  be  general  on  all  the  stock  so  that  each  stock- 
holder will  receive  his  proportionate  share.  The  directors 
have  no  right  to  declare  a  dividend  on  any  other  principle. 
They  can  not  exclude  any  portion  of  the  shareholders  from  an 
equal  participation  in  the  profits  of  the  company."4 

(a)     As  Between  Success/ ve  Absolute  Owners. 

§  412.      In  general. — In  ordinary  transfers  of  stock  nothing 
aid   aboul    dividends,  and   in  the  great  majority  of  cases 

etc.,  i:  Co.,  29  N.  J.  I-.  604.   Con-  BMarch  v.Eai  tern  R.Co.,48  N.H.515. 

ti.i,  l'.\  parte  Winsor,  S8tory  ('.('.III.  *  Stoddard  v.  Foundry  Co.,  34  Conn. 

lomon    v.    First   NTat'l    Bank,  72  542;  Jones  v.  Railroad  Co.,  57  N.  Y. 

See    First    Nat'l  Bank  v.     196.     "The  stock] lera  were  .-ill  of 

De  Mom     Pi  ■       W.  Rep.  417.      these ilass,  and  when  such  is  the 

Jon<           Railroad  <'",  :>7   N.   v.  ca  e  the  dividends  mu  I   always  be 

196;    Goodwin  v.    Hardy,  57    Maine  pro  rata,  equal   and   without    prefer- 

143;   March  v.   Eastern   R.  Co.,   18  V  ence."  Hillv.Min       I        VIo.),2lS. 

II   515;  Boardman  v.  Railroad  Co.,  84  W.  Rep.  508;  Ryder  v.  Railroad  ( 

N.  V  111.  516. 


5  412 


THE    RIGHTS    OF    MEMBERSHIP. 


435 


they  are  governed  by  the  usages  of  a  stock  exchange.  Com- 
monly the  directors  of  a  corporation  resolve  that  dividends 
shall  be  declared  from  the  profits  of  a  certain  period  payable 
at  a  future  day  certain  to  those  who  are  shareholders  at  that 
time  ;  or  at  a  certain  period  prior  thereto  when  the  transfer 
books  of  the  corporation  are  closed.  By  the  usage  of  the  stock 
exchange  all  transfers  made  before  the  books  are  closed  are 
"dividend-on"  and  all  subsequent  transfers  "ex-dividend." 
These  customs,  however,  have  no  application  to  transfers 
made  elsewhere  than  on  the  stock  exchange.1  A  transfer  of 
stock  carries  with  it  ordinarily  the  right  to  all  dividends  de- 
clared after  the  transfer,  although  earned  before  the  transfer. 
The  right  to  such  dividends  passes  as  an  incident  of  the  stock.2 
But  a  dividend  declared  before  the  transfer,  although  payable 
after  the  transfer,  belongs  to  the  transferrer.3  A  dividend  de- 
clared before  the  death  of  a  testator  becomes  a  part  of  the  corpus 
of  the  estate,  and  goes  to  the  executor.4  Generally  a  corpora- 
tion is  protected  if  it  pays  a  dividend  to  the  person  who  ap- 
pears as  the  owner  of  the  stock  on  the  corporate  books,  unless 
it  has  notice  of  the  fact  that  the  shares  have  been  transferred.5 
If,  however,  it  pays  a  dividend  declared  after  the  transfer  to 
the  transferrer,  with  knowledge  of  the  transfer,  it  is  liable  to 
the  transferee.6 


1  Lombardo  v.  Case,  45  Barb.  (N.Y.) 
95. 

2  Gemmell  v.  Davis  &  Co., 75  Md.546 ; 
Boardman  v.  Railway  Co.,  84  N.  Y. 
157  ;  Jermain  v.  Railway  Co.,  91  X .Y. 
483 ;  Phelps  v.  Farmers',  etc.,  Bank,  26 
Conn.  269 ;  March  v.  Railway  Co. ,43  N. 
H.515.  One  who  sells  stock,  reserving 
the  dividend  that  may  be  declared  at  a 
certain  date,  can  not  claim  a  stock 
dividend  when  declared.  The  reser- 
vation will  be  construed  to  apply  to 
cash  dividend  only.  Kaufman  v. 
Woolen  Mills  Co.,  93  Va.  673,  25  S. 
E.  Rep.  1003;  Charlottesville,  etc.,  v. 
Mahan,  136  V.  S.  548. 

3  Wheeler  v.  Sleigh  Co.,  39  Fed.  Rep. 
347;   Hopper  v.  Sage,  112  N.  Y.  530; 


In  re  Kernochan,  104  NY.  618;  Bright 
v.  Lord,  51  Ind.  272,  19  Am.  Rep.  732. 
Contra,  Burroughs  v.  Railway  Co., 
67  N.  C.  376,  12  Am.  Rep.  611. 

4 In  re  Kernochan,  104  N.Y.  618; 
De  Gendre  v.  Kent,  L.  R,  4  Eq.  283; 
Wheeler  v.  Sleigh  Co.,  39  Fed.  Rep. 
347. 

5  Brisbane  v.  Railway  Co.,  94  N.  Y. 
204;  Cleveland,  etc.,  R.  Co.  v.  Rob- 
bins,  35  Ohio  St.  483. 

6  Gemmell  v.  Davis  &  Co.,  75  Md.546, 
23  Atl.  Rep.  1032;  Robinson  v.  Bank, 
95  N.  Y.  637;  Hill  v.  Mining  Co., 
124  Mo,  153,  21  S.  W.  Rep.  508;  Cen- 
tral Nebraska  Nat'l  Bank  v.  AVil- 
der,  32  Neb.  454,  49  N.  W.  Rep.  369, 
Guaranty  Co.,  etc.,  v.  Eaet,  etc.,  Co  , 


136  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  413 

§  413.  Conditional  sales  and  transfers. — When  an  option  is 
given  to  purchase  shares  within  a  certain  period,  or  a  sale  is 
made  upon  a  condition  subsequent,  and  the  sale  is  completed 
or  the  condition  performed,  the  transfer  dates  from  the  time 
of  the  agreement  and  the  purchaser  is  entitled  to  all  dividends 
declared  after  that  date.  Thus,  where  the  defendant  sold  his 
shares  in  a  gas  company  on  August  1st,  on  condition  that 
twenty  per  cent,  of  the  price  should  be  paid  before  August 
20th,  and  the  condition  was  fulfilled,  the  purchaser  was  en- 
titled to  a  dividend  declared  on  August  28th.  "The  comple- 
tion of  the  purchase,"  says  the  court,  "has  relation  back  to 
the  time  when  the  contract  was  made,  which  vested  from  that 
moment  the  right  to  the  shares  in  the  purchasers.  They  pur- 
chased the  shares  on  that  day  and  at  that  time  and  at  their 
then  value,  and  when  they  paid  the  remainder  of  the  purchase- 
money  at  the  time  fixed  for  completion,  they  had  a  complete 
title  to  the  shares,  as  they  bought  them  on  the  first  of  Au- 
gust."1 So,  where  a  party  on  March  6th  offered  to  sell  shares 
to  B.,  if  he  gave  security  by  March  24th,  which  was  done,  it 
was  held  that  B.  was  entitled  to  a  dividend  declared  between 
such  dates.2  So,  where  A.  sold  to  B.  an  option  to  take  cer- 
tain shares  within  a  year,  it  was  held  that  the  agreement  to 
sell,  when  consummated,  was  a  sale  in  present!  and  that  the 
purchaser  was  entitled  to  dividends  declared  during  the  time.3 
But  it  has  been  held  that  where  A.  contracted  before  July  3d 
to  sell  -hares  of  stock  to  B.,  at  B.'s  option,  to  be  accepted  by 
July  16th,  on  which  day  the  stock  was  actually  transferred  to 
B.,  that  a  dividend  declared  on  the  stock  July  3d  belonged  to 
A.,  although  it  was  not  to  be  paid  till  August  1st.4 

;   ."ill.  28  S.  E.  Rep.  •"'"•"•:  Armour  in  Burrows  v.  North  Carolina,  etc.,  R. 

v.  Town   Co.,   98  Ga.    168,  26  B.  E.  Co.,  67  N.  0.  876,  l-'  Am.  Rep.  611,  it 

I;,.,,  .-,n|  is  held  thai  tin'  Bale  o!  shares  of  stock 

1  Black  \ .  I  [omersham,  I..  R.  I  Ezch.  carried  with  it  dividends  thai  an-  .!<■- 

j,jv  .jj  clared  thereupon,  although  they  are 

1  Harris  v.  Stevens,  7  rl   ll.  164.  payable  at  a  date  subsequent  to  the 

■  Carrie  v.  White,  i">  N.  V.  822.  transfer  of  the  stock. 

♦  Bright  v.  Lord,  61   tnd.  l'7'J.    But 


§  414  THE    RIGHTS    OF    MEMBERSHIP.  437 

§  414.  Transfers  made  between  the  date  of  declaration  and 
payment. — A  shareholder  has  no  legal  title  to  the  accumu- 
lated profits  until  they  are  divided,  and  there  can  be  no  appor- 
tionment of  dividends  between  the  successive  owners  of  shares.1 
The  right  to  dividends  which  have  been  declared  belongs  to 
the  transferrer,  and  to  those  which  are  declared  after  the 
transfer,  to  the  transferee.  Incident  to  the  ownership  of 
stock  in  a  corporation,  and  passing  with  the  assignment  of 
shares  thereof,  is  the  right  to  receive  the  proportional  share  of 
all  the  profits  not  divided  at  the  time  of  the  purchase  of  the 
shares;  and  it  is  immaterial  at  what  time  or  from  what  source 
these  profits  have  been  earned.2 

The  declaration  of  a  dividend  is  equivalent  to  a  separation 
of  the  fund  from  the  capital  of  the  corporation.  After  it  is 
credited  to  the  shareholder  the  amount  is  separated  from  the 
assets;  it  is  no  longer  represented  by  his  shares  and  no  longer 
an  incident  thereof,  and  when  he  transfers  his  shares,  he  does 
not  transfer  his  dividend.3 

(b)    As  Between  Life  Tenant  and  Remainder-Man. 

§  415.  General  statement. — Many  difficult  questions  arise 
in  determining  the  rights  of  dividends  on  stock  as  between 
successive  owners  of  qualified  interests.  It  is  not  uncommon 
for  a  testator  to  provide  in  his  will  that  the  income  from  certain 
shares  of  stock  shall  be  paid  to  one  person  during  his  life  and 
that  after  his  death  the  absolute  property  in  the  stock  shall  pass 
to  another  person.  In  ordinary  cases  no  difficulties  arise,  as  the 
income  on  the  shares  goes  to  the  life-tenant  and  the  principal 
or  capital  passes  unimpaired  to  the  remainder-man.    Ordinary 

'Clapp  v.  Astor,  2  Edw.  Chan.  379;  Co.,  91  N.  Y.  483;  Ryan  v.   Leaven- 
Kane  v.  Bloodgood,  7  John.  Ch.  90;  worth  R.  Co.,  21  Kan.  365. 
Granger    v.    Bassett,  98    Mass.   462;  "Jermain  v.  Lake  Shore  R.  Co.,  91 
Jones  v.  Ogle,  L.  R.  14  Eq.  419.  N.  Y.  483;  Boardman  v.  Lake  Shore 

2  March  v.  Eastern  R.  Co.,  43  N.  H.  R.  Co.,  84  N.  Y.   157;  Carpenter  v. 

515;  Williams  v.   Tel.   Co.,  61  How.  New  York,  etc.,  R.   Co.,  5  Abb.  Pr. 

Pr.  216,  93  N.  Y.  162;  Hyatt  v.  Allen,  277;  Bright  v.  Lord,  51  Ind.  272.   Conr 

56  N.  Y.  553;  Jones  v.  Railway  Co.,  tra,  Burroughs  v.  North  Carolina  R. 

57  N.  Y.  196;  Boardman  v.  Railway  Co.,  67  N,  C.  376,  12  Am.  Rep.  611. 
Co.,  84  N.  Y.  157  ;  Jermain  v.  Railway 


438  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  41$ 

dividends,  that  is,  dividends  payable  out  of  net  profits,  go  to 
the  life-tenant.  But  when  the  corporation  by  reason  of  an  in- 
crease of  its  capital  or  some  unusual  prosperity,  declares  an 
extraordinary  dividend  in  the  form  of  cash  or  stock,  it  is  not 
easy  to  determine  whether  this  shall  be  considered  as  income 
or  capital.  The  authorities  proceed  upon  different  principles, 
and  can  not  be  reconciled.  About  the  only  principle  which  is 
conceded  by  all  the  cases  is  that  the  intention  of  the  testator 
or  the  person  creating  the  trust  must  govern,  if  it  can  be  as- 
certained.1 The  courts  in  different  jurisdictions  have  estab- 
lished three  well-defined  rules.  (1)  The  English  rule  by  which 
ordinary  cash  or  stock  dividends  belong  to  the  life-tenant, 
and  extraordinary  cash  or  stock  dividends  form  a  part  of  the 
corpus  and  go  to  the  remainder-man.  (2)  The  Massachusetts 
rule,  or  the  rule  in  Minot's  case,  which  treats  cash  dividends 
whether  great  or  small  as  income  for  the  life-tenant,  and  stock 
dividends  whenever  earned  or  declared,  as  capital  for  the  re- 
mainder-man. And  (3)  the  Pennsylvania  rule,  or  as  it  is 
sometimes  called  the  American  rule,  under  which  the  court 
inquires  as  to  the  time  when  the  fund  outof  which  the  extraor- 
dinary dividend  in  question  is  to  be  paid,  was  earned  or  ac- 
cumulated; and  gives  that  to  the  remainder-man  which  was 
earned  before  the  life  estate  began  without  reference  to  the 
time  when  declared  or  payable. 

§  416.  The  English  rule. — The  English  rule  which  gives  to 
the  liN'  tenanl  .'ill  ordinary  dividends  whether  cash  or  stock, 
and  to  tin'  remainder-man  all  extraordinary  dividends,  would 
seem  to  be  somewhal  modified  by  later  decisions  holding  that 
the  court  would  be  largely  governed  by  the  intention  of  the 
corporation.1  In  the  early  case  of  Brander  v.  Brander,8  it 
was  held  thai  where  government  annuities  wore  received  by  a 
bank  in  exchange  lor  a  subscription  of  funds  to    the  public 

iMcLoath  v.   Hunt,  154  NY.  it-.),    spn.nl. •  v.  Bouch,  I,.  R.  29  Ch.   Div 

B9  I.    I:.    \.  280;  8) ner  v.  Phillips    635,  863. 

(Conn    ,  16  L   l:    1.461.  'Brander  v.    Brander,    I    Vee.  Jr. 

■Price   v.    An.i.i  nil.   i::;;    BOO;  Irving, etc.,  v.  Houstoun,  4  Paton 

ten)  A  pp.  Cas.  521. 


§  417  THE    RIGHTS    OF    MEMBERSHIP.  439 

service  and  divided  among  the  shareholders  of  the  bank, 
they  went  to  the  remainder-man,  and  the  income  from  them 
to  the  life-tenant.  In  one  case  it  was  held  that  there  was 
no  distinction  between  cash  and  stock  dividends,1  and  that  all 
extraordinary  bonuses  go  to  the  remainder-man  and  all  or- 
dinary dividends  to  the  life-tenant,  although  they  were  in- 
creased from  time  to  time  according  to  earnings.2  In  a  re- 
cent case  in  New  York,3  the  court  said:  "It  is  impossible  to 
read  the  English  cases  without  being  impressed  with  the  state- 
ment of  the  judges,  so  often  repeated,  that  they  found  great 
difficulty  in  formulating  any  principle  upon  which  the  decis- 
ions rested.  An  attempt  to  give  a  reason  for  the  rule  was 
made  in  one  of  the  more  recent  cases,  but  without  much  suc- 
cess.4 It  was  all  summed  up  in  the  end  by  the  court  in  a 
single  sentence,  'What  the  company  says  is  income  shall  be 
income,  and  what  it  says  is  capital  shall  be  capital.'  " 

§  417.  The  Massachusetts  rule. — The  underlying  principle 
of  this  rule,  which  recognizes  all  cash  dividends  as  income  and 
all  stock  dividends  as  capital,  is  recognized  in  Massachusetts, 
Georgia  and  Connecticut.  It  was  first  established  in  Minot  v. 
Paine,5  and   has  since   been  adhered   to  with  some   modifica- 

1  Paris  v.  Paris,  10  Ves.  Jr.  185.  185;    In   re  Barton's  Trust,    L.  R.   5 

2  Barclay  v.  Wainwright,  14  Ves.  Jr.  Eq.  238.    Apart  from  the  evident  in- 
67.  clination  of  the  judicial  mind  of  that 

3  McLouth  v.  Hunt,  154  N.  Y.  179,  39  day,  in  that  country,  to  favor  entails, 
L.  R.  A.  230.  perpetuities,   and    accumulations     of 

4Sproule  v.    Bouch,  L.   R.   29   Ch.  property,  it  can  hardly  be   said  that 

Div.  635.  these    cases    were    well    considered. 

5  Minot  v.   Paine,  99  Mass.  101,  96  Lord  Chancellor  Eldon  admitted  this 

Am.  Dec.  705;  Spooner  v.  Phillips,  62  in    Paris   v.    Pa-ns,   10  Ves.   Jr.   185, 

Conn.  62,  16  L.  R.  A.  461.     See,  also,  where    he  said:    T  confess    I    don't 

Rand   v.  Hubbell,   115  Mass.  461,  15  think  I  can  safely  rest  upon  any  dis- 

Arn.  Rep.  121  ;  Millen  v.  Guerrard,  67  tinction  between  this  case  and  those 

Ga.  284.      In  McLouth  v.  Hunt,  154  that  have  been  determined.     I  have 

N.  Y.  179,  39  L.  R.  A.  230,  the  court  had    great    difficulty    in   stating    the 

said:     "The   appeal  is   sought   to   be  principle  that   led  to   them.     But  in 

sustained  first    by  a  class  of  cases  in  the  case  from  Scotland  great  inquiry 

England,    founded   upon    Brander  v.  was  made   as  to  the  length  to  which 

Brander,  4  Ves.  Jr.  800,  and  followed  practice    had    carried    the    decisions 

in  Irving,  etc.,  v.    Houstoun,   4  Pat.  here,  and  at  the  rolls,  and  as  it  ap- 

App.  521 ;  Paris  v.  Paris,  10   Ves.  Jr.  peared    that  it    had    gone  to    great 


440 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§417 


tions.1     Under  this  rule,  the  courts  will  not  enter  upon  an  orig- 
inal inquiry  for  the  purpose  of  ascertaining  the  source  of  such 


length,  the  house  of  lords  did  not 
think  it  proper  to  disturb  that.'  Then, 
proceeding  to  notice  the  argument 
now  made  in  this  case,  that  there  is 
a  distinction  between  stock  and  cash 
dividends,  he  disposes  of  that  conten- 
tion with  a  homely  but  expressive  re- 
mark. He  said:  'As  to  the  distinc- 
tion between  stock  and  money,  that 
i>  too  thin;  and  if  the  law  is  that  this 
extraordinary  profit,  if  given  in  the 
shape  of  stock,  shall  be  considered 
capital,  it  must  be  capital  if  given  in 
money.'  The  rule,  as  thus  established 
in  England,  was  followed  in  Massachu- 
.  more  as  one  of  convenience  than 
of  justice,  in  a  line  of  cases  that  are 
not  quite  consistent  with  each  other. 
Mi  not  v.  Paine,  99  Mass.  101,  9G  Am. 
Dec.  705;  Daland  v.  Williams,  101 
Mass.  571;  Leland  v.  Hayden,  102 
Mass.  542;  Heard  v.  Eldredge,  109 
Mass.  258,  12  Am.  Rep.  687;  Rand  v. 
Hubbell,  115  Mass.  461,  15  Am.  Rep. 
121;  Davis  v.  Jackson,  152  Mass.  58, 
23  Am.  St.  Rep.  801.  The  rule  was 
adopted  there  mainly  upon  the  au- 
thority of  llie  early  English  cases  to 
which  reference  has  been  made.  The 
supreme  court  of  the  United  States 
la  id  down  the  same  rule  in  Gibbons  v. 
Mahon,  136  0.  B.  549,  evidently  fol- 
lowing the  doctrii t'  the  English  and 

Massachu  note    to 

Goodwin  v.  Hardy,  99  Am.  Dec  758." 
■Thus  in  Heard  v.  Eldridge,  109 
Mass.  258,  and  Rand  v.  Hubbell,  1 16 
.  161,  it  was  held  thai  ii  the  divi- 
dend  i  -■  merely  the  result  of  pre-exist- 
ing capital  of  the  corporation,  as  where 
,-i  p. nt  of  its  property  is  taken  in  the 

il  the  power  Of  eminent  do- 
main, and  the  money  receft  ed  is  dis- 
tributed as  dividends,  it  belongs  to  the 
remainder-man,    See  note  to  1 1    \ m. 


St.  Rep.  633.  In  Thomas  v.  Gregg,  78 
Md.  551,  the  court  said  of  the  Massa- 
chusetts rule:  "This  rule  has  not  been 
altogether  acceptable,  and  has  been 
somewhat  qualified,  or  modified,  by 
subsequent  cases  in  that  state,  al- 
though the  general  principle,  as  set- 
tled in  Minot  v.  Paine,  is  still  main- 
tained. In  Daland  v.  "Williams,  101 
Mass.  571,  the  directors  having  voted 
to  increase  the  capital  stock  by  3,000 
shares,  declared  a  cash  dividend  of  40 
per  cent,  and  authorized  the  treasurer 
to  receive  that  dividend  in  payment 
for  2,800  shares,  the  remaining  200 
shares  to  be  sold.  The  court  held  that 
the  transaction  was  virtually  a  stock 
dividend,  and  that  the  shares  must  go 
to  the  remainder-man's  fund.  In  Le- 
land  v.  Hayden,  102  Mass.  542,  where 
the  company  had  invested  its  surplus 
earnings  in  its  own  stock,  and  subse- 
quently declared  a  dividend  of  that 
stock,  the  life-tenant  was  held  enti- 
tled to  it.  The  Massachusetts  court 
in  these  later  cases  determined  that 
they  can,  in  deciding  whether  in  a 
given  case  the  distribution  is  a  stock 
or  cash  dividend,  consider  the  actual 
and  substantial  character  of  the  trans- 
action, and  not  its  nominal  character 
only.  See,  also,  hand  v.  Hubbell, 
115  Mass.  Hi!  :  Heard  v.  Eldredge,  109 
Mass.  258;  Davis  v.  Jackson,  152 
Mass.  58."  Iii  Rand  v.  Hubbell, Ch. 
.1.  Gray,  in  speaking  of  the  earnings 
of  a  corporation,  said:  "When  a  dis- 
tribution of  said  earnings  ie  made 
by  the  corporation  among  its  stock- 
holders, the  question  whether  such 
distribution  is  an   apportionment   of 

additional  Btocfc  or  a  division  of  prof- 
its, depends  on  the  Mil >sl a  i ici •  and  in- 
tent of  the  action  of  the  corporation, 

bo \\  ii  by  its  votes." 


§  417  THE    RIGHTS    OF    MEMBERSHIP.  441 

dividends,  but  will  consider  the  proceedings  of  the  corporation 
to  determine  whether  it  and  its  trustees  regarded  an  extraordi- 
nary dividend  in  question  as  profits  or  as  capital,  and  will  treat 
it  as  the  corporation  treated  it.  If  the  corporation  declares  it  to 
be  profits,  it  will  belong  to  the  owner  of  the  life  estate,  and 
if,  on  the  other  hand,  the  corporation  was  apparently  making 
an  increase  in  the  capital  stock  to  adequately  represent  pre- 
existing assets,  the  remainder-man  is  entitled  to  the  increase.1 
The  intention  of  the  corporation  is  thus  made  the  test.  This 
rule  is  adopted  by  the  supreme  court  of  the  United  States, 
which,  after  stating  the  rule  that  the  directors  may  determine 
what  disposition  shall  be  made  of  profits,  says:2  "Whether  the 
gains  and  profits  of  a  corporation  should  be  so  invested  and 
apportioned  as  to  increase  the  value  of  each  share  of  stock  for 
the  benefit  of  all  persons  interested  in  it,  either  for  a  term  of 
years  or  for  life,  or  by  way  of  remainder  in  fee,  or  should  be 
distributed  and  paid  out  as  income,  to  the  tenant  for  life  or 
for  years,  excluding  the  remainder-man  from  any  participation 
therein,  is  a  question  to  be  determined  by  the  action  of  the  cor- 
poration itself,  at  such  times  and  in  such  manner  as  the  fair 
and  honest  administration  of  its  whole  property  and  business 
may  require  or  permit." 

In  Rhode  Island  it  was  held  that  new  shares  of  corporate 
stock  resulting  from  a  distribution  of  surplus  earnings,  and 
distributed  to  stockholders,  are  capital  and  go  to  the  remainder- 
man.3 The  corporation  during  the  life  of  the  life-tenant  dis- 
tributed new  shares  in  conformity  to  the  recommendations  of 
a  committee,  which  recited  that  "the  contingent  fund  of  the 
corporation,  which  to  a  great  extent  has  already  gone  into  the 
construction  of  the  road,  the  virtual  extinguishment  of  the  debt 
of  $1,000,000  to  the  city  of  Albany  by  the  sinking  fund  providing 
for  its  payment,  releasing  the  income  of  the  road  from  the  pay- 
ment of  interest  on  these  bonds,  and  contribution  to  the  fund, 

JRand  v.  Hubbell,  115  Mass.  461,  tically  the  English  rule.  The  intention 

15  Am.  Rep.  121.  of  the  corporation  to  declare  a  divi- 

2 Gibbons   v.  Mahon,  136  TT.  S.  549,  dend  as  such  must  govern.     See  §416. 
quoted   in    Spooner    v.    Phillips,    62        3  Petition  of  Brown,  14  R.  I.  371. 
Conn.  62,  16  L.  R.  A.  461.  This  is  prac- 


442  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  418 

aside  from  other  considerations  which  might  well  be  urged, 
fully  require,  as  in  justice  to  the  stockholders,  that  twenty  thou- 
sand new  shares  shall  be  issued  and  distributed."  The  court 
said:  '  'The  only  question  necessary  now  to  be  decided  is  whether 
shares  of  stock  distributed  to  the  stockholder  of  a  corporation 
are  to  be  taken  as  income  and  belong  to  the  life-tenant.  We 
think  they  are  not  to  be  so  taken.  Such  a  distribution  of  shares 
is  in  no  proper  sense  a  dividend.  The  surplus  property  of  the 
corporation  which  is  represented  by  such  stock  is  still  retained 
by  the  corporation,  and  managed  and  applied  in  the  prosecu- 
tion of  the  business.  Nor  is  the  value  of  the  stock  held  by  any 
individual  stockholder  in  anywise  changed  by  such  a  distribu- 
tion. He  has  a  greater  number  of  shares,  but  each  share  is 
of  proportionately  less  value."  Where  a  dividend  of  $25  for 
each  share  of  its  capital  stock  is  declared  by  a  corporation,  and 
any  stockholder  who  wishes  is  entitled  to  take  an  additional 
share  of  stock  for  every  four  shares  of  stock  held  by  him  instead 
of  receiving  his  dividend  in  money,  and  the  earnings  of  the  cor- 
poration are  sufficient  to  pay  the  dividend  but  if  used  for  that 
purpose  then  it  will  become  necessary  to  raise  an  equal 
amount  to  pay  for  the  additions  which  have  been  made  to  the 
capital,  and  which  had  increased  its  value  above  the  par  value 
of  the  stock,  the  dividend  must  be  treated  as  income,  and  not 
capital.1  Shares  which  are  issued  to  represent  the  increase 
in  the  value  of  the  property  of  the  corporation,  which  was 
caused  by  the, development  of  its  business  and  which  does  not 
represent  ordinary  surplus  earnings,  constitute  capital  and  not 
income,  and  go  to  the  remainderman-man.' 

§  1 1 -v  The  Pennsylvania  role, — What  is  known  as  the 
Pennsylvania  rule  was  established  in  Earp'a  Appeal,'  and  lias 
been  90  generally  adopted  thai  it  is  Bometimes  called  the 
American  rule.  The  underlying  principle  Is  found  in  the 
statemenl  thai  the  courl  will  award  the  thing  distributed  regard- 
of  it-  form  to  whoever  is  entitled  to  it.     The  objeel  in  all 

'  Davia  v.  Jackson,  L52  Mass.  58,  28       '  Spooner  v.  Phillips,  62  Conn.  82, 
Am.  St.  Rep.  801.  L6  I..  R.  A.  ml. 

'  Earp'a  Appeal,  28  Pa   8t.  868. 


§  418  THE    RIGHTS    OF    MEMBERSHIP.  443 

cases  is  to  keep  the  increase  in  the  capital  for  the  remainder- 
man and  the  increase  in  the  income  for  the  life-tenant.1 
When  necessary  to  determine  what  is  in  fact  capital  and  what 
income,  the  court  will  investigate  the  facts  in  order  to  learn 
the  source  from  which  the  fund  came,  and  distribute  it  regard- 
less of  the  name  by  which  the  corporation  called  it  or  the  form 
in  which  it  is  distributed.  Thus,  when  a  corporation,  having 
actually  made  profits,  proceeds  to  distribute  such  profits 
amongst  the  stockholders,  the  tenant  for  life  would  be  entitled 
to  receive  them,  and  this  without  regard  to  the  form  of  the 
transaction.  Equity  which  disregards  form  and  grasps  the 
substance  would  award  the  thing  distributed,  whether  stock  or 
moneys,  to  whomsoever  was  entitled  to  the  profits.2  In  the  lead- 
ing case3  it  appeared  that  the  estate  of  Earp,  who  died  in  Novem- 
ber, 1848,  embraced  stock  in  a  manufacturing  company  upon 
which  large  surplus  profits  over  and  above  the  current  divi- 
dends had  accumulated,  both  before  and  after  his  decease.  In 
July,  1854,  the  capital  stock  was  increased  from  $200,000  to 
$500,000  by  creating  6,000  additional  shares  of  $50  each; 
which  were  paid  for  out  of  the  accumulations.  At  the  testa- 
tor's death  these  surplus  profits  were  nearly  $300,000,  and 
the  stock  issued  had  increased  to  $700,000.  The  market  value 
of  the  stock  at  his  death  was  $125  per  share.  When  the  new 
stock  was  issued  its  value  was  $80.  The  number  of  shares  be- 
longing to  the  estate  was  1,350  instead  of  540.  As  the  new 
shares  were  therefore  in  part  paid  from  the  surplus  existing  at 
the  death  of  Robert  Earp,  and  partly  from  the  accumulations 
after  his  death,  they  were  properly  apportioned  between  the 
life-tenant  and  those  entitled  to  the  remainder.  It  was  held 
(1)  that  the  surplus  property  accumulated  at  the  death  of  the 
testator  as  respects  the  estate  was  essentially  part  of  the  stock 
itself,  and  was  subject  to  the  trust  in  the  will  as  so  much  prin- 
cipal; and  (2)  that  the  accumulations  after  his  decease  when 
they  came  to  be  divided  were  income  in  like  manner  as  the  cur- 

1  Oliver's  Est.,  136  Pa.  St.  43, 20  Am.        2  Moss'  App.,  83  Pa.  St.  2H4,  24  Am. 
*«■■,  Rep.  894,  note.  Rep.  164. 

8  Earp's  Appeal,  28  Pa.  St.  368. 


444  THE    LAW    CF    PRIVATE    CORPORATIONS.  §  418 

rent  dividends,  and  therefore  belonged  to  the  life-tenant,  no 
matter  whether  the  division  or  distribution  thereof  was  in  cash, 
scrip  or  stock. 

In  another  case1  it  appeared  that  there  was  no  division  of 
surplus  profits  or  of  earnings  accumulated  either  before  or 
after  the  death  of  the  testator,  but  that  the  transaction  was 
simply  an  increase  of  stock  to  the  stockholders  upon  payment 
of  the  price  at  par,  and  $10  per  share  additional  to  go  to  the 
surplus  fund .  The  market  value  of  the  old  shares  was  not  shown 
to  have  varied  between  the  death  of  the  testatrix  and  the  issue  of 
the  new  stock,  but  a  slight  decrease  occurred  after  the  issue. 
Instead  of  subscribing  to  the  new  issue  the  executor  sold  the 
privilege,  and  the  question  was  whether  the  sum  realized 
should  be  treated  as  income  or  principal.  The  court  said: 
"The  entire  value  of  the  stock,  with  all  its  incidents,  at  the 
death  of  the  testatrix  constituted  the  principal  of  the  estate. 
On  this  principal  the  appellant  was  entitled  to  the  income, 
whatever  value  beyond  par  the  stock  then  had  by  reason  of  the 
large  surplus  fund  of  the  company,  or  otherwise,  attached  to 
the  stock  and  formed  a  part  of  the  principal.  The  appellant 
was  not  given  any  part  of  this  aggregated  value  of  the  stock; 
the  income  therefrom  was  all  she  was  entitled  to  receive. 
Whatever  was  capital  must  remain  capital."  When  corporate 
stock  is  by  the  will  of  a  deceased  given  in  trust,  the  income 
thereof  for  theuseof  the  beneficiary  for  life,  with  remainder  over^ 
the  surplus  profits  which  have  accumulated  in  the  life-time  of 
the  testator,  but  which  have  not  been  divided  until  after  death, 
belong  to  the  corpus  of  the  estate.  The  dividends  from  earn- 
ings made  after  his  death  are  income,  payable  to  the  lite-ten- 
ant, whether  they  are  cash,  Bcrip  or  stock. 

The  profits  of  a  sale  of  new  stock  issued  after  the  testator's 
death,  in  lieu  of  profits  applied  to  the  improvement  of  the  cor- 
porate property  in  the  testator's  life-time,  is  capital  and  not  in* 
.'•,  and  belongs  to  the  corpus.9 

1  Biddle'a  App.,  99  Pa.  si.  278.  *  Estate  of  Smith,  L40  Pa.  St.  844,28 

Am.  St.  Rep.  287. 


§  419  THE    RIGHTS    OF    MEMBERSHIP.  445 

§  419.  The  general  adoption  of  this  rule. — Notwithstand- 
ing the  simplicity  of  the  rule  in  Minot's  case  and  the 
fact  that  it  has  been  accepted  by  the  supreme  court  of  the 
United  States,  the  Pennsylvania  rule  has  been  generally 
adopted  in  recent  cases.  Although  it  is  more  difficult  to  apply, 
the  results  are  more  generally  in  accord  with  justice  and  the 
intent  of  the  testator.  For  some  time  there  was  doubt  as  to 
the  position  of  the  New  York  court  of  appeal,1  although  the 
lower  court  had  repudiated  the  English  and  Massachusetts 
doctrine,2  but  New  York,3  along  with  New  Jersey,4  New  Hamp- 
shire,5 Kentucky,6  Maryland  7  and  Tennessee,8  has  now  adopted 
the  Pennsylvania  rule.  With  reference  to  the  rule  that  what 
the  company  says  is  income  shall  be  income,  the  New  York 
court  said: 9  "This  is  but  another  way  of  saying  that  whether 
accumulated  earnings  belong  to  the  life-tenant  or  the  remain- 
der-man depends  upon  the  action  of  the  corporation,  and  that 
the  property  rights  of  such  parties  under  the  will  are  governed 
by  the  mere  form  of  capitalization;  that  the  majority  of  the 
board  of  directors  may  give  them  to  one  or  the  other  at  their 
will.  While  such  a  rule  might  have  the  merit  of  simplicity  and 
convenience,  it  ought  not  to  determine  the  property  rights  of 
parties  interested  in  the  corporate  property.  That  a  testament- 
ary provision  of  this  character,  for  the  benefit  of  both  the  life- 
tenant  and  the  remainder-man,  who  are  generally  the  nearest 

1  Riggs  v.  Cragg,  89  N.  Y.  479.  dividend    is    declared,     belongs    in 

2Clarkson  v.  Clarkson,  18  Barb.  646;  equity  to  the  person  entitled  to  in- 

Riggs  v.  Cragg,  26  Hun '89;  Simpson  come,  except  so  far  as  it  is  derived 

v.  Moore,  30  Barb.  637;  Goldsmith  v.  from  the  earnings  of  the  stock  after 

Swift.  25  Hun  201.  such  severance.    The  general  trend  of 

3  Mc Louth  v.   Hunt,  154  N.  Y.  179,  judicial  opinion  in  this  country  is  to- 
39  L.  R.  A.  230.  ward  the  adoption  of  this  principle, and 

4  Van  Doren  v.  Olden,  19  N.  J.  Eq.  we  adopt  it  without  qualification." 
176,   97    Am.    Dec.   650.     In  Lang  v.  5  Lord  v.  Brooks,  52  N.  H.  72. 
Lang's  Exrs.  (N.  J.),  41  Atl.  Rep.  705,  6Hite  v.  Hite,  93  Ky.  257,  19  L.  R. 
the    court    said:      "The    underlying  A.  173. 

principle   applicable    to  this  case  is  7Thomas  v.  Gregg,  78  Md.  545. 

that  no  corporate  dividend,  declared  BPritchitt  v.  Nashville,  etc.,  Co.,  96 

after  the  right  to  the  dividend  has  be-  Tenn.  472,  33  L.  R.  A.  856. 

come  severed  from  the  ultimate  own-  9  McLouth  v.  Hunt,  154  N.  Y.  179,  39 

ership  of  the  stock  upon  which  such  L.  R.  A.  230. 


440  THE    LAW    OF    PRIVATE    CORPORATIONS.  §   420 

and  dearest  objects  of  the  testator's  bounty,  can  in  this  way 
be  voted  up  or  down,  increased  or  diminished,  as  the  corpora- 
tion may  elect,  and  that  such  action  precludes  the  courts  from 
looking  into  the  real  nature  and  substance  of  the  transaction 
and  adjusting  the  rights  of  the  parties,  according  to  justice  and 
equity,  is  a  proposition  that  can  not  be  accepted.  The  mere 
adoption  by  the  corporation  of  a  resolution  can  not  change 
accumulated  earnings  into  capital  as  between  the  life-tenant 
and  remainder-man."1  xV  corporation  passed  a  resolution 
reciting  that  for  the  three  fiscal  years,  ending  September  30,  the 
net  earnings  of  the  company  had  amounted  to  a  certain  sum, 
that  it  had  been  used,  among  other  things,  for  the  permanent 
improvement  of  the  railway  and  for  new  construction,  and  that, 
therefore,  a  dividend  of  twenty  per  cent,  be  declared  for  said 
period,  "payable  in  common  stock  of  the  company." 

This  dividend  was  held  to  be  income  and  not  capital  and  to 
go  to  the  life-tenant.  It  was  said  that  when  it  is  possible  for  the 
court  to  ascertain,  with  any  certainty,  whether  the  distribution 
of  the  stock  dividend  includes  net  earnings,  and,  if  so,  what 
proportion,  and  also  whether  such  earnings  were  intended  to 
be  made  a  part  of  the  capital  or  merely  to  be  used  temporarily, 
with  the  intention  on  the  part  of  the  directors  of  refunding 
them  to  the  shareholders  as  income,  it  is  the  duly  of  the  court 
to  make  such  investigations  and  dispose  of  the  stock  in  an 
equitable  way  between  the  life-tenant  and  remainder-man.2 

II.      Actions   by  STOCKHOLDERS. 

§  420.     Actions  against   third   persons — The   protection  of 

collective  rights. — The  collective  rights  <>f  a  member  are  such 
;i-  1m  enjoys  within  the  corporation.  They  are  rights  in  the 
corporate  concern,  rather  than  againsl  it,  and  should  be  en- 
forced through  the  corporate  organization.     It   is  the  duty  of 

i  In  Gibbons  v.   Mahon,  186  Q.  B.  corporation  as  manifested  by  its  vote 

Ui.  .in-tic  Gray,  after  an  exami-  or  resolution  governs.  See,  also,  Rich- 

nation   of  tin-  authorities,  concludes  ardson  v.  Richardson,  7.~>  Maine  570, 

thai  the  weight  of  authority  supports  W  Im.  Rep.  428. 

the  proposition  thai  tin-  Lntenl  of  the  •Thomas  v.  Gregg,  78  Md 


§420 


THE    RIGHTS    OF    MEMBERSHIP. 


447 


the  corporation  and  not  of  the  shareholder1  to  protect  the  cor- 
porate rights,2  but  when  the  proper  officers  are  unable  or  un- 
willing to  act  the  corporation  can  not  act,  and  it  is  necessary 
to  permit  the  members  to  sue  for  the  protection  of  their  equi- 
table interests.3  For  fraudulent  and  wrongful  dealing  with 
corporate  property,  prejudicially  affecting  the  interests  of  the 
corporation,  and  hence  the  interests  of  the  shareholders,  the 
right  of  action  is  primarily  in  the  corporation,  and  is  to  be  as- 
serted by  it  rather  than  by  individual  stockholders,  unless  it 
is  shown  to  be  impracticable  for  the  complaining  stockholder 
to  induce  the  corporation  to  sue.4  The  cases  in  which  the 
stockholders  will  be  permitted  to  maintain  an  action  which 
should  ordinarily  be  brought  by  the  corporation,  are  generally 
brought  to  prevent  a  threatened  injury,  although  it  may  be  to 
recover  damages  for  injuries  already  suffered.5 


1  Silk,  etc.,  Co.  v.  Campbell,  27  N.  J. 
L.  539;  Henry  v.  Elder,  63  Ga.  347; 
VanKirk  v.  Adler,  111  Ala.  104. 

2  Bradley  v.  Richardson,  2  Blatchf. 
(C.  C.)  343. 

3  Flynn  v.  Brooklyn,  etc.,  R.  Co.,  158 
N.  Y.  493;  Brinckerhoff  v.  Bostwick, 
88  N.  Y.  52. 

4  Hodgson  v.  Duluth,  etc.,  R.  Co., 
46  Minn.  454;  Hutton  v.  Joseph  Ban- 
croft &  Sons  Co.,  83  Fed.  Rep.  17; 
Dunphy  v.  Travelers',  etc.,  Assn., 
146  Mass.  495;  Holton  v.  Newcastle  R. 
Co.,  138  Pa.  St.  Ill ;  Rothwell  v.  Rob- 
inson, 39  Minn.  1;  Dond  v.  Wiscon- 
sin, etc.,  R.  Co.,  65  Wis.  108.  In  Pom- 
eroy  Eq.  Jur.,  §  1094,  it  is  said:  "In 
cases  belonging  to  tbis  class,  there- 
fore, whatever  be  the  nature  of  the 
particular  wrong,  whether  intentional 
and  fraudulent,  or  resulting  from  neg- 
ligence or  want  of  reasonable  pru- 
dence, and  whatever  be  the  indirect 
loss  occasioned  to  individual  stock- 
holders, no  equitable  suit  for  relief 
against  the  wrong-doing  directors  or 


officers  can  be  maintained  by  a  stock- 
holder or  stockholders  individually, 
nor  by  a  stockholder  suing  represen- 
tatively on  behalf  of  all  others  simi- 
larly situated,  unless  the  special  con- 
dition of  circumstances  exists  to  be 
described  in  the  next  following  para- 
graph, namely,  that  the  corporation 
either  actually  or  virtually  refuses  to 
prosecute.  Even  if  the  stockholder 
alleges  that  the  value  of  his  own  stock 
has  been  depreciated  by  the  defend- 
ants' acts,  or  that  he  has  sustained 
other  special  damage,  he  is  not  there- 
by entitled  to  maintain  the  suit."  Os- 
wald v.  St.  Paul,  etc.,  Co.,  60  Minn. 
82,  61  N.  W.  Rep.  902. 

5 Chicago  v.  Cameron,  120  111.  417. 
See  Samuel  v.  Holladay,  1  Woolw. 
400;  Carter  v.  Ford,  etc.,  Co.,  85 
Ind.  180.  As  to  the  right  of  a  minor- 
ity stockholder  to  an  injunction  to 
prevent  the  voting  of  exorbitant  sala- 
ries to  officers,  see  Decatur,  etc., Co.  v. 
Palm,  113  Ala.  531,  59  Am.  St  Rep, 
140. 


448  THE    LAW    OF    PBIVATB    CORPORATIONS.  §  421 

§  421.  When  a  stockholder  may  sue. — The  relation  between 
the  corporation  and  its  members  is  similar  to  that  of  trustee 
and  beneficiaries,  and  the  beneficiaries  under  a  trust  are  not 
entitled  to  sue  for  the  protection  of  the  trust  unless  the  trustee 
has  refused  or  is  unable  to  protect  it.1  A  shareholder  is  en- 
titled to  relief  in  a  court  of  equity  on  account  of  any  infringe- 
ment of  his  equitable  rights  as  member  and  beneficiary  of  the 
corporation:  Provided,  first,  that  the  corporation  itself  be  un- 
able, by  reason  of  the  default  of  its  agents,  to  obtain  an  ade- 
quate remedy  within  a  reasonable  time  ;  and,  secondly,  that 
the  right  to  obtain  redress  for  an  injury  be  not  implicitly  re- 
linquished by  the  shareholder  to  the  discretion  of  the  regular 
agents  of  the  corporation  as  a  mutual  concession  for  the  sake 
of  peace  and  good- will.2 

It  must  be  made  to  appear  to  the  court  that  the  shareholder 
will  suffer  irremediable  loss  if  not  permitted  to  maintain  the 
suit,3  and  that  a  real  effort  has  been  made  to  induce  the  proper 
officers  to  bring  the  suit,4  and  that  their  refusal  to  act  is  a 
breach  of  trust,  and  not  a  mere  error  of  judgment.5  The  de- 
mand must  be  made,  although  the  term  of  corporate  existence 
has  expired,  when  the  corporation  is  by  the  statute  kept  alive 
for  the  purpose  of  winding  up  its  business.6  But  when  the  offi- 
cers have  absconded,  and  the  corporation  is  practically  dis- 
solved, a  stockholder  may  maintain  a  suit  against  a  person  to 
whom  the  corporate  property  has  been  fraudulently  con- 
veyed.7 

The  rule  that  the  stockholder  can  not  maintain  an  action 
against  one  who  has  injured  the  corporation  does  not  apply 
where  the  arts  are  not  only  wrongs  against  the  corporation, 

>  Western  Et.  Co.  v.  Nolan,  is  N.  Y.  Radford,  etc.,  Co.,  93  Va.  427 ;  Rogers 

513,  v.  Nashville,  etc.,  R.  Co.,  91  Fed.  Rep. 

•  Republican,  etc.,  Co.  v.  Brown,  19  299. 

:.  24  I-.  R.  A    776;  Rns-       :t  Detroil  v.  Dean,  106  U.  B.  587. 
sell v.Wakefield, etc., Co.,  I..  :.".  20  Eq.        '  Dimpfell  v.  Ohio,  etc.,  R.  Co.,  L10 

474;  Dodge v.Woolsey,  is  Bow.(TJ.S.)  ''■  B.  209. 

Lottos  \  .  etc.,   Lssn.,       5  Hawes  v.  Oakland,  104  U.  8.  UJOj 

h  s  Dak.  201  :  Memphis  City  v.  Dean,  Rathbonev,  Gas  Co., 81  W.  Va.  798. 
x  Wall.  (IT.  B  64;  People  v.  State  "Taylor  v.  Holmes,  127  IT.  8.  489. 
Treasurer,   24    Mich.  468;    Mounl   v.       T  Wilcox  v.  Bickel,  11  Neb.  164. 


§  422  THE    RIGHTS    OF    MEMBERSHIP.  449 

but  also  a  violation  of  a  duty  owed  directly  to  the  individual 
stockholder.  Thus,  where  the  stockholder  pledged  his  stock 
as  collateral  with  the  directors  of  the  corporation,  and  the  lat- 
ter entered  into  a  conspiracy  to  depreciate  the  value  of  the 
stock  for  the  purpose  of  buying  it  in  at  less  than  its  value,  it 
was  held  to  be  a  wrong  against  both  the  corporation  and  the 
stockholder,  and  that  the  action  could  be  maintained  by  the 
stockholder.  Taft,  J.,  said:1  "It  is  undoubtedly  true,  as  the 
circuit  court  held,  that  a  stockholder,  merely  as  such,  can  not 
have  an  action  on  his  own  behalf  against  one  who  has  injured 
the  corporation,  however  much  the  wrongful  acts  may  have 
depreciated  the  value  of  his  shares,  but  we  are  of  opinion  that 
this  principle  has  no  application  where  the  wrongful  acts  are 
not  only  wrongs  against  the  corporation,  but  are  also  violations 
by  the  wrong-doer  of  a  duty  arising  from  contract  or  otherwise, 
and  owing  directly  by  him  to  the  stockholders."2 

§  422.    Conditions  precedent  to  right  of  action. — Before  an 

action  can  be  maintained  by  a  stockholder  it  must  appear 

(1)  That  no  agents  of  the  corporation  having  the  requisite 
authority  are  willing  or  able  to  act;3  and 

(2)  That  a  demand  has  been  made  upon  them  and  that  they 
have  refused  to  act;4  or 

1  Ritchie  v.  McMullen,  79  Fed.  Rep.  Merch.  Exch.,  45  Mo.  App.  206.  A 
522,  25  C.  C.  A.  50.  demand  is   not  necessary  where  the 

2  Smith  v.  Hard,  12  Mete.  (Mass.)  corporation  long  since  ceased  to  do 
371;  Allen  v.  Curtis,  26  Conn.  456;  business  and  the  directors  are  un- 
Wallace  v.  Bank,  89  Tenn.  630;  Con-  known.  Tennessee,  etc.,  Co.  v.  Ayers, 
way  v.  Halsey,  44  N.  J.  L.  462;  Por-  43  S.  W.  Rep.  744.  "The  right  to  sue 
ter  v.  Sabin,  149  U.  S.  473.  and  he  sued,  to  maintain  and  defend 

8 Bill   v.  "Western  Union,  etc.,  Co.,  actions    concerning  corporate    rights 

16  Fed.  Rep.  14;    Hawes  v.  Oakland,  and  corporate  liabilities,  is  a  power 

104  U.  S.  450,  Wilgas'  Cases.  incident  to  every  corporation,    *    *    * 

4  Memphis  City  v.  Dean,  8  Wall.  64;  and  with  this  right  of  the  corporation 

Detroit  v.  Dean,  106  U.  S.  537  ;  Hawes  to  maintain  and  defend  actions  con- 

v.  Oakland,  104  IT.  S.  450;    Shawhan  cerning  its  corporate  rights  or  liabili- 

v.  Zinn,  79  Ky.  300;  Roman  v.  Wool-  tics  the  stockholder  can  not  interfere 

folk,  98  Ala.  219 ;  Forrester  v.  Boston,  except  when  the  directors  refuse  to 

etc.,  Co.  (Mont.),  55  Pac.  Rep.  229;  act  or  are  guilty  of  fraud  in  the  main* 

Smith  v.  Dorn,  9(5  Cal.  73;  Albers  v.  tenance  or  defense  of  the  action." 
29 — Private  Corp. 


450  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  423 

(3)  That  the  agents  themselves  are  the  authors  of  the 
wrong.1  Under  such  circumstances,  no  demand  to  bring  suit 
is  required  as  "the  law  does  not  require  the  minority  stock- 
holders to  do  so  absurd  a  thing  as  a  condition  of  seeking  relief 
against  the  wrongful  acts  of  the  directors  and  majority  stock- 
holders."2 

§  423.  Exceptions  to  the  rule. — To  the  general  rule  above 
stated  there  are  two  exceptions : 

( 1 )  Equity  will  not  interfere  if  the  acts  of  the  managing 
agents  are  within  the  ratifying  power  of  the  majority.3  But 
this  exception  has  no  application  where  the  act  complained  of 
is  in  excess  of  the  power  of  the  majority,4  or  where  the  relief 
sought  is  merely  preventive. 

(2)  Equity  will  not  interfere  unless  it  appears  that  a  delay 
of  the  remedy  until  a  corporate  meeting  can  be  held  and  the 
guilty  agents  removed  would  unduly  prejudice  the  rights  of 
the  complainants,  or  that  delay  would  be  useless.5 

§  424.     Illustrations,  Foss  v.  Harbottle.6 — Two  members  of 

an  incorporated  company,  called  the  Victoria  Park  Company, 
filed  a  bill  against  the  directors  thereof,  charging  them  with  a 
variety  of  fraudulent,  illegal  acts,  whereby  the  property  of  the 
company  was  misapplied,  aliened  and  wasted,  and  praying  that 
the  defendants  might  make  good  to  the  company  the  damages 
by  reason  of  the  acts  complained  of,  and  that  a  receiver  might 
1m-  appointed  to  apply  the  property  of  the  company  in  discharge 
of  its  liabilities;  and  to  secure  the  surplus.  The  general  result 
ol  the  act  of  incorporation  was  to  make  the  directors  a  govern- 
ing body  subject  to  the  strict  control  of  the  proprietors,  who 
had  power,  when  assembled   in  general  meeting,  t<>  originate 

Bainee  v.    Babcock,  96  Cal.  581,   27  49Minn.  183;  Rothwell  v.  Robinson, 

p.      Rep,  674;  Ore   ■  ■         Gouge,  69  39  Minn.  1 ;  Gerry  v.  Bismark   Bank, 

N.  Y.  L64j   Brewerv.  Boston  Theater,  19  Mont.  191. 

HU  m                Ware  v.  Bazemore,  58  Fo     v.  Harbottle,  2  Hare  461. 

ii;  'Bagshaw  v.  Eastern,  etc.,  K.  Co., 

1  Peabody  v.  Flint,  <'•  A.llen  •'>'-';  Ex-  7  Hare  11 1. 

.,    etc.,  Co.   \.   Brown,  .i  Fed.  ■  Mozley  v.  Alston,  ]  Ph.Ch.790. 

I<. . j .               |  '  i  o  > •  \ .  I  [arbottle,  2  Hare  461 . 
'  Bjorngaard  -.    ( toodhoe  ( lo.  Bank, 


§425  THE    RIGHTS    OF    MEMBERSHIP.  451 

proceedings  for  any  purpose  within  the  scope  of  the  company's 
powers,  as  well  as  to  control  the  directors  in  any  act  which 
they  might  have  originated.  The  court  was  of  the  opinion 
that  the  acts  of  the  defendants  complained  of  were  of  such  a 
nature  as  to  be  capable  of  confirmation  by  the  majority  of  the 
members  of  the  company;  that  it  did  not  appear  that  any  at- 
tempt had  been  made  to  bring  these  acts  before  a  general  meet- 
ing of  the  shareholders;  and  that  under  these  circumstances, 
the  court  could  not  interfere  at  the  suit  of  a  minority,  what- 
ever it  might  have  been  induced  to  do  had  proper  means  been 
resorted  to  and  found  ineffectual  to  set  the  general  body  of  share- 
holders in  motion. 

§  425.  Mozley  v.  Alston.1 — A  bill  was  filed  by  two  share- 
holders of  a  railroad  company,  against  the  company  and  its  di- 
rectors, alleging  that  the  latter  had  been  illegally  appointed; 
that  they  had  possession  of  the  seal  of  the  corporation,  and 
that  they  were  about  to  use  it  for  various  improper  purposes. 
The  bill  prayed  that  the  directors,  who  were  the  defendants, 
might  be  restrained  from  acting  as  directors,  and  be  ordered 
to  place  the  seal  and  the  books  and  documents  of  the  com- 
pany under  control  of  the  lawful  directors.  It  appeared 
from  the  statements  in  the  bill  that  the  majority  of  the  share- 
holders agreed  with  the  plaintiffs  in  their  view  of  the  illegality 
of  the  directors'  appointment,  and  the  court  held  that  if  they 
were  so  there  was  nothing  to  prevent  the  company  from  filing 
a  bill  in  its  corporate  character  to  remedy  the  alleged  viola- 
tions, and  that  as  the  complainants  showed  no  reasons  to  jus- 
tify them  alone  in  applying  for  redress,  they  were  not  entitled 
to  its  assistance. 

§  426.  Hawes  v.  Oakland.2 — This  is  probably  the  leading 
case  upon  this  subject  in  the  United  States.  A  shareholder 
in  a  water- works  company  filed  a  bill  in  equity  against  the 
city,  the  corporation  and  its  directors,  and  alleged  that  the 
company   was   furnishing  the  city   with    water  free  of  charge 

'Mozley  v.  Alston,  1  Ph.  Ch.  790.  2 104  TJ.  S.  450.     Approved  in  De- 

troit v.  Dean,  106  U.  S.  537. 


452  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  427 

beyond  what  the  law  required  it  to  do,  and  that  the  directors, 
contrary  to  his  request,  continued  to  do  so  to  the  great  injury 
of  himself,  the  other  shareholders  and  the  company.  The 
court  held  that  before  the  action  could  be  maintained  by  the 
shareholder  there  must  be  shown  : 

1.  Some  action  or  threatened  action  of  the  directors  or  trus- 
tees, which  is  beyond  the  authority  conferred  by  the  charter 
or  the  law  under  which  the  company  was  organized;   or, 

2.  Such  a  fraudulent  transaction  completed  or  threatened 
by  them,  either  among  themselves  or  with  some  other  party, 
or  with  shareholders,  as  will  result  in  serious  injury  to  the 
company  or  the  other  shareholders;  or, 

3.  That  the  directors,  or  a  majority  of  them,  are  acting  for 
their  own  interest  in  a  manner  destructive  of  the  company,  or 
of  the  rights  of  other  shareholders;   or, 

4.  That  the  majority  of  shareholders  are  oppressively  and 
illegally  pursuing  in  the  name  of  the  company  a  course  in  vio- 
lation of  the  rights  of  the  other  shareholders,  which  can  only 
be  restrained  by  a  court  of  equity. 

5.  It  must  also  lie  made  to  appear  that  the  complainant 
mad'-  ao  earnest  effort  to  obtain  redress  at  the  hands  of  the 
directors  and  shareholders  of  the  corporation,  and  thai  the 
ownership  of  the  stock  was  vested  in  him  at  the  time  of  the 
transactions  of  which  he  complains,  or  was  thereafter  trans- 
ferred to  liini  by  operation  of  law. 

§  127.  The  rights  of  transferees. — A  transferee  of  shares 
acquires  the  rights  of  the  transferrer,  and  the  right  of  action 
passi  -  viih  lie  whether  it  was  known  to  the  transferee 

or  not.  If  he  is  a  purchaser  in  good  faith  without  n< 
thai  the  transferrer  had  precluded  himself  from  suing  by 
acquiescence,  he  may  maintain  the  suit,  as  "it  can  never  be 
held  thai  lie'  acquiescence  of  the  original  holder  of  stock  in 
illegal  acts  of  the  directors  of  a  company  will  hind  ;i  subse- 
i  holder  of  thai  slock  to  submit  to  all  future  acts  of  the 
Milne  character. "  ' 

1  Bl  Metropolitan  R  •',,.,  j,.     in  federal  cou  Equity  Rule  '•', 

to  thi  practice    printed  in  the  preface  to  vol.  mi.  I 


§428  THE    RIGHTS    OF    MEMBERSHIP.  453 

§  428.  Discretionary  power. — But  the  courts  will  not  con- 
trol the  discretionary  powers  of  the  managing  agents  of  a  cor- 
poration so  long  as  they  act  honestly  and  within  the  power 
conferred  by  the  charter.1  Thus,  directors  will  not  be  com- 
pelled to  bring  an  action  in  the  name  of  the  corporation  or  pay 
dividends,  unless  there  is  abuse  of  discretion.2 

§  429.  Acquiescence. — Neither  the  corporation  nor  the  share- 
holders can  repudiate  an  unauthorized  transaction  after  the 
shareholders  have  acquiesced  in  the  transaction  and  allowed 
the  corporation  to  appropriate  the  benefits  thereunder,  but  the 
acquiescence  of  a  number  or  even  of  the  majority  will  not  bar  a 
suit  by  the  corporation,  and  the  benefits  of  the  proceeding  will 
accrue  to  all  the  members.  Where  the  individual  member, 
who  himself  acquiesces  in  the  wrong,  is  disqualified  from  suing, 
he,  nevertheless,  is  entitled  to  share  in  the  benefits  of  the 
proceeding  by  the  corporation. 

§  430.  Parties  to  the  suit. — The  suit  may  be  brought  by 
the  holder  of  a  single  share,  or  all  shareholders  may  join. 
If  it  is  brought  by  a  part  only,  it  should  purport  to  be  on  be- 
half of  the  plaintiffs  and  all  others  similarly  situated.  The 
corporation  and  all  shareholders  who  are  parties  to  the  wrong, 
complained  of  should  be  made  defendants.3  It  is  essential 
that  the  corporation  should  be  made  a  party  defendant.4 

§  431.  Right  to  restrain  ultra  vires  acts. — A  stockholder 
who  has  not  waived  or  forfeited  his  rights5  may  maintain  a 
suit  to  restrain  the  corporation  from  doing  an  act  which  is 
ultra  vires,6  such  as  performing  an  illegal  contract,7  diverting 

S.  Rep.,  and  comments  of  Mr.  Justice  5  Dimpfell    v.   Ohio,    etc.,   R.   Co., 

Miller  in  Hawes v.  Oakland,  104  TJ.  S.  110  U.  S.  209;    Rabe  v.  Dunlap,  51 

450;  supra,  §  296.  N.  J.  Eq.  40,  25  Atl.  Rep.  959;  Jeffer- 

1  §400;  Oglesby  v.Attrill,105TJ.S.605.  son  County  Sav.  Bank  v.  Francis,  115 

2  Samuel  v.  Holladay,  1  Woolw.  400.  Ala.  317. 

3  Davenport  v.  Dows,  18  Wall.  626;  6Carson  v.   Gaslight  Co.,   80   Iowa 
Davis  v.  Peabody,  170  Mass.  397.  638;    Stewart  v.    Erie,   etc.,   Co,  17 

*Shawhan    v.    Zinn,   79    Ky.    300;  Minn.  372,  Gil.  348;  Dodge  v.  Wools.v, 

Dodge  v.  Woolsey,  18  How.   (U.  S.)  18  How.  (U.  S.)  331. 

331;  Memphis,  etc.,  Co.  v.  William-  7  Morrill  v.  Boston,  etc.,  R.  Co.,  55 

son,  9  Heisk.  (Tenn.)  314.  N.  H.  531. 


454  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  431 

the  corporate  funds  to  unauthorized  purposes,1  or  entering  upon  a 
business  not  authorized  by  the  charter.2  A  single  stockholder 
who  acts  promptly  may  enjoin  the  corporation  from  accepting  a 
legislative  amendment  which  would  substantially  alter  the  cor- 
porate charter.3  But  the  rule  is  otherwise  if  the  charter  was 
subject  to  amendment  under  the  law  in  force  when  it  was 
granted.4  A  minority  stockholder  can  not  invoke  the  jurisdic- 
tion of  equity  for  himself  and  those  who  may  subsequently 
join  him  to  prevent  the  majority  stockholders  from  making  a 
contract  which  is  neither  ultra  vires  nor  fraudulent.5  A  court 
of  equity  will  not  attempt  to  adjust  controversies  which  have 
arisen  among  shareholders  and  directors  relative  to  the  proper 
mode  of  conducting  the  corporate  business.6  Equity  will  re- 
lieve the  minority  against  the  action  of  a  majority  stockholder 
who  also  holds  a  majority  of  the  mortgage  bonds  in  using  the 
income  for  improper  purposes  and  declining  to  accept  traffic 
from  other  roads  which  would  produce  a  fund  to  pay  interest 
due,  by  which  the  corporation  is  to  be  forced  into  insolvency 
and  its  property  sold  for  the  purpose  of  enabling  the  majority 
stockholder  to  acquire  title.7 

The  right  to  relief  may  be  lost  by  acquiescence  or  delay. 
The  business  of  a  corporation  was  a  failure  and  it  was  heavily 
in  debt.  Its  plant  was  unsalable,  and  the  directors,  with  the 
approval  of  all  the  shareholders  but  the  plaintiff,  acting  in 
good  faith,  exchanged  the  plant  for  the  paid-up  shares  of  an- 
other corporation  which  was  authorized  to  engage  in  the  same 
business.  The  plaintiff  knew  of  the  transaction  immediately 
after  its  completion  and  made  no  objection  until  more  than 
two  years  had  elapsed.  He  tlen  brought  an  action  against  the 
corporation    and    the   directors   to   recover  the    proportionate 

-hare  of   the  property  transferred,  and  the  court    held  that,  as- 

1  Rothwell  v.  Robinson,  ::■■>  Minn.  I  ;  4  Mower  v.  Staples,  W2  Minn.  284. 

March  v.  Railway  Co.,  18  N.  H.  515;  fish;iw  v.  Davie,  78  Md.  308,  28  L. 

\  hton  \    Daahaway  \--n..  840al.61  ;  R.  A.  294. 

ral  R.  Co  v.  Collins,  K)  Ga.  582.  "Republican,  etc.,  Co.  7.Brown,19 

•  Oh               tc  ,Oo.  v.  Jone3,52Ga.  D.  B.  A.pp.  208,  -'I  I,.  R.  A.  77<;. 

27fl,  'DeNeufVille  v.  New  York,  etc.,  R, 

■Mowrey  v.  Indianapolis,  etc.,  R.  Oo.,81  Fed. Rep.  10, 61 TJ. 8. App. 874. 
Co.,  -I  Bl    .  (C.  <      7i      |   186,  infra, 


§  432  THE    RIGHTS    OF    MEMBERSHIP.  455 

suming  that  the  transfer  was  ultra  vires,  the  plaintiff  could  not 
recover,  on  the  ground  that  "It  is  inequitable  for  a  stockholder, 
knowing  that  an  act  done  by  the  directors  and  a  majority  of 
the  stockholders,  in  good  faith,  for  the  benefit  of  the  corpora- 
tion, is  in  fact  unauthorized,  to  apparently  acquiesce  by  his 
silence,  but  secretly  reserve  an  option  to  repudiate  the  act  in 
case  of  loss,  or  to  enjoy  its  benefits  if  it  proves  profitable."1 

§  432.  Control  by  the  majority. — The  right  to  control  the 
actions  of  the  corporation  in  carrying  out  the  objects  set  forth 
in  the  charter  is  vested  in  the  majority  of  the  stockholders, 
and  the  court  will  not,  so  long  as  the  action  is  legal,  inter- 
fere with  the  management  at  the  instance  of  a  minority  stock- 
holder.2 A  court  of  equity  will  interfere  with  this  control 
at  the  instance  of  a  minority  stockholder  only  when  absolutely 
necessary  for  the  attainment  of  justice  and  the  prevention  of 
actual  fraud.3  Each  and  every  stockholder  contracts  that  the 
will  of  the  majority  shall  govern  in  all  matters  coming  within 
the  limits  of  the  act  of  incorporation.  In  cases  involving  no 
breach  of  trust,  but  only  error  or  mistake  of  judgment  on  the 
part  of  directors  who  represent  the  corporation,  individual 
stockholders  have  no  right  to  appeal  to  the  courts  to  dictate 
the  line  of  policy  to  be  pursued  by  the  corporation.4  "We 
suppose  it  to  be  stated  as  an  indisputable  proposition,"  says 
Chief  Justice  Bigelow,  "that  every  person,  who  becomes  a 
member  of  a  corporation  aggregate  by  purchasing  and  hold- 
ing shares,  agrees,  by  necessary  implication,  that  he  will  be 
bound  by  all  acts  and  proceedings  within  the  scope  of  the 
powers  and  authority  conferred  by  the  charter,  which  shall  be 
adopted  and  sanctioned  by  a  vote  of  the  majority  of  the  corpo- 
ration, duly  taken  and  ascertained  according  to  law.  This  is 
the  unavoidable  result  of  the  fundamental  principle  that   the 

1  Pinkusv.  Minneapolis  Linen  Mills,     105  U.  S.  605 ;  Shaw  v.  Davis,  78  Mel.  308 
65  Minn.  40.  s Peatman  v.   Centerville,  etc.,  Co., 

2  Durfee  v.  Old  Colony,  etc.,  R.  Co.,     100  Iowa  245,  69  N.  W.  Rep.  541. 

5  Allen  (Mass.)  230;  Hawes  v.  Oak-  *  Dudley  v.  Kentucky  High  School, 
land,  104  U.  S.  450 ;  Oglesby  v.  Attrill,     9  Bush  (Ky.)  576. 


456  THE    LAW    OF    PRIVATE    CORPORATIONS.  §    \%% 

majority  of  shareholders  can  regulate  and  control  the  lawful 
vice  of  the  powers  conferred  on  a  corporation  by  its  char- 
ter. A  holder  of  shares  in  an  incorporated  body,  so  far  as 
his  individual  rights  and  interests  may  be  involved  in  the 
doings  of  the  corporation,  acting  within  the  legitimate  sphere 
of  its  corporate  power,  has  no  more  legal  control  over  them  than 
that  which  he  can  exercise  by  his  single  vote  in  the  meetings 
of  the  company."1  The  court  will  not  interfere  with  a  contem- 
plated contract  on  the  ground  that  it  is  improvidentand  unwise.2 
The  minority  stockholders  can  not  maintain  an  action  in 
tlnir  own  name  for  the  removal  of  directors  on  the  ground 
that  three  persons  who  controlled  a  majority  of  the  stock  con- 
trolled the  election  of  the  seven  directors.3 

§  433.  Limitation  on  the  power  of  the  majority.4 — The  right 
of  the  majority  to  control  the  policy  of  a  corporation  is  subject 
to  the  implication  that  the  business  will  be  managed  in  the  in- 
terest of  all  the  stockholders  and  not  merely  lor  that  of  the  ma- 
jority. If  the  majority  attempt  to  obtain  for  themselves  an  ad- 
vantage not  shared  by  the  other  stockholders,  a  court  of  equity 
will  interfere  at  the  suit  of  the  minority.5  In  a  case  where  a 
railway  corporation  purchased  a  majority  of  thestockof  a  canal 
company  and  elected  a  board  of  directors  in  their  own  inte 
and  appropriated  the  entire  property  of  the  canal  company  for 
railway  purposes,  the  railway  company  was  required  to  pay  to 
the  stockholders  and  creditors  of  the  canal  company  the  differ- 
<  ace  between  the  value  of  the  property  and  wnat  the  railway 
company  paid  for  it.6  In  speaking  of  the  duties  of  directors 
ih<.  court  Baid:  "A  director  whose  personal  interests  are  ad- 
-  to  those  of  the  corporation  lias  no  right  to  he  or  act  as, 
a  director." 

'Dnrfee  v.  <>M  Colony    R.  Co.,  5    bers  Among  Themselves  and  Against 

Allen    (Mass.)   '-'•"•'».    Wilgus1    Cases;    the  Corporation. 

Flukerv.  Railway  Co.,  18  K:m.  ">77.  BMenier  v.   Hooper's,  etc.,  Works, 

Meredith  v.  New  Jei  ey,  etc.,  Co.,    9  L.  R.  Ch.  850;  Sellers  v.  Phoenix, 

.1    i;,|.  21 1.  etc.,  Co.,  IS   Fed.  Rep.  20;  Jones  v. 

•Decatur,  etc., Co.  v. Palm,  113  Ala.     Morrison,  81   Minn.  140;   Gamble  v. 

Wa.U  r  Co.,  123  V  Y.  91. 

»8eeVrUguB   I  Right*  of  Mem-       'Goodin  v.  Cincinnati,  etc.,  Co.  1 18 

Ohio  si.  L69,  un  188. 


CHAPTER  16. 


TRANSFER    OF    SHARES. 


§434. 

General  statement. 

§450. 

Fraudulent  transfer — Rights  of 

435. 

The  right  to  transfer  shares. 

transferee   or    purchaser   of 

436. 

Power  to  prohibit  transfers. 

stock  certificate. 

437. 

The  regulation  of  transfers. 

451. 

Negligence  of  owner  —  Estop- 

438. 

Restrictions  imposed    by   by- 

pel. 

law  or  express  contract. 

452. 

Transfer  on  forged  power  of 

439. 

Regulation    of    transfers   con- 

attorney— Liability  of  corpo- 

tinued. 

ration. 

440. 

Transfer  on  books  of  the  cor- 

453. 

Forgery    of     transfer  —  Negli- 

poration. 

gence. 

441. 

Transfer  on  books,  continued. 

454. 

Rights  of  purchaser  of  shares 

442. 

The   rights  of   attaching  cred- 

transferred in  violation  of  a 

itors. 

trust. 

443. 

Transfers  in  fraud  of  creditors. 

455. 

Transfers  in  breach  of  trust — 

444. 

Manner  of  making  assignment 

Liability  of  corporation. 

and  transfer. 

456. 

When  the  power  to  sell  exists — 

445. 

Transfer    after    insolvency    or 

Presumption  of  right  doing. 

dissolution. 

457. 

Lien    of     corporation     upon 

446. 

Pledge  of  stock  certificates  by 

shares. 

delivery. 

458. 

Effect  of  a  transfer  upon  rights 

447. 

Surrender  of  old   certificate — 

and  liabilities  of  parties. 

Fraudulent  reissue. 

459. 

Remedies  for  a  wrongful  refusal 

448. 

Evidence  of  transferee's  right. 

to  transfer. 

449. 

Indorsement  of  certificate. 

460. 

An  action  for  damages. 

461. 

A  suit  in  equity. 

462. 

Mandamus. 

§  434.  General  statement. — Membership  in  a  private  corpo- 
ration having  capital  stock  may  be  transferred  from  one  person 
to  another  by  a  transfer  of  the  shares  in  the  manner  provided 
by  law.  By  a  complete  transfer  of  shares,  the  transferee 
steps  into  the  shoes  of  the  transferrer  and  thereafter  becomes  a 
stockholder  in  the  corporation  and  is  entitled  to  all  the  rights 
and  privileges  and  subject  to  all  the  liabilities  of  membership 
of  which  he  has,  or  is  presumed  to  have,  notice  in  such  a 
JSee  Wilgus'  Cases,  Rights  of  Members,  Transfer  of  Shares. 
(457) 


158  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  435 

corporation. '  There  must,  of  course,  be  authority  from  both 
transferrer  and  transferee  for  the  making  of  such  a  transfer. 
Ordinarily  the  certificate  of  shares  contains  upon  its  back 
a  written  form  of  assignment  and  power  of  attorney  author- 
izing the  corporation  to  make  the  transfer  upon  the  books 
of  the  corporation.  The  execution  of  a  deed  of  gift  of  cor- 
porate stock  vests  the  complete  beneficial  ownership  of  the 
shares  in  the  donee  and  authorizes  the  corporation  upon  the 
presentation  of  the  certificate  and  deed  to  make  the  proper  en- 
tries on  its  books.2  Shares  of  stock  can  not  be  transferred  to 
a  person  on  the  books  of  the  corporation  so  as  to  make  him  a 
stockholder  without  his  consent,  but  an  agreement  by  a  party 
to  take  the  shares  of  a  stockholder  will  authorize  the  transfer 
of  the  shares  to  him.3 

§  435.  The  right  to  transfer  shares. — It  is  implied  in  the 
constitution  of  every  private  corporation  that  the  shareholders 
may  transfer  their  shares  at  will  by  giving  notice  of  the  trans- 
fer to  the  corporation.4  Like  other  personal  property,  shares 
of  stock  may  be  alienated  at  will  unless  the  general  right  is  re- 
stricted by  the  charter,  statute  or  contract.  The  right  itself  is 
not  derived  from  the  charter  as  has  been  held,5  but  is  an  inci- 
dent of  ownership — an  incident  of  the  ownership  of  any 
species  of  property,  as  the  unrestricted  right  of  alienation — the 
jus  disponendi.* 

1  Bank    v.    Lanier,    11    Wall.   369;  Pick.  (Mass.)   90,   19  Am.  Dec.  306; 

i  v    [Jpton,  '.'1  U.  S.  56;  Scott  v.  Burrall  v.  Bushwick  R.  Co.,  75  N.  Y. 

Bank,  15  Fed.  Rep.  194.  211;  Bank  of  Attica  v.  Mfgr.   Hank, 

•Thompson   v.  Hudgina,    116   Ala.  20  N.  T.  501;  Farmers'  Bank  v.  Was- 

therein  cited.  S'>n,  18  [owa  336;  Jackson  v.  Newark, 

jjua,  etc.,  Co.  v.  Greene,  88  Fed.  etc.,  Co.,  31    N.  .!.  L.  277;  Bloede  v. 

Rep.  207,  31  C.  C.  \.  177.     In  White  Bloede,  84  M.l.  129,  Wilgus' Cases 

v.  8alisbary,  33  Mo.   150,  it  was  held.  ^Johnson  v.  Laflin,  5  Dill.  (CO.) 

a  contract    to  deliver  a  certain  65. 

amount  in  railroad  stock  was  satisfied  fi  tn  re  Klaus.  67  Wis.  401  ;  Trisconl 

by  a  transfer  on  the  book  without  the  \ .  Winship,  43  La.  Ann.  45;  Farmers' 

delivery  of  a   certificate.     See    also  etc.,   Bank  v.  Wasson,   18  towa  836; 

Boatmen's,  etc.,  Co.  v.  Able,  48  Mo.  Miller  v.  Great  Republic,  etc.,  Co.,  50 

136.  Mo.  65;  Poole  v.  Middleton,  29  Beav, 

'Trisconl  v.  Winship,  18  La.  Ann.  846;  Moore  v.  Bank  of  Commerce,  52 

i.    Sargent  v.  Franklin,  etc.,  Co.,  8  Mo.  877.    The  validity  of  the  transfer 


§  436  TRANSFER  OF  SHARES.  459 

§  43G.  Power  to  prohibit  transfers. — The  directors  or  manag- 
ing officers  of  a  corporation  have  no  power  to  prohibit  the  trans- 
fer of  shares.  Nor  is  it  within  the  power  of  the  stockholders, 
unless  expressly  authorized  by  the  charter,  to  enact  a 
by-law  forbidding  the  transfer  of  shares  without  the  consent 
of  the  president  or  board  of  directors.  Where  a  by-law  pro- 
vided that  no  valid  transfer  could  be  made  without  the  con- 
sent of  the  board  of  directors,  the  court  said:  "Its  enforce- 
ment would  operate  as  an  infringement  upon  the  property 
rights  of  others  which  the  law  will  not  permit.  It  would,  be- 
sides, operate  as  a  restraint  upon  the  disposition  of  property 
in  the  stock  of  the  corporation,  in  the  nature  of  restraint  of  trade, 
which  the  courts  will  not  tolerate.  As  the  restriction  is  not 
imposed  by  express  authority  of  the  statute  of  the  state,  it  can 
not,  in  such  cases,  be  enforced."1 

§  437.  The  regulation  of  transfers. — Although  the  corpora- 
tion can  not  prohibit  the  transfer  of  its  shares,  it  may  prescribe 
reasonable  regulations  and  formalities  for  the  purpose  of  pro- 
tecting the  corporation.2     Hence  the  provisions  of   a  by-law 

depends  upon  the  law  of  the  state  by  2Dane  v.   Young,   61    Maine    160; 

which   the   corporation  was   created.  Planters',  etc.,  Ins.  Co.  v.  Selnia,  etc., 

Black  v.  Zacharie&Co.,  3  How. (II.  S.)  Bank,  63  Ala.  585.     As  to  restrictions 

482.     A  pledgee  of  shares  is  entitled  upon  transfer  in  by-laws  or  articles, 

to  have  the  proper  entry  for  the  pro-  see    Bloede    v.   Bloede,  84   Md.  129, 

tection    of    his    rights   made   on  the  33 L.  R.  A.  107, Wilgus' Cases;  Ireland 

books  of  the  corporation  although  his  v.  Globe,  etc.,  Co.  (R.  I.),  29  L.  R.  A. 

contract  is  silent  on  the  subject.     But  429.     The  transfer  of  membership  in 

he  is  not  entitled  to  have  new  certifi-  such  organizations  as  boards  of  trade 

cates  issued  in  his  name.     Spreckels  and  chambers  of  commerce  are  usu- 

v.  NevadaBank,  113Cal.  272,33  L.  R.  ally  subjected  to  careful  restrictions. 

A.  459.     See  Miller  v.  Houston  City  The  decision  in  State  v.  Chamber  of 

R.  Co.,  16  C.  C.  A.  128,  69  Fed.  Rep.  Commerce    (Minn.),  79    N.  W.    Rep. 

63.  1026,  seems  inconsistent  with  the  cor- 

1  Farmers' Bank  v.  Wasson,48  Iowa  rect  view  of  such  corporations.    The 

336;  Wilson  v.  St.  Louis,  etc.,  R.  Co.,  corporation  was  organized  to  facilitate 

108   Mo.    588;    Sargent   v.    Franklin,  the  buying  and  selling  of  products,  to 

etc.  Co.,  8  Pick.  90;    Quiner  v.  Mar-  inculcate    principles    of    justice    and 

blehead,  etc.,  Co.,  10  Mass.  476;  Feck-  equity  in  trade,  and  to  facilitate  the 

heimer  v.  National  Exchange  Bank,  speedy   adjustment  of    business   dis- 

79  Va.  80;  Barnes  v.  Brown,  80  N.  Y.  putes   among   the   members.     Tt  had 

527.  no  capital  stock,  but  the  membership 


460 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  437 


requiring  a  transfer  on  the  books  of  the  corporation  must  be 
complied  with,  or  there  will  be  no  transfer  of  membership  as 
against  the  corporation.  A  grant  of  power  to  the  directors  to 
regulate  transfers  does  not  confer  power  arbitrarily  to 
restrain  transfers  at  discretion.1  It  merely  authorizes  the  cor- 
poration to  prescribe  formalities  to  be  observed  in  making 
transfers.  A  provision  that  shares  shall  be  "transferable  only 
on  the  books  of  the  company"  will  not  authorize  the  directors 
to  refuse  to  register  a  transfer,  although  they  may  consider  the 
transfer  detrimental  to  the  interest  of  the  corporation.2  The 
power  to  regulate  "can  only  go  to  the  extent  of  prescribing 
conditions  essential  to  the  protection  of  the  association  against 
fraudulent  transfers,  or  such  as  may  be  designed  to  evade  the 
just  responsibilities  of  the  stockholder.  It  is  to  be  exercised 
reasonably.  Under  the  pretense  of  prescribing  the  manner  of 
the  transfer,  the  association  can  not  clog  the  transfer  with 
useless  restrictions,  or  make  it  dependent  upon  the  consent  of 
the  directors  or  other  stockholders."  3  The  corporation  can  not 
without  express  power  determine  to  whom  only  transfers  may  be 
made.4     It  is  sufficient  that  the  transferee  is  a  person  who  is 

was    represented  by  a  certificate  of    to  permit  the  transfer,  but  the  court 


Btock.  The  by-laws  contained  a  pro- 
vision regulating  a  transfer  of  mem- 
bership. Notice  of  the  proposed  trans- 
fer was  i"  )»'  posted  for  ten  days,  and 
"if  do  objection  shall  have  been 
made  on  account  of  any  unsettled 
contracts,  claims,  demands,  ot  com- 
plaints against  the  bolder  of  Buch 
membership,"  it  may  l»-  transferred 
upon  pa}  in1-  a  small  tee.  I f  t here  are 
*iipjrrtii.ii-.  their  sufficiency  shall  be 
determined  by  the  board  of  directors. 
\  member  w  as  adjudged  a  bankrupt 
and  discharged  from  his  debts.  His 
trustee  in  bankruptcy  Bold  the  certifl- 


held  that  the  debts  gave  the  objectors 
mi  standing,  and  ordered  the  transfer 
made.  It  is  settled  by  the  derisions 
of  the  federal  courts  that  a  <lci>t  is  not 
paid  by  a  discharge  in  bankruptcy. 
It  is  simply  unenforcible. 

1  Moffat!  v.  Farquhar,  L.  R.  7  Ch. 
Div.  591  :  Ex  parte  Penney,  L.  R.  8 
Oh.  App.Cas.446;  Robinson  v.  Bank, 
I..  R.  I  l,|.  82. 

•Chouteau  Spring  Co.  v.  Harris,  20 
Mo.  382;  Feckheimer  v.  Nat'l,  etc., 
Bank,  79  Va.80. 

•Johnston  v.  I.allin.  103  U.  8.  800. 

4  In  ( Ihouteau  Bpring  ( '<>.  v.  I  [arris, 


i ii' I  the  purchaser  demanded  a  20  Mo.  882,  it  was  held  thai  the  mere 

transfer  of  the  membership  to  him.  power  to  regulate  transfers  does  not 

Objections  were   made   by   members  authorize  a  refusal  to  allow  a  transfer 

who  held  claim     against   the  bank-  to  an  insolvent.     But  Bee  §  588.     in 

rapt   which  were  di  charged  b)    the  Moore  i     Bank,  52   Mo,  377,  it   was 

order.   The  board  of  directoi  held    that   a    by-law  prohibiting  the 


§  438  TRANSFER  OF  SHARES.  461 

capable  of  assuming  the  obligations  of  a  shareholder.  The  trans- 
fer may  be  by  or  to  an  officer  or  director  so  long  as  it  is  in  good 
faith,  and  no  advantage  is  taken  of  the  position  of  the  parties. 
The  motive  which  induces  the  purchaser  of  shares  to  ask 
for  their  transfer  is  in  general  immaterial.  Where  one  who 
represented  a  rival  business  corporation,  and  who  had  been 
conducting  a  series  of  suits  against  the  Standard  Oil  Trust, 
purchased  shares  in  the  trust  and  demanded  their  transfer, 
the  court  said:  "The  plaintiff  purchased  the  shares  of  the 
trust  with  his  own  money,  and  he  represents  no  interests  or 
purposes  other  than  his  own  in  this  action.  His  claim  is 
founded  upon  a  right  of  property  lawfully  acquired.  *  *  * 
When  no  discretionary  power  is  reserved  to  that  effect,  there 
is  not,  nor  should  there  be,  any  rule  of  law  which  will  enable 
a  corporation  or  company  whose  stock  is  on  sale  in  the  open 
market,  to  discriminate  between  bona  fide  purchasers  who  in- 
vest money  in  it  for  their  own  benefit,  or  to  den}r  to  some  of 
them  the  right  to  make  their  title  effectual.  *  *  *  In  the 
present  case  no  such  discretionary  powers  seem  to  have  been 
vested  in  the  trustees.  And  the  purchase  of  the  stock  was  open 
to  the  plaintiff  and  fairly  made  by  him.  Attached  to  it  was  the 
quality  of  transferability,  and  with  it  was  presumptively  the 
right  of  the  beneficial  holder  to  have  recognition  as  such  by 
means  of  transfer  to  him  on  the  books  of  the  trust. 
In  such  case  it  is  difficult  to  see  that  motive  legitimately  be- 
comes a  subject  of  consideration,  unless  the  relief  in  view  may 
for  that  reason  result  unjustly  to  others  in  whose  behalf  it  is 
resisted,  or  to  the  prejudice  of  their  legal  rights."1 

§  438.    Restrictions  imposed  by  by-law  or  express  contract. — 

It  has   been  held   that  a  by-law   which  prohibits  a  transfer  of 

alienation  of  shares  or  imposing  re-  providing  that  a  transfer  of  the  stock 

strietions    upon    their    transfer    was  of  an  irrigation  company  shall  be  nun lv 

against  public  policy  and  void  as  in  only  with  the  bond  for  which  it  was 

restraint  of  trade.  issued  does  not   apply  to  a  sale  of  de- 

1  Rice  v.  Rockefeller,  134  N.  Y.  174,  linquent  stock  for  assessments.    Spur- 

Wilgus'  Cases,  citing  Bloxam  v.  Rail-  geon  v.  Santa  Ana,  etc.,  Co.,  120  Cal. 

way  Co.,  3  Ch.  App.  337;  Ramsey  v.  71,  39  L.  R.  A.  701. 
Gould,  57  Barb.  (N.  Y.)  398.    A  by-law 


462  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  438 

shares  to  one  not  already  a  stockholder  without  first  offering 
the  shares  to  the  corporation  is  invalid,1  and  that  in  so  far  as 
a  by-law  prohibiting  a  transfer  without  the  consent  of  the 
board  of  directors  implies  an  express  agreement  between  the 
corporation  and  the  stockholders  it  is  void  as  against  public 
policy.2  So  on  agreement  by  the  organizers  of  a  corporation 
that  their  stock  shall  be  put  in  trust  and  not  drawn  out  for  six 
months  without  the  written  consent  of  all  is  void  as  against  pub- 
lic policy  if  it  is  to  be  construed  so  as  to  prevent  a  sale  of  the 
stock  within  the  six  months.3  But  under  charter  authority 
the  ownership  of  stock  in  the  corporation  may  be  restricted  to 
a  certain  class  of  persons,4  and  in  the  absence  of  a  charter  pro- 
vision to  the  contrary  the  members  of  a  reservoir  corporation 
may  lawfully  agree  that  rights  in  their  capital  stock  shall  pass 
with  mill  property  owned  by  such  members,  so  that  the  owner- 
ship shall  be  confined  solely  to  those  directly  interested  in  the 
maintenance  of  the  dams.5 

It  was  held  in  Massachusetts6  that  even  if  a  by-law  of  a  cor- 
poration which  gives  the  board  of  directors  the  option  to  take 
the  shares  of  any  stockholder  who  desires  to  sell  them  at  a 
valuation  to  be  determined  by  them  is  invalid,  the  stockholder 
is  bound  by  an  agreement  which  adopts  the  by-law.  The  by- 
law provided  that  a  member  who  desired  to  sell  his  shares 
should  cause  the  shares  to  be  appraised  by  the  directors  and 
thereupon  offer  them  to  the  corporation  at  such  appraised 
value,  and  that  if  the  directors,  if  they  think   it   for  the  best 

1  Brinkerhoff ,    etc.,    Co.    v.    Homo,  (Part  1)192,  88  L.  R.  A.  299,   it    was 
etc.,  Co.,  L 18  Mo.  447,  Wilgns'  Cases,  held  that  a  corporation  could  not  en- 
1  Feckliriiiicr  v.  P.ank,  79  Va.  80.  force  a    contract    between    proposed 
"■Williams  v.  Montgomery,  68  Hud  incorporators    thai    they    will     not 
(N.  Y.)  H6;  Fisher  v.  Bash,  35  Hun  transfer  their  stock  without  giving  the 
N.  Y.    641;  Nesmith  v.  Washington  option   of    purchase  to   the   corpora- 
Bank,  6  Pick.  (Mass.)  324.  tion.     The    remedy,   if   any,   is    for 
•  Blienv.  Kami    (Minn.),  79  N.  W.  breach    of  contract.      In    Burden   v. 
Rep.  606.  Burden  (N.  Y.i,  54  N.  E.  Rep.  17,  an 
■McGinty  v.   Atlmi,  etc.,  Co.,   165  agreemenl    between    the    promoters 
[88,  Wil"       I  w  bieh   contained   a   restriction   upon 
bw  England,  etc.,  Co.  v.  Abbott,  the  right  to  transfer  thi           i      was 

162  Mass.   lis,  27  L    R,    \.  271.     in    ass d  to  enter  into  the  charter  and 

[reland  v.  Globe,  etc.,  Co.,  20  l>'    I.  bevalid. 


§  438  TRANSFER  OF  SHARES.  463 

interests  of  the  company,  shall  tender  such  appraised  value 
and  that  the  stockholder  shall  then  make  a  transfer  to  the 
corporation.  The  certificates  contained  on  their  face  the  state- 
ment that  "said  shares  are  transferable  in  person  or  by  attor- 
ney, duly  constituted,  on  the  books  of  the  company  and  in  the 
manner  and  upon  the  conditions  expressed  in  the  by-laws  of 
the  company,  printed  upon  the  back  of  this  certificate."  At 
the  time  the  certificates  were  issued  the  stockholder  signed  a 
receipt  which  stated  that  he  "received  the  above  certificates 
subject  to  the  conditions  and  restrictions  therein  referred  to 
and  to  the  by-laws  of  the  company  to  which  I  agree  to  con- 
firm." 

In  a  suit  by  the  corporation  against  the  executors  of  the  estate 
of  the  stockholder  for  specific  performance  of  the  agreement 
to  convey,  the  court  said:  "The  defendant  contends  that  these 
by-laws  are  void.  We  have  not  found  it  necessary  to  consider 
that  question  and  we  express  no  opinion  upon  it.  We  think 
that  the  case  may  well  stand  on  the  ground  that  the  defend- 
ant's testator  entered  into  an  agreement  with  the  plaintiff  to 
do  what  the  plaintiff  now  seeks  to  compel  his  executor  to 
do.  It  is  manifest  that  a  stockholder  may  make  a  contract 
with  a  corporation  to  do  or  not  to  do  certain  things  in  re- 
gard to  its  stock,  or  to  waive  certain  rights  or  to  submit  to 
certain  restrictions,  respecting  which  the  stockholders  might 
have  no  power  of  compulsion  over  him."  In  Adley  v.  Whit- 
stable  Co.1  Lord  Eldon  says-  '  It  has  been  frequently  deter- 
mined that  what  may  well  be  made  the  subject  of  a  con- 
tract between  the  different  interests  of  a  partnership  would 
not  be  good  as  a  by-law.  For  instance,  an  agreement  amongthe 
citizens  of  London  *  *  *  *  that  they  would  not  sell  except  in 
the  markets  of  London  would  be  good;  yet  it  has  been  declared 
by  the  legislature  that  a  by-law  to  that  effect  is  bad.'  '  In  the 
present  case,  the  certificates  were  issued  to  the  defendant's 
testator  in  consideration  of  the  payment  by  him  to  the  corpo- 

1  Adley  v.  Whitstable  Co.,  17  Ves.,     8  Met.  (Mass.)  321 ;  Bank  of  Attica  v. 
Jr.,  315,  322.  Bank,  20  N.  Y.  501 ;  Cook  Stock  and 

2  Davis  v.  Second  Universalist,  etc.,     Stockholders,  §408. 


464  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  438 

ration  of  the  amount  due  for  the  stock,  and  the  agreements 
with  it  on  his  part,  which  they  contain.  By  accepting  them 
without  objection  and  by  signing  the  receipts  he  must  be  held 
to  have  agreed  to  the  conditions  printed  on  the  back  of  the 
certificates.  The  fact  that  the  conditions  were  contained  in 
by-laws  which  may  have  been  invalid  as  such  does  not  render 
his  agreement  void  if  the  contract  was  in  substance  one  which 
the  corporation  had  power  to  make.  We  think  that  it  had 
such  power-  It  is  held  in  this  state  that  a  corporation,  unless 
prohibited,  may  purchase  its  own  stock;1  and  we  see  nothing 
opposed  to  public  policy  in  such  an  agreement  as  this  with 
corporations  like  this.  If  honestly  carried  out  by  the  direc- 
tors, it  tends  to  secure  a  trustworthy  body  of  stockholders 
from  which  those  having  a  share  in  the  management  of  the 
corporation  naturally  would  be  selected.  It  certainly  can  not 
I...  contrary  to  public  policy  that  the  managers  of  this  and 
similar  institutions  should  be  persons  of  skill  who  possess  the 
confidence  of  the  public.  The  restraint  upon  alienation  is  no 
than  is  often  agreed  to.  In  England  it  is  not  unusual 
to  find  in  the  <\i'vd^  of  settlement  or  articles  of  association  un- 
der which  corporations  or  joint  stock  companies  have  hem  or- 

ized,  and  which  correspond  to  the  charter  and  by-laws 
here,  provisions  requiring  the  stockholder,  in  case  he  wishes 
to  transfer  his  stock,  to  offer  it  to  the  directors  or  to  submit  to 
them  the  name  of  the  transferee  for  approval."1 

The  suit  being  between  the  company  and  a  stockholder  to 

irce  a  contract  with  the  company,  and  the  rights  of  third 
parties  not  being  involved,  it  was  held  that  the  plaintiff  was 
entitled  to  a  decree  compelling  the  defendant  to  convey  the 
shares  upon  paymenl  by  it  of  the  amount  of  the  appraisal,  and 
inn  from  prosecuting  an  action  at  law  against  the 
corporation  to  recover  dividends  upon  the  Mock. 

iDupee  v.    Boston,    <•!<-.,  Co.,    Ml     Beav.646;Ex  parte  Penney,  I..  R.  8 

Oh.  App.  4 16;   Moflatl    v.    Farquhar, 
tridge,    6   n.    I-     L.  R.  7  <  h.  Div.  591  ;  Chapp9ll'a  Cai  e, 
..    Middleton,   ii'.»    L.  J:,  o  Oh.  App.  902. 


§  439  TRANSFER  OF  SHARES.  465 

§  439.  Requisition  of  transfers  continued.  —  Restrictions 
upon  the  power  to  make  a  bona  fide  sale  and  transfer  of  shares 
must  be  based  upon  authority  conferred  by  the  charter,  a  by- 
law adopted  under  the  authority  of  a  charter  provision,1  or  a 
valid  contract  with  the  stockholder.2  A  by-law  which  requires 
the  approval  and  acceptance  of  a  transfer  by  the  board  of 
directors  is  invalid  unless  expressly  authorized  by  statute.3 
Charter  authority  is  required  for  a  by-law  prohibiting  the 
transfer  of  shares  by  a  stockholder  who  is  indebted  to  the  cor- 
poration.4 "At  common  law,  and  independently  of  statutory 
provisions  granting  or  authorizing  the  exercise  of  the  power, 
a  corporation  can  not  prohibit  a  transfer  of  its  shares  on  ac- 
count of  the  indebtedness  of  the  shareholder  to  the  corpora- 
tion. Where  the  stock  is  personal  property,  restrictions  upon 
its  transfer  must  have  their  source  in  legislative  action,  and 
the  corporation  itself  can  not  create  these  impediments."5 
The  national  banking  act  gives  a  stockholder  the  right  to 
transfer  his  shares,  and  this  right  can  not  be  taken  away  by  a 
by-law  which  prohibits  a  transfer  without  the  consent  of  the 
board  of  directors.6  This  right  can  not  be  restricted  by  a  state 
statute.7 

§  440.  Transfer  on  books  of  the  corporation. — The  require- 
ment that  the  stock  can  only  be  transferred  upon  the  books  of 
the  corporation  is  almost  universal.  Such  provision  is  gen- 
erally held  to  be  for  the  protection  and  benefit  of  the  corpo- 
ration and  as  not  preventing  a  shareholder  from  transferring 
his  shares  without  an  entry  on  the  books.  Except  as  against 
the   corporation   the   shareholder  may,  as  an   incident  of  his 

1  Johnson  v.  Laflin,  5  Dill.  65, 103  U.  Bank,  45  Mo.  513,  100  Am.  Dec.  388 ; 
S.  800.  Bank  of  Attica  v.  Bank,  20  N.  Y.  501. 

2  See  New  England,  etc.,  Co.  v.  Ab-  5  Carroll  v.  Mullanphy,  etc.,  Bank, 
bott,  162  Mass.  148,  27  L.  R.  A.  271.  8  Mo.  App.  249.     See  §  457. 

3  Farmers',  etc.,  Bank  v.Wasson,  48  e. Johnson  v.  Laflin,  5  Dill.  65, 103  U. 
Iowa  336,  30  Am.  Rep.  398.  S.  800;  Feckheimer  v.  Bank,  79  Va. 

4Feckheimer  v.  Bank,   79  Va.  80;  80;  Bank  of  Attica  v.  Bank,  20  N.  Y. 

Byron  v.  Carter,  22  La.  Ann.  98.    But  501. 

see  Spurlock  v.  Railroad  Co.,  61  Mo.        7  Doty  v.  First  Nat'l  Bank,  3  N.  Dak 

319;  Mechanics'  Bank  v.  Merchants'  9,  17  L.  R.  A.  259. 
30-Pkiv.vte  Cobp. 


468  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  440 

right  of  property,  transfer  both  the  legal  and  equitable 
title  to  his  share.1  As  between  the  immediate  parties  to  the 
transaction,  a  common-law  assignment  of  the  shares  is  effect- 
ual and  will  be  recognized  and  enforced  as  against  all  parties 
not  showing  a  superior  right.2  The  "  purpose  of  such  a  regu- 
lation is  to  afford  the  corporation  and  persons  dealing  with  it 
the  means  of  ascertaining  who  are  its  shareholders.  Without 
an  entry  of  a  transfer  upon  its  books  it  would  be  practically 
impossible  for  the  corporation  to  know  who  are  entitled  as  its 
shareholders  to  vote  at  its  meetings,  to  whom  dividends  are  to 
be  paid,  and  who  are  liable  as  shareholders  to  the  corporation 
or  its  creditors.  With  such  an  entry  the  books  become  a  rec- 
ord showing  who  at  any  particular  time  are  the  shareholders, 
and  who  as  such  are  entitled  to  the  rights  conferred,  and  sub- 
ject to  the  liabilities  imposed  by  membership  in  the  corpo- 
ration. A  regulation  of  this  kind,  then  being  intended  merely 
to  promote  the  convenient  administration  of  the  corporate  af- 
fairs, is  given  binding  effect  upon  the  corporation  no  further 
than  is  necessary  for  the  accomplishment  of  that  end.  Hence 
it  is  competent  for  the  corporation,  for  whose  advantage  the 
regulation  is  made,  to  insist  upon  a  strict  compliance  with  the 
formalities  prescribed,  if  not  itself  in  fault,  or  to  waive  them 
if  it  sees  fit."3 

In  New  York  it  was  said:4  "  It  has  been  settled  by  repeated 

'Baldwin  v.  Canfield,  26  Minn.  43 ;  Nat.  Bank,  129  Maes.  279.  That  a 
Nicollet  Nat.  Bank  v.  City  Bank,  38  good  equitable  title  vests  in  the  trans- 
Minn.  85;  Joslyn  v.  St.  Paul,  etc.,  Co.,  fereesee  Hubbard  v.  Manhattan  Trust 
44  Mum.  L83;  Lund  v.  Wheaton,  etc.,  Co.,  87  Fed.  Rep.  51,  57  U.S.  App. 
Co.,  50  Minn.  36,  -"-2  N.  \V.  Rep.  268;  730. 

Continental  Nat.   Bank  v.  Eliot  Nat.  'American   Nat.   Bank  v.  Oriental 

Bank,   7    Fed.    Rep.  369;    McNeil   v.  Mills,  17  R.   [.551,28   A.tl.  Rep. 

Tenth    Nat.    Bank,    16    N.    Y.    325,  [sham  v.  Buckingham,  49  N.  Y.  216; 

Wilgus' Cases ;  Grymes  v.  Hone, 49  N.  Chemical  Nat.  Bank.  v.  Colwell,  182 

Y.  17;  Turnpike  Co.  v.  Gerhab(Pa.),  N.  Y.  250. 

IS  Atl.Rep.  90;  Thurber  v. Crump, 86  •McNeil  v.  Bank,  16  N.  Y. 325,  Wil- 

Ky.  K)8;  Robin  boh  v.  National  Bank,    go  '  Ca  es.     An  entry  <>n  the  1 ka 

Y .  637;  [sham  v.  Buckingham,  ot  the  corporation  is  not  necessary  to 

49  N.  Y.  216;   Mandlebaum  v.  Mining  vest  in  the  vendee  all  the  title  which 

1        :  Mich.  I'-.i.  the  vendor  had.     Parker  v.    Bethel, 

icollet   Nat.  Bank  v.  City  Bank,  etc.,  Co.,  98  Tenn.  252,81    L.  R.  \. 

88   Minn.   B5;    Dickin  on   v.  Central  708.    The  .transferee  will  get  an  equi- 


§  441  TRANSFER  OF  SHARES.  467 

adjudications  that  as  between  parties  the  delivery  of  the  cer- 
tificate, with  assignment  and  power  indorsed,  passes  the  en- 
tire title,  legal  and  equitable,  in  the  shares,  notwithstanding  that 
by  the  terms  of  the  charter  or  by-laws  of  the  corporation,  the 
stock  is  declared  to  be  transferable  only  on  its  books,  that  such 
provisions  are  intended  solely  for  the  protection  of  the  corpo- 
ration, and  can  be  waived  and  asserted  at  its  pleasure,  and  that 
no  effect  is  given  to  them  except  for  the  protection  of  the  cor- 
poration, that  they  do  not  incapacitate  the  shareholder  from 
parting  with  his  interest,  and  that  his  assignment,  not  on  the 
books,  passes  the  entire  legal  title  to  the  stock,  subject  only  to 
such  liens  or  claims  as  the  corporation  may  have  upon  it,  and 
excepting  the  right  of  voting  at  elections,  etc." 

§  441.  Transfer  on  books  continued. — Other  decisions  are 
to  the  effect  that  the  provision  requiring  a  transfer  on  the 
books  of  the  corporation  is  exclusive  of  any  other  mode.  The 
legal  title  is  held  to  remain  in  the  transferrer  until  the  certifi- 
cate is  deposited  with  the  corporation  for  transfer.1  In  an 
early  case  the  supreme  court  "took  notice  of  the  distinction 
between  the  legal  and  equitable  title  in  cases  of  bank  stock 
where  the  charter  of  the  bank  had  provided  for  the  mode 
of  transfer.  The  general  construction,  which  has  been  put 
upon  the  charters  of  other  banks  containing  similar  provisions 
as  to  the  transfer  of  their  stock,  is  that  the  provisions  are  de- 
signed solely  for  the  safety  and  security  of  the  bank  itself,  and 
of  purchasers  without  notice;  and  that  as  between  vendor  and 
vendee  a  transfer  not  in  conformity  to  such  provisions  is  good 
to  pass  the  equitable  title  and  divest  the  vendor  of  all  interest 
in  the  stock."2 

When  it  was  contended  that  the  provision  was  merely  a 

table  title  which  will  he  protected  as  title.     See  Lippitt  v.  American,  etc., 

against  all  persons  not  showing  a  su-  Co.,  15  R.  I.  141,  2  Am.  St.  Rep.  886. 

perior  title.     Prince,  etc.,  Co.   v.   St.  2  Union  Bank  v.  Laird,  2  Wheat,  (U. 

Paul,  etc.,  Co.,  68  Minn.  121.  S.)  390;  Block  v.  Zacharie  &  Co.,  3 

1  In  Brown  v.  Adams,  5  Biss.  (C.  C.)  How.  (U.  S.)  482;  Reed  v.  Copeland, 

181,  it  was  held  that  a  mere  delivery  50  Conn.  479;  Bank  v.  Gridley,  91  111. 

of  the  certificate  to  the  officers  of  the  457 ;  Leyson  v.  Davis,  17  Mont.  220,  31 

corporation  is  not' sufficient  to  pass  L.  R.  A.  429. 


468  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  441 

regulation  for  the  convenience  and  protection  of  the  bank, 
Chief  Justice  Shaw  said:  "We  can  see  no  ground  upon  which 
to  restrict  the  plain  provision  of  the  statute.  If  we  may  judge 
of  an  intended  operation  of  an  act  of  legislation  from  the  use- 
ful and  beneficial  purposes  it  may  tend  to  promote,  we  should 
construe  it  as  having  a  much  broader  and  more  comprehen- 
sive scope."  Tt  was  therefore  held  that  a  creditor  of  the  stock- 
holder who  attached  the  shares  before  the  transfer  on  the  books 
acquired  title  as  against  the  holder  of  an  unrecorded  transfer.1 
Where  this  rule  is  adhered  to,  the  holder  of  shares  may 
make  an  equitable  assignment  of  his  interest  without  an  as- 
signment of  his  stock  on  the  books  of  the  company,  and  the 
interest  of  the  assignee  will  be  protected  in  equity.2  As  be- 
tween the  transferrer  and  the  transferee  the  "transfer  is  com- 
plete by  the  sale,  assignment  and  delivery  and  payment,  with- 
out registration,  whether  the  transferee  gets  the  legal  title  be- 
fore registration  or  only  a  complete  equitable  title.'"  In  any 
case,  the  transferee  as  against  the  corporation  acquires  only 
the  right  to  have  the  transfer  made  to  him  on  the  books  of  the 
corporation.  Where  the  corporation  is  entitled  to  a  lien  on 
the  shares,  he  takes  the  title  whether  legal  or  equitable  subject 
to  claims  the  corporation  may  have  against  the  stock.4  Until 
the  transfer  is  made  the  corporation  may  treat  the  transferrer 
as  the  stockholder;  although  if  it  has  notice  of  the  rights  of 
the  transferee  it  will  not  be  justified  in  disregarding  him  un- 
der all  circumstances.  A  transferring  stockholder  is  released 
from  his  liabilities  as  a  stockholder  by  a  legal  transfer  of  the 
shares,  and  if  the  corporation  wrongfully  refuses  to  make  (he 
transfer,  it  can  not  thereafter  hold  the  transferrer  to  the  liabilities 

'Fisher    v.    Kss.x    Bank,  •">    Gray  U.S.  800.     A    provision  thai  thecer- 

(Mass.) 373,  Wilgus' Oases.  Bee§442,  tiflcate  shall  be  negotiable  only  by 

infra,  transfer  upon  the  books  of  the  cora- 

■Fitchburgh,  etc.,  Bank  v.  Torrey,  pany  with  its  consent  Qrs1  obtained, 
184  \|  ;  -  239;  Lippitl  ^.American,  will  not  prevenl  the  vesting  of  a  com- 
etc.,  Co.,  15  E.  I.  i  ii  ;  Peck  v.  Provi-  plete  equitable  title  in  the  assignee  by 
dence,  etc.,  <'<>.,  17  I:,  r.  275,  23  Atl.  an  absolute  and  unconditional  assign- 
Rep.  967;  Smith  v.  Nashville,  etc.,  ment.  Hubbard  v.  Manhattan,  etc., 
l;   Co  ,93  Tenn.221,    18   8.   W.  Rep.  <V.s7  Fed.  Rep.  51,  :;'»  CO.  A..  520. 

4  Union    Bank    v.    Laird,  '-'  Wheat. 

Johnston  \.  Laflin,  6  Dill.  85,  103  (U.  8.)  390. 


§  442  TRANSFER    OF    SHARES.  469 

of  a  shareholder.1  But  a  different  rule  might  apply  as  against  cor- 
porate creditors  who  become  such  in  reliance  upon  the  books  of 
the  corporation.  In  order  to  be  relieved  from  this  liability  a 
transferring  stockholder  must  at  least  make  earnest  effort  to  have 
the  transfer  actually  made  upon  the  books  of  the  corporation.2 
It  is  the  duty  of  the  transferee  to  have  the  transfer  made  on 
the  books  of  the  corporation,  and  if  he  neglects  to  do  so  the 
transferrer  may  compel  him  to  do  what  is  necessary  to  relieve 
him  from  further  liability  to  the  corporation  or  its  creditors.8 

§  442.  Rights  of  attaching  creditors.4 — The  authorities  are 
in  irreconcilable  conflict  upon  the  question  of  the  right  to  pri- 
ority as  between  attaching  creditors  of  the  transferrer  and  the 
holder  of  an  unrecorded  transfer  of  shares.  The  conflict  re- 
sults from  the  different  views  taken  by  the  courts  of  the  nature 
and  purposes  of  the  requirement  of  a  transfer  upon  the  books 
of  a  corporation.  Practically  all  of  the  leading  text- writers 
take  the  position  that  the  purchaser  at  the  execution  sale  under 
such  an  attachment  gets  no  title  as  against  those  who  have  ac- 
quired equities  under  an  unrecorded  transfer  of  the  shares. 
Thus,  Morawetz  says5  that  "shares  in  a  corporation  are  mere 
contract  rights  or  choses  in  action,  while  the  certificates  are 
treated  as  the  embodiment  of  the  rights  and  may  be  considered 
as  chattels.  The  assignment  of  a  certificate  ought,  therefore, 
to  have  the  same  effect,  as  to  creditors  of  the  assignor,  as  the 
indorsement  and  delivery  of  a  bill  or  note. 

A  creditor  does  not,  by  levying  an  attachment  or  execution 
on  property,  occupy  the  position  of  a  bona  fide  purchaser  for 
value.  A  creditor  is  entitled  only  to  step  into  the  place  of  his 
debtor  in  respect  to  the  latter's  property  and  contract  rights. 

Chouteau,  etc.,  Spring  Co.  v.  Har-  man  would  do  to  have  the  transfer 

ris,  20  Mo.  382.  made,  but  fails,  he  is  not  liable.    See, 

2  See  §570.   Shellington  v.  Howland,  also,  Harpold  v.  Stobart,  46  Ohio  St. 

53  N.  Y.  371 ;  Dane  v.  Young,  61  Maine  397 ;  Chemical  Nat'l  Bank  v.  Colweil, 

160;    Richmond  v.   Irons,  121  TJ.    S.  132  N.  Y.  250. 

27;  Johnson  v.  Underbill,  52  N.  Y.  s  Allen  v.   South   Boston,   etc.,    R. 

202.     But  the  negligent  vendee  will  Co.,  150  Mass.  200,  15  Am.  St.  Rep. 

be  liable  to  the  vendor  for  what  he  185;  Kellogg  v.  Stockwell,  75  111.68. 

has  had  to  pay.     Whitney  v.  Butler,  4  See  Wilgus' Cases. 

118  IT.   S.  655.     If  the  vendor  does  s  Morawetz  Pri v.  Corp.,  §  196. 
everything  that   a   prudent   business 


170  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  442 

He  is  not  entitled,  upon  any  principles  of  justice  and  common 
honesty,  to  pay  his  debt  out  of  property  which  does  not  in 
truth  belong  to  the  debtor.  A  creditor,  therefore,  ought  not  to 
be  allowed  to  levy  on  shares  after  the  real  substantial  and 
equitable  ownership  has  been  transferred  to  a  purchaser  for 
value.  It  is  wholly  immaterial  for  this  purpose  whether  the 
shares  have  been  transferred  on  the  company's  books  or  not. 
After  the  assignment  the  debtor  would  retain  at  most  a  naked 
legal  claim  against  the  corporation,  and  this  is  all  that  the 
creditor  would  be  entitled  to  take." 

Cook  says1  that  "as  a  general  rule  it  may  be  said  that  a  pur- 
chaser of  a  certificate  of  stock  is  usually  protected  as  fully 
without  a  registry  on  the  corporate  books  as  he  would  be  by 
a  registry,  so  far  as  subsequent  attachments  are  concerned." 

Pomeroy  says2  that  by  the  great  majority  of  decisions  an  as- 
signment of  shares  without  a  record  on  the  books  of  the  cor- 
poration '•  is  valid  as  against  creditors  of  the  assignor  and 
gives  the  assignee  a  precedence  over  their  subsequent  judg- 
ments, executions  and  attachments."  This  rule  is  unques- 
tionably settled  by  the  weight  of  authority,  although,  as  pointed 
out  by  a  writer  in  the  American  Law  Review,3  possibly  not  by 
the  number  of  decisions.  It  is  difficult  to  see  why  the  attach- 
ing creditor  should  acquire  a  greater  interest  in  the  shares  than 
his  debtor  had  at  the  time  of  the  attachment.  The  debtor  trans- 
ferrer having  parted  with  his  interest  in  the  property  and  retain- 
ing only  the  bare  legal  title,  the  creditor  should  be  permitted  to 
acquire  nothing  greater.  The  attachment  or  execution  creditor 
bas  no  prior  equities  and  can  acquire  no  existing  equities  by  vir- 
tue of  bis  levy.  lie  parts  with  no  interest  or  right  and  is  in  no 
worse  condition  by  the  failure  of  the  levy  than  he  was  before.  If 
the  debtor  bas  no  title,  the  creditor  can  acquire  none  by  a  levy, 
and  there  seem  to  be  no  reasons  in  public  policy  for  creating  equi- 
ties where  none  exist  in  facl .  Therefore  a  sale,  transfer  or  pledge 
of  corporate  Btock,  although  not  entered  upon  the  books  of  the 
corporation,  should  be  held  effectual  as  between  the  parties, 

'Cook  Priv.  Corp.,  |  881.  Rev.,  p.  228,  where  the  authorities  are 

•Pomeroy  Eq.  Jar.,  §  700.  collected  and  the  arguments  in  favoi 

•Mr.  I.  II.  Hatfield,  in  80  Am.  Law    of  creditor  strongly  Btated, 


§442 


TRANSFER    OF    SHARES. 


471 


and  take  precedence  of  a  subsequent  levy  thereon  in  behalf  of 
the  vendor's  creditors.1  An  unrecorded  transfer  of  national 
bank  stock  will  take  precedence  of  a  subsequent  attachment  on 
behalf  of  a  creditor  without  notice.2 


1  Lund  v.  Wheaton,  etc.,  Co.,  50 
Minn.  36;  Baldwin  v.  Canfield,  26 
Minn.  43;  Joslyn  v.  St.  Paul,  etc., 
Co.,  44  Minn.  183;  Doty  v.  First  Nat'l 
Bank,  3  N.  Dak.  9,  17  L.  R.  A.  259; 
Robinson  v.  Bank,  95  N.  Y.  637;  Mc- 
Niel  v.  Tenth  Nat'l  Bank,  46  N.  Y.  325, 
Wilgus'  Cases;  New  York,  etc.,  R.  Co. 
v.  Schuyler,  34  NY.  30 ;  Leitch  v.Wells, 
48  N.  Y.  585 ;  Cutting  v.  Demerel,  88  N. 
Y.  410;  Grymes  v.  Cone,  49  N.  Y.  17 ; 
Bank  of  Utica  v.  Smalley,  2  Co  wen 
(N.  Y.)  770;  Smith  v.  American,  etc., 
Co.,  7  Lansing  317 ;  Commercial  Bank 
v.  Kortright,  22  Wend.  (N.  Y.)  348; 
Stebbins  v.  Phoenix,  etc.,  Co.,  3  Paige 
(N.  Y.)  350;  Thurber  v.  Crump,  86 
Ky.  408 ;  Clark  v.  German,  etc.,  Bank, 
61  Miss.  611;  Broadway  Bank  v.  Mc- 
Elrath,  13  N.  J.  Eq.  24;  Rogers  v. 
Stevens,  4  Halst.  Ch.  (N.  J.)  167 ;  Mt. 
Holly,  etc.,  Co.  v.  Ferree,  17  N.  J.  Eq. 
117  ;  Smith  v.  Crescent,  etc.,  Co.,  30  La 
An.  1378  ;  Crescent  City  v.Deblieux,  40 
La.  An.  155;  George  R.  Barse,  etc., Co. 
v.  Range,  etc.,  Co.,  16  Utah  59;  Fin- 
ney 'sApp.,59Pa.St.  398 ;  Eby  v. Guest, 
94  Pa.  St.  160;  Seeligson  &  Co.  v. 
Brown,  61  Tex.  114;  May  v.  Cleland 
(Mich.),  44  L.  R.  A.  163 ;  Mandelbaum 
v.  North  American,  etc.,  Co.,  4  Mich. 
464;  Newberry  v.  Detroit,  etc.,  Co.,  17 
Mich.  140;  Nat'l  Bank  v.  Port  Town- 
send,  etc.,  Co.,  6  Wash.  597 ;  First  Nat'l 
Bank  v.  Dickson  (Colo.  App.),36Pac. 
Rep.  618.  The  rights  of  a  pledgee  of 
stock  are  superior  to  that  of  apurchaser 
on  execution  against  the  pledgor. 
Dearbornv. Washington, etc.,  Bank,  18 
Wash.  8.  See,  also,  Morehead  v. West- 
ern, etc.,  R.  Co.,  96  N.  C.  362;  Lip- 
pitt  v.  American,  etc.,  Co.,  15  R.  I. 
141,  23  Atl.  Rep.  Ill;  Colbert  v.  Sut- 


ton, 5  Del.  Ch.  294;  Noble  v.  Turner, 
69  Md.  519,  16  Atl.  Rep.  124;  Mer- 
chants' Nat'l  Bank  v.  Richards,  6  Mo. 
App.  454,  74  Mo.  77 ;  White  v.  Salis- 
bury^ Mo.  150.  The  following  cases 
sustain  the  rights  of  the  attaching 
creditor:  Masury  v.  Arkansas  Nat'l 
Bank,  87  Fed.  Rep.  381 ;  Ft.  Madison, 
etc.,  Co.  v.  BatavianBank,71  Iowa 270, 
32  N.  W.  Rep.  336,  60  Am.  Rep.  789; 
Ottumwa  Screen  Co.  v.  Stodghill,  103 
Iowa  437;  Peoples'  Bank  v.  Gridley, 
91  111.  457;  State  v.  First  Nat'l  Bank, 
89  Ind.  302;  Topeka,  etc.,  Co.  v.  Hale, 
39  Kan.  23;  Skowhegan  Bank  v.  Cut- 
ler, 49  Maine  315,  52  Maine  509;  Con- 
way v.  John,  14  Colo.  30 ;  Supply,  etc., 
Co.v.  Elliott,  10  Colo.  327, 15  Pac.  Rep. 
691,  3  Am.  St.  Rep.  586 ;  Marlborough, 
etc.,  Co.  v.  Smith,  2  Conn.  579;  Colt 
v.  Ives,  31  Conn.  25;  State  v.  Com- 
missioners, 21  Fla.  1 ;  Fisher  v.  Essex 
Bank,  5  Gray  (Mass.)  373;  Boyd  v. 
Rockport  Mills,  7  Gray  406 ;  Dickinson 
v.  Central  Bank,  129  Mass.  279 ;  Cen- 
tral Nat'l  Bank  v.Williston,  138  Mass. 
244;  Fisher,  etc.,  Co.  v.  Jones,  82  Ala. 
117;  Barstow  v.  Savage,  M.  Co.,  64 
Cal.  388;  Pinkerton  v.  Manchester, 
etc.,  R.  Co.,  42  N.  H.  424;  Scripture 
v.  Soapstone  Co.,  50  N.  H.  571-585; 
Buttrick  v.  Nashua,  etc.,  R.  Co.,  62 
N.  H.  413,  13  Am.  St.  Rep.  578; 
Cheever  v.  Myer,  52  Vt.  66;  In  re 
Murphy,  51  Wis.  519. 

2  Doty  v.  First  Nat'l  Bank,  3  N.  Dak. 
9,  17  L.  R.  A.  259;  Sibley  v.  Quinsig- 
amond  Nat'l  Bank,  133  Mass.  515; 
First  Nat'l  Bank  v.  Lanier,  11  Wall. 
(U.  S.)  369;  Continental  Bank  v. 
Bank,  7  Fed.  Rep.  369;  Hazard  v. 
Bank,  26  Fed.  Rep.  94. 


472  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  443 

It  is  sometimes  provided  by  statute  that  no  transfer  of 
shares  shall  be  valid  as  against  creditors  unless  a  record  of 
the  transfer  is  made  in  some  public  office.  Under  such  a  stat- 
ute an  attachment  takes  precedence  over  an  unrecorded  trans- 
fer.1 Under  the  Iowa  statute,  which  provides  that  a  transfer 
of  shares  is  not  valid  except  as  between  the  parties  thereto  until 
it  is  regularly  entered  upon  the  books  of  the  company,  an  at- 
taching creditor  secures  the  stock,  although  he  had  knowledge 
of  the  unrecorded  transfer.2  Where  there  is  no  requirement  of 
transfer  on  the  books  of  the  corporation  a  common-law  assign- 
ment by  delivery  of  the  certificate  with  a  written  transfer  con- 
veys a  good  title  to  the  shares  as  against  an  attaching  creditor.3 

§  443.  Transfers  in  fraud  of  creditors. — A  transfer  of  the 
shares  upon  the  books  of  the  corporation  may  be  necessary  in 
order  to  avoid  the  effect  of  a  statute  which  renders  the  sale  of 
personal  property  presumptively  fraudulent  where  there  is  not 
a  complete  delivery  of  the  property,  as  against  the  creditors  of 
the  vendor.  In  some  jurisdictions  the  presumption  is  con- 
clusive, while  in  others  it  may  be  overcome  by  evidence.  Upon 
this  general  principle  the  attaching  creditor  of  the  transferrer 
is  sometimes  able  to  prevail  over  the  holder  of  a  certificate 
which  has  not  been  transferred  upon  the  books  of  the  corpora- 
tion. In  Connecticut  it  was  said:4  "The  ground  on  which 
stock  sold,  but  not  legally  transferred,  is  open  to  attachment 
by  the  creditors  of  the  vendor,  is  the  same  upon  which 
personal  chattels  sold  but  retained  in  the  possession 
of    the    vendor    arc  liable    to   attachment   by   the   vendor's 

'Masury  v.   Arkansas  Nat'l   Bank,  611.    Contra,  George   B.  Barse,  etc., 

87  Fed.  Rep.  381,  citing  Berney  Nat']  Co.  v.  Range,  etc.,  Co.,  16  Utah  59. 

Bank  v.  Pinckard,  etc.,  Co.,  87  Ala.  ■Boston,  etc.,    Assn.  v.  Cory,    129 

677;  Murphy's  A  pp.,  63  Wis.619;  Ft.  Mass.  435. 

Madison,  etc.,  Co.  v.  Batavian  Bank,  *Col1   v.  Ives,  .".1   Conn.  25. 

71  Iowa  270,  60  Am.  Rep.  789;  Newell  Botchkiss,  etc.,  Co.   v.    Union   Nat'l 

v.  Willi  t..n,  i                "lit.  Bank,  87 TT.  S.  App.  86.     Under  such 

ttumwa  Screen  Co.  v.  Stodghill,  :i  view  of  the  law,  it  is  necessary  that 

103  [owa  137,  citing  Firsl  Nat'l  Bank  the  transfer  «>n  the  record  should  he 

v.  Hastings, 7 Colo.  App.  L29;  Lyndon-  made  within  a  reasonable  time. 

ville  Nat'l   Bank  v.  Fol  '.in,  7  N.  M,  Pinkerton  v.  Railway  Co.,  42  N.  II. 

124 


§  444  TRANSFER  OF  SHARES.  473 

creditors.  The  principle  in  each  case  is  that  the  retention  of 
possession  by  the  vendor  is  a  badge  of  fraud;  that  is,  is  evi- 
dence of  a  fraudulent  secret  trust." 

§  444.  Manner  of  making  assignment  and  transfer. — Where 
no  manner  of  transfer  is  prescribed  by  the  charter  or  by-law 
it  may  be  made  by  a  delivery  of  the  certificate  with  the  writ- 
ten assignment  thereon.1  At  common  law  this  would  transfer 
both  the  legal  and  the  equitable  title  and  was  good  as  against 
the  corporation  and  all  other  persons.  It  required  a  clear 
provision  of  the  charter  itself  or  of  some  statute  to  take  from 
the  owner  of  such  property  the  right  to  transfer  it  in  accord- 
ance with  the  known  rules  of  the  common  law.  By  these 
rules,  the  delivery  of  a  stock  certificate  with  a  written  transfer 
of  the  same  to  a  bona  fide  purchaser  is  a  sufficient  delivery  to 
transfer  the  title  as  against  a  creditor  of  the  transferer.2  This 
common-law  right  can  not  be  restricted  without  authority, 
and  the  corporation  can  not,  in  the  absence  therefor,  require 
transfers  to  be  made  only  on  the  books  of  the  corporation.3 
The  issue  of  a  new  certificate  is  not  necessary  to  complete  a 
transfer,4  and  the  record  of  the  transfer  is  unnecessary  unless 
required  by  the  charter  or  by-laws.5  A  valid  gift  of  non- 
negotiable  securities  may  be  made  by  their  delivery  to  the 
donee  without  assignment  or  indorsement  in  writing,  and  a 
delivery  of  certificates  of  stock  coupled  with  words  of  abso- 
lute and  present  gift  vests  an  equitable  title  to  the  stock  which 
is  valid  as  against  the  donor  or  a  volunteer.6  Where  the  trans- 
fer is  required  to  be  made  on  the  books  of  the  corporation  the 
facts  are  to  be  appropriately  recorded  in  some  suitable  register 
or  stock  book,  or  in  some  manner  formally  entered  upon  the 

1  Scott  v.  Bank,  21  Blatch.  203,  15  Mo.  136;  Chouteau,  etc.,  Co.,  v.  Har- 
Fed.  Rep.  494.  ris,  20  Mo.  382. 

2  Boston,  etc.,  Assn.  v.  Cory,  129  6  Commonwealth  v.  Crompton,  137 
Mass.  435;  McNeil  v.  Tenth  Nat'l  Pa.  St.  138,  But  see  Matthews  v. 
Bank,  46  N.  Y.  325.  Hoagland,  48  N.  J.  Eq.  455.     An  as- 

3  Sargent  v.  Railway  Co.,  9  Pick,  signment  of  shares  not  accompanied 
(Mass.)  202;  Driscoll  v.  Manufactur-  by  a  delivery  of  the  certificate  is  not 
ing  Co.,  59  N.  Y.  96.  effective  as  against  a  receiver  of  the 

4Sayles  v.  Bates,  15  R.  I.  342.  debtor.     Atkinson  v.  Foster,   134  111. 

5  Boatman's,   etc.,  Co.   v.  Able,   48    472. 


4  <  4  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  445 

books.  For  this  purpose  the  account  in  a  stock  ledger  show- 
ing the  names  of  the  stockholders,  the  number  and  amount  of 
shares  belonging  to  each,  and  the  source  of  their  titles, 
whether  by  original  subscription  and  payment  or  by  transfer 
from  others,  meets  the  requirements  of  the  law.1  Where  the 
shares  were  pledged  to  a  bank  as  collateral  security  for  a  debt 
by  a  delivery  of  the  stock  certificate  indorsed  to  the  bank,  and 
nothing  was  done  for  a  month,  when  the  certificates  were  deliv- 
ered to  a  transfer  agent  in  Boston  and  new  ones  received,  and 
notice  given  by  the  next  mail  to  the  office  of  the  corporation  in 
New  Hampshire,  it  was  held  that  the  transfer  was  not  good  as 
against  an  attachment  levied  in  the  latter  state  before  the  issue 
of  the  new  certificates,  as  there  was  a  want  of  proper  diligence 
in  perfecting  the  delivery  of  the  stock.  "  Nor  could  the  ex- 
change of  certificates  at  the  transfer  agency  be  regarded  as 
equivalent  to  record,  or  the  entry  for  that  purpose  in  the  of- 
fice at  Manchester.  If  forwarded  by  the  transfer  agent  and 
recorded,  it  then  would  be  perfected;  but  we  are  unable  to  re- 
gard the  act  of  the  transfer  agent  in  respect  to  the  record  as 
anything  more  than  the  act  of  a  mere  agent  of  the  bank.  To 
give  to  the  notice  and  entry  at  the  transfer  agency  the  effect  of  a 
record,  or  entry  upon  the  stock  books  of  the  corporation,  would, 
as  we  think,  be  contrary  to  the  policy  of  the  law,  which  re- 
quires  as  the  chief  evidence  of  ownership  the  record  or  entry 
upon  the  books  of  the  corporation  kept  in  this  state."1 

A  note  by  the  secretaiy  of  the  corporation  on  the  margin  of 
the  stubs  of  certain  certificates  of  stock  transferred  as  collateral 
security  by  the  owner,  thai  the  transferee  holds  them  as  se- 
curity  for  a  loan,  does  not  constitute  a  transfer  on  the  books  of 
tin-  corporation  as  against  the  creditors  of  the  transferrer,  when 
such  transfer  was  not  authorized  by  either  party.8 

§  445.  Transfer  after  insolvency  or  dissolution. — "After  a 
corporation   has  lice.. me  insolvent  it   is  the  duty  of  the  com- 

'National     Bans    v.    Watsontown  'McFall   v.    Buckeye,    etc.,     \  an. 

Bank,  106  U.  8.  -_M7.  (Cal.),  66  Pac.  Rep.  268.     Aatosuffi- 

'Pinkerton  v.  Railroad  Co.,  42  N.  cient  transfer  see  Basting  v.  Northern, 

H.  124.  etc.,  <'"..  61  Minn.  807. 


§  446  TRANSFER  OF  SHARES.  475 

pany  to  wind  up  its  affairs,  call  in  the  outstanding  capital, 
and  satisfy  the  creditors.  The  shares  have  ceased  to  be  the 
subject-matter  of  legitimate  traffic.  They  are  a  burden  to  the 
owner  and  a  transfer  will  be  merely  a  subterfuge  to  avoid  lia- 
bility."1 This  is  the  rule  in  the  United  States,2  but  in  En- 
gland a  shareholder  may  transfer  his  shares  to  an  insolvent 
for  a  nominal  consideration  and  for  the  sole  purpose  of  escap- 
ing liability.3  Upon  the  dissolution  of  a  corporation  the  right 
of  a  holder  to  transfer  shares  necessarily  ceases,  although  a 
court  of  equity  will  recognize  a  sale  of  the  shareholder's  equita- 
ble claim.4 

§  446.  Pledge  of  stock  certificates  by  delivery. — The  pledge 
of  a  stock  certificate  by  mere  delivery  without  a  transfer  prop- 
erly signed  vests  in  the  pledgee  an  equitable  title  only.  In 
case  of  default  in  the  conditions  of  the  pledge  the  pledgee  can 
not  enforce  his  security  by  the  ordinary  method  of  sale,  but  by 
going  into  a  court  of  equity  he  may  obtain  the  relief  necessary 
to  enable  him  to  render  his  security  available.5  But  "a  pledge 
of  certificates  of  stock  by  mere  delivery,  or  an  equitable  mort- 
gage thereof,  is  subject  to  the  equities  of  third  persons  and 
cestuis  que  trust,  although  he  may  have  a  written  agreement 
from  the  pledgor  to  execute  a  legal  transfer  of  the  shares. 
The  rule  thus  limiting  the  rights  of  a  pledgee  by  delivery  was 

1  Morawetz  Priv.  Corp.  I,  §  166.  in  defraud  of  creditors  of  the  corpora- 
'Everhart  v.  West  Chester,  etc.,  R.  tion."    Taylor,    §  749,  citing  Dauchy 
Co.,  28  Pa.   St.   339;  Chouteau,   etc.,  v.    Brown,    24  Vt.    197;    Nathan    v. 
Co.  v.Harris,  20  Mo.  382;  Marcy  v.  Whitlock,  9  Paige  (N.   Y.)  152;  Gaff 
Clark,  17  Mass.  330;  Rider  v.  Morri-  v.  Flesher,  33  Ohio  St.  107. 
son,  54  Md.  429.     "When  shares  are        3De  Pass's  Case,  4  De  G.  &  J.  544; 
not  fully  paid  up  and  the  corporation  Jessopp's  Case,  2  De  G.  &  J.  638. 
is  in   failing  circumstances,  it  is  the        4  James  v.  Woodruff,  2  Denio  574; 
general   rule  throughout  the  United  Waite  Insolvent  Corp.,  §  385. 
States,  that  the  holder  can  not  validly        5  Nesbit  v.  Macon,  etc.,  Co.,  12  Fed. 
transfer  them  to  an  irresponsible  per-  Rep.  686;  Johnson  v.  Dexter,  2  Mac- 
son  for  the  purpose  of  avoiding  fur-  Arthur  530;  Newton  v.  Fay,  10  Allen 
ther  liability  in  regard  to  them.    The  (Mass.)  505 ;  Wilson  v.  Little,  2  N.  Y. 
right  of  transfer  can  not  be  exercised  443 ;  Colbrooke  Col.  Sec. (2d  ed.),  §  276, 


476  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  447 

enforced  in  a  case  where  the  act  of  a  pledge  of  the  stock  was 
a  fraudulent  misappropriation."  ' 

§  447.   Surrender  of  old  certificate — Fraudulent  reissue, — 

A  corporation  should  not  permit  a  transfer  or  issue  a  new  cer- 
tificate until  the  old  certificate  is  surrendered,  as  it  is  charged 
with  notice  of  the  equities  of  the  holder  of  the  outstanding 
certificate.  The  transferee  who  receives  new  certificates  with- 
out requiring  a  surrender  of  the  old  ones  is  not  a  bona  fide 
transferee,  and  can  not  hold  the  corporation  liable.2  One  who 
never  receives  the  certificates,  but  who  nevertheless  obtains  a 
registry  on  the  corporate  books  and  receives  new  certificates 
without  a  surrender  of  the  old  ones,  is  not  liable  in  damages 
to  a  holder  of  the  old  certificates,  unless  he  obtained  the  regis- 
try with  knowledge  that  the  old  certificates  had  been  trans- 
ferred.3 If  the  corporation  issues  a  new  certificate  it  may  be- 
come liable  upon  both  the  outstanding  certificates  to  innocent 
} m rrl lasers  for  value.4  The  purchaser  assumes  the  duty  to 
see  that  the  vendor  of  shares  surrenders  the  old  certificate  and 
transfers  it  on  the  books.  It  is  also  the  duty  of  the  corporation 
to  see  that  this  is  done  before  it  issues  a  new  certificate.5  The 
purchaser  of  a  certificate  reciting  that  it  is  "transferable  only 

'Colbrooke  Col.  Sec,  §  277;  Shrop-  57N.Y.616.  The  failure  fcorequirethe 

shire  Unions  R.  Co.  v.  Queen,  L.  R.  7  production  of  the  old  certificate  does 

]■,.  &  I.  Apps.  496.  not,  of  course,  effect  the  rights  of  the 

2  Moores  v.  Citizens'  Nat'l  Bank,  111  person   to  whom  a  transfer  is  made 

I  3,  166.  upon  the  books  of  the  corporation. 
■Baker  v.   Wasson,  53   Tex.   150;  Boatmen's,  etc.,  Co.  v.  Abel,  48  Mo. 

Bcriptare  v.  Francestown,  etc.,  Co.,50  136.    "Any  act  suffered  by  the  cor- 

N.  H.  571.     In  Houston  R.  Co.  v. Van  poration  thai  invested  a  third  party 

Alstyne,  66  Tex.  439,  il  is  held  that  a  with  the   ownership  of   the  shares, 

•ration  is  not  bound  to  recognize  without  due  protection  and  surrendei 

ape                   stockholder  who  ob-  of  the  certificate,  rendered  it  liable  to 

tained  a  registry  withoul  a  surrender  the  owner;  and  it  was  its  duty  tore- 

of  the  old  certificate,  when  a  regular  sisl  any  transfer  in  the  books  without 

try  with  a  surrender  of  thecer-  such    production     and    surrender." 

tiflcates  had  already  been  made.  Oushman  v.  Thayer,  etc.,  Co.,  76  N. 

■  Factoi              Co  v.  Marine,  etc.,  Y.865.    Bui  Bee  Guilford  v.  Western 

;i  La.  \  u  n .  149;  Bankv.Li >r,  Union,  etc.,  Co.,  59  Minn.332,61   N. 

II  Wall. 869;  Bridgeport  Bant  v.  New  W.  Rep.324. 

York,etc.,B  Co.,  80  Conn.  281 ;  Gull-       'Allen  v.  South    Boston  R.  Co.,  15(1 
ford  rn,  etc.,  Tel.  Co.,  43  Minn.     Mass.  200, 15  Am  Bt.  Rep.  185. 

134  :  Holbrook  v.  New  Jet  s<  y,  etc., Co., 


§  447  TRANSFER  OF  SHARES.  477 

on  the  hooks  of  the  company,  on  the  indorsement  and  surrender 
of  this  certificate,"  has  a  right  to  rely  upon  the  certificate  secur- 
ing to  him  the  shares  which  it  represents,  and  he  will  be  fully 
protected.  Until  the  outstanding  certificate  is  surrendered  the 
corporation  can  not  be  compelled  to  issue  a  new  certificate.1 

The  doctrine  of  lis  pendens  has  no  application  to  a  sale  and 
transfer  of  shares  of  stock.2 

If  the  surrendered  certificate,  instead  of  being  canceled,  is 
fraudulently  transferred  by  the  officers  charged  with  the  duty 
of  issuing  shares,  the  corporation  would  be  liable  to  the  inno- 
cent purchaser  of  the  same,  but  it  was  recently  held  in  New 
York  that  there  was  no  liability  where  the  certificates  were 
taken  from  the  safe  of  the  company  and  fraudulently  pledged 
by  the  general  manager  of  the  corporation.  After  stating  the 
rule  with  reference  to  negotiable  instruments  and  other  choses 
in  action,  Chief  Justice  Andrews  said:  "Nor,  in  our  opin- 
ion, can  the  judgment  below  be  sustained  upon  any  principle 
of  agency  in  Jurgens,  express  or  implied,  to  issue  the  surren- 
dered certificates,  which  on  the  issue  of  the  new  certificates  be- 
come mere  vouchers  in  the  possession  of  the  company.  If  it 
can  be  said  that  the  direction  of  the  president  to  Jurgens  to 
cancel  the  certificates  made  him  the  agent  of  the  company  for 
that  purpose,  it  was  an  authority  to  destroy  and  not  to  use. 
His  act  in  abstracting  them  from  the  safe  and  uttering  them 
as  valid  certificates  had  no  relation  to  the  authority  conferred. 
It  was  not  an  act  of  the  same  kind  as  that  he  was  authorized 
to  perform.  He  had  no  apparent  authority  to  issue  them  as 
genuine  certificates,  because  he  had  no  authority  to  issue  cer- 
tificates for  any  purpose.  *  *  *  The  certificates  were  at 
all  times  after  their  surrender,  and  before  they  were  abstracted 
by  Jurgens  from  the  safe  of  the  defendant,  in  the  legal  pos- 
session of  the  company.     The  company  never  placed  them  in 

^oslyn  v.   St.   Paul,  etc.,  Co.,  44  57  N.  Y.  616;  Bean  v.  Trust  Co.,  122 

Minn.  183;  Lund  v.Wlieaton,  etc.,  Co.,  N.  Y.  622;  but  see  Sprague  v.  Manu- 

50  Minn.  36,  52  N.  W.  Rep.  268.     In  facturing    Co.,  Fed.    Cas.  B.  249,  10 

case  of  lost  certificates,  see  Guilford  Blatchford  173.     See  an  article  in  19 

v.  Western  Union,  etc.,  Co.,  59  Minn.  Nat.  Corp.  Rep.  116,  and  Burford  v. 

332,  61  N.  W.  Rep.  324.  Keokuk,  etc.,  Co.,  3  Mo.  App.  159. 

2Holbrook  v.  New  Jersey,  etc.,  Co., 


478  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  448 

the  possession  of  Jurgens  or  invested  him  with  the  indicia  of 
ownership.  He  had  access  to  the  safe  as  the  mere  servant  of 
the  defendant.  The  doctrine  of  implied  agency  is,  we  think, 
wholly  inapplicable  to  the  circumstances  of  the  case."1 

§  448.  Evidence  of  transferee's  right. — The  officers  of  the 
company  are  the  custodians  of  its  stock  books,  and  it  is  their 
duty  to  see  that  all  transfers  of  shares  are  properly  made, 
either  by  the  stockholders  themselves  or  persons  having  au- 
thority from  them.2  If  upon  the  presentation  of  a  certificate 
for  transfer,  they  are  at  all  doubtful  of  the  identity  of  the  party 
offering  it  with  its  owner,  or  if  not  satisfied  of  the  genuine- 
ness of  a  power  of  attorney  produced,  they  can  require  the 
identity  of  the  party  in  the  one  case  and  the  genuineness  of  the 
document  in  the  other  to  be  satisfactorily  established  before 
allowing  the  transfer  to  be  made.3 

A  transfer  from  the  owner  to  his  agent  is  not  authorized  by 
the  fact  that  the  principal  has  given  his  agent  a  general  power 
of  attorney  "  to  sell,  dispose  of,  transfer  and  deliver  all  or  any 
of  my  interest  in  the  capital  stock  of  any  association,  bodies 
corporate  or  politic."  In  such  a  case  the  corporation  was  held 
liable  when  it  accepted  the  surrender  of  the  certificate  not  in- 
dorsed by  either  the  owner  or  agent  and  issued  a  new  certifi- 
cate in  the  name  of  the  agent.4  But  the  corporation  is  not 
bound  to  assume  and  act  on  the  theory  that  a  transferrer  is  at- 
tempting a  fraud.5 

§  449.    Indorsement  of  certificate, — The  execution  of  an  as- 

Bignmenl  in  blank  with  power  of  transfer,  upon  the  back  of  a 

certificate  of  stock,  is  a  warranty  of  the  genuineness  of  the 

paper,  which  may  be  enforced  by  any  bona  tide  purchaser  of 

tin-  certificate  who  tills  up  the  assignment  with  his  name.8  But 

1  Knox   v.Eden    Musee,   etc.,  Co.,  Thompson  v.  Stanley,  25  N.  Y.  Supp. 

148  N.  Y.  141,31  L.  R.  A.  779.  B90;    Peck   v.    Bank   of   America,    L6 

i  porationa  ma  si  Bee  I  bat  ao  an-  l«'.  1 .  710. 

authorized  transfers  are    made  and  •Taffl  v.  Presidio,  etc.,  R.  Co.,  84 

are  liable  to  any  one  injured  by  a  Cal.  131,  18  Am.  St.  Rep.  166. 

breach  of  this  duty.  Marbury  v.  Ehlen,  Minifies  v.  Drovers,  etc.  Bank,  86 

20  \im.  St.  Rep    W7.  Md.  118. 

■Chief  Justice  Waite  In  Telegraph  'Matthews  v.  Massachusetts  Nat'l 

Da  ,  np,  rl     -.,     i  .    s.   869;  Bank,  I  Holmes  896. 


§  450  TRANSFER    OF    SHARES.  479 

it    is   not   a   warranty    that   the    certificate    represents    valid 
shares.1 

§  450.  Fraudulent  transfer2 — Rights  of  transferee  or  pur- 
chaser of  stock  certificate. — Stock  certificates  are  not  negotia- 
ble instruments,  and  hence  as  a  general  rule  the  purchaser  of 
such  choses  in  action  can  acquire  no  better  title  than  his  ven- 
dor has  to  convey.  The  true  owner  of  certificates  which  are 
stolen  and  wrongfully  transferred  can  not  be  deprived  of  his 
property,  although  he  may  be  of  the  certificates,  unless  he  has 
been  guilty  of  some  negligence  or  has  placed  himself  in  a  po- 
sition where  he  is  estopped  to  assert  his  claim.  A  person  can 
only  be  deprived  of  his  property  by  his  own  consent  or 
through  his  own  negligence.  A  bona  fide  purchaser  of  a  ne- 
gotiable bill,  bond  or  note,  although  he  buys  from  a  thief,  ac- 
quires a  good  title  if  he  pays  value  for  it  without  knowledge  of 
the  infirmity  of  his  vendor's  title.  But  as  a  certificate  of 
stock  is  not  negotiable  paper,  and  the  purchaser  of  such  a  cer- 
tificate, although  it  is  indorsed  in  blank  by  the  owner,  obtains 
no  better  title  to  the  stock  than  his  vendor  had  in  the  absence 
of  all  negligence  of  the  part  of  the  owner.3  "  Neither  the  ab- 
sence of  blame  on  the  part  of  the  officers  of  the  company  in 
allowing  an  unauthorized  transfer  of  stock  nor  the  good  faith 
of  the  purchaser  of  stolen  property  will  avail  as  an  answer  to 
the  demand  of  the  true  owner."4  Hence,  a  bona  fide  purchaser 
of  stock  standing  on  the  company's  books  in  the  name  of  the 
former  owner,  regularly  indorsed  by  him,  and  stolen  from  the 
owner,  gets  no  title  to  the  stock.5  But  as  against  the  corpora- 
tion the  purchaser  of  a  certificate  of  stock  in  the  open  market, 
without  knowledge  of  fraud  in  its  issue  by  the  corporation  or 
its  agent,  is  entitled  to  have  it  transferred  to  him  on  the  books 

1  Peoples  Bank  v.  Kurtz,  99  Pa.  St.        5Barstow   v.   Savage,   etc.,  Co.,   64 
344.  Cal.    388,    49    Am.    Rep.    705;     East 

2  See  Wilgus'  Cases.  Birmingham,  etc.,  Co.  v.  Dennis,  85 
3 Mechanics' Bank  v.  N.  Y.,  etc.,  R.     Ala.  565,  Wilgus'  Cases;   Machinists 

Co.,  13  N.  Y.  599.  Nat'l  Bank  v.   Field,  126  Mass.  345; 

4 Telegraph  Co.v.  Davenport,  97  U.  S.  Shaw  v.  Spencer,  100  Mass.  382  ;  Hall 

369;    Knox  v.    Eden,   etc.,    Co.,    148  v.  Road  Co.,  70  111.673.     See  §§323, 

N.  Y.  441,  31  L.  R.  A.  779.  324,  supra. 


480  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  451 

of  the  company  without  reference  to  any  fraud  or  irregularity 
in  its  issue.1  It  will  be  observed  that  it  is  the  purchaser  of 
the  stolen  certificates  who  can  acquire  no  rights  as  against 
the  true  owner.  If  through  any  means  the  certificate  is  re- 
turned to  the  corporation  and  by  it  taken  up  and  a  new  cer- 
tificate issued,  new  rights  are  thereby  created,  and  subsequent 
innocent  transferees  of  the  new  certificate  are  protected  in 
their  right  against  the  corporation,  while  at  the  same  time 
the  original  owner  of  the  stock  may  also  require  the  corpora- 
tion to  protect  him  in  his  rights  as  a  stockholder,  or  respond 
in  damages.2  The  courts  have  been  frequently  urged  to  ex- 
tend the  qualities  of  negotiability  to  stock  certificates  and  to 
clothe  them  with  the  qualities  of  commercial  paper,  so  as  to 
make  a  transfer  in  good  faith  for  value  equivalent  to  actual 
title,  although  there  was  no  agency  in  the  transferrer,  and  the 
certificate  has  been  lost  without  the  fault  of  the  true  owner,  or 
has  been  obtained  by  theft  or  robbery.  But  they  have  refused 
to  adopt  this  view  and  there  are  no  cases  entitled  to  be  re- 
garded as  authority  which  deny  to  the  owner  of  a  stock  certifi- 
cate which  has  been  stolen  or  lost  without  his  negligence,  the 
right  to  reclaim  it  from  the  hands  of  any  person  in  whose  pos- 
session it  subsequently  comes,  although  the  holder  may  have 
taken  it  in  good  faith  and  for  value. 

§  451.    Netflisence  of  owner — Estoppel. — While  the  owner 

of   shares   of   stock   can   not  be  deprived  of  his  property  by 

wrongful  acts  of  others,  lie  may  by  his  acts  place  himself  in  a 

position  where  be  will  not  be  permitted  to  assort  his  rights  as 

inel   one  who  in  the  eye  of  the  law  is  entitled  to  greater 

1  Cincinnati,  etc.,  R.  Co.  v.  Citizens'  value  forthem  without  in. tier  of  any 

Nat' 1  Bank,  58  Ohio  St. 851.    "Onein  intervening    equity."      Matthews  v. 

.,,  ,,i'  ;i  certificate  ol  stock  ol  ffoagland,  48  N.  J.  Eq.  455. 

an     incorporated    company,    accom-  » As  to  liability  of  the  corporation 

panied  b                gnmenl   in   blank,  on   fraudulent   certificates  issued  by 

ited  by  the  record  owner,  with  its  officers  t"  innocenl  persons  wr  § 

an  irrevocable  power  of  attorney.au-    828.  T v.  Railway  Co.,  39  Md.  86, 

thorizing  the  transfer  of  the  stock,  is  17  An..    Rep.  540;   Alien  v.    Railway 

preaumptivel)    the    equitable   owner  Co.,  150  Mass.  200;  Fifth  Ave.  Bank  v. 

of  the  Bhares,  whose  title  thereto  can  42dSt.,etc.,  R.Co.,  L87N.Y.281 ;  Kn<>x 

,,,,t   i„-  Impeached    it    he  has  given  v. Eden Musee, etc., Co.,148N. Y.441, 


§  451  TRANSFER  OF  SHARES.  481 

consideration.  Thus,  where  the  holder  of  a  stock  certificate 
indorsed  in  blank  is  clothed  with  power  as  the  agent  or  trus- 
tee, and  makes  a  transfer  in  excess  of  his  power  or  in  viola- 
tion of  his  trust,  the  true  owner  is  estopped  to  assert  his  title 
as  against  a  third  person  who,  acting  in  good  faith,  takes  a 
transfer  of  the  certificate  for  value  from  the  apparent  owner.1 
Such  cases  rest  upon  the  principle  that  it  is  more  just  and 
reasonable,  where  one  of  two  innocent  parties  must  suffer  loss, 
that  he  should  be  the  loser  who  has  put  trust  and  confidence 
in  the  deceiver  than  the  stranger  who  has  been  negligent  in  trust- 
ing no  one.2  The  possession  of  a  certificate  confers  an  appar- 
ent right  to  the  ownership  of  the  shares.  The  holder  possesses 
"all  the  external  indicia  of  the  title  to  the  stock,  and  the  ap- 
parently unlimited  power  of  disposition  over  it.  He  does  not 
appear  to  have,  as  is  said  in  some  of  the  authorities  cited  con- 
cerning the  assignees  of  choses  in  action,  a  mere  equitable  in- 
terest which  is  said  to  be  notice  to  all  persons  dealing  with 
him  that  they  take  subject  to  all  equities,  latent  or  otherwise, 
of  third  parties ;  but  apparently  the  legal  title  and  the  means 
of  transferring  such  title  in  the  most  effectual  manner."3  The 
purchaser  of  a  certificate  in  good  faith  has  a  right  to  rely  upon 
the  fact  that  it  will  secure  to  him  the  shares  of  stock  which  it 
purports  to  represent.4  The  fact  of  negligence  will,  of  course, 
depend  upon  the  circumstances  of  each  case. 

'McNeil   v.  Tenth   Nat'l   Bank,  46  sonable  that  he  that  employs  and  puts 

N.  Y.  325,  Wilgus'  Cases ;  Merchants'  a  trust  and  confidence  in  the  deceiver 

Nat'l   Bank  v.  Livingston,  74    N.  Y.  should  be  the  loser  than  a  stranger." 

223,   Wilgus'    Cases;    National,   etc.,  Lord  Holt  in  Hern  v.  Nichols,  1  Salk, 

Co.   v.  Gray,    12   App.  Cas.    (D.  C.)  289.     "Whenever  one  of  two  innocent 

276;  New  York,  etc.,  R.  Co.  v.  Schuy-  persons  must  suffer  by  the  act  of  a 

ler,  34  N.  Y.  30 ;  Mt.  Holly,  etc., Co.  v.  third,  he  who  has  enabled  the  former 

Ferree,  17  N.J.  Eq.  117;   Winter  v.  to  occasion  the  loss  must  sustain  it." 

Montgomery,   etc.,   Co.,  89  Ala.  544,  Ashurst,  J.,  in  Lickbarrow  v.  Mason, 

Wilgus' Cases ;  Otis  v.  Gardner,  105  2  D.  &  E.  70. 

111.  436;  Walker  v.  Railway  Co.,  47  sRapallo,  J.,  in    McNeil  v.  Tenth 

Mich.  338;    Burton's    App.,    93    Pa.  Nat'l   Bank,   46  N.   Y.   325,  Wilgus' 

St.  214;  Prallv.  Tilt,  28  N.  J.  Eq.  479.  Cases. 

2  "For,  seeing  that  somebody  must  be  4Joslyn  v.  St.  Paul,   etc.,  Co.,   44 

the  loser  by  this  deceit,  it  is  more  rea-  Minn.  183;  Bridgeport  Bank  v.  New 

31— Private  Corp.  York,  etc.,  R.  Co.,  30  Conn.  231. 


482  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  452 

§  452.  Transfer  oil  forged  power  of  attorney — Liability  of 
corporation. — If  the  corporation  transfers  the  shares  of  one  of 
its  members  on  its  books  in  recognition  of  a  forged  power  of 
attorney  indorsed  upon  the  certificate,  it  incurs  an  alternative 
liability,  either  (a)  to  the  original  shareholder  who  is  free 
from  fault,  for  a  conversion  of  his  shares,1  or  (6)  to  a  bona 
fide  sub-transferee  of  the  shares  who  has  purchased  them  on 
the  faith  of  the  new  certificate  which  the  corporation  has  been 
induced  to  issue  in  consequence  of  the  forgery.2  The  rule  is 
the  same  as  in  the  case  of  an  unauthorized  issue  of  shares  by 
the  corporation  without  authority.  The  innocent  holder  of 
the  certificate  can  not  be  ordered  "  to  return  his  certificate  be- 
cause he  purchased  the  shares  in  good  faith  and  for  a  valua- 
ble consideration,  and  the  certificate  issued  to  him  is  as  against 
the  bank  conclusive  evidence  of  his  title.  The  bank  has  no 
right  to  compel  him  rather  than  any  other  stockholder  to  give 
up  his  certificate  and  thereby  assume  the  responsibility  of  its 
own  illegal  act."3  There  is  no  liability  to  the  first  transferee  of 
the  certificate,4  nor  to  one  who  took  the  new  certificate  with 
notice  of  the  forgery,  or  of  facts  sufficient  to  put  him  on  in- 
quiry.5 But  the  corporation  may  maintain  an  action  against 
him  on  his  warranty  of  the  genuineness  of  the  power  of  at- 
torney.6 

The  question  of  the  negligence  of  the  corporation   is  imma- 

1  Western  U.  Tel.  Co.  v.  Davenport,  'Machinists'  Nat'l  Bank  v.  Field, 

97  U.  8.  369;  TaSt  v.  Railroad  Co.,  84  126  Mass.  346. 

Cal.131.    Bee  Easi  Birmingham  Land  'Simm  v.  A.nglo-Amer.  Tel.  Co.,  5 

Co.  v.   Dennis,  85   A  I:..  565,  Wilgus'  L.  R.  Q.  B.  Div.  188. 

The    corporation     may    be  5  Moores  v.  Bank,  111  TJ.  S.  156. 

compelled  to  issue  new  certificates  in  8  Boston, etc.,  R. Co.,  v.  Richardson, 

lieu  of  those  cancelled  although  the  135  .Mass.    173.     The  subjeci   ol  the 

assignees  were   ii cenl  purchasers,  transfer  of  shares  on  forged  powers  oi 

Chicago,  etc.,  Co.  v.  Fay,  164  [11.323.  attorney  is  elaborately  discussed  by 

Pennsylvania  Co.  v.  Franklin,  etc.,  Judge  Thompson  in  26  Am.  L.  Rev. 

si  Pa.  St.  W;  Bewail  v.  Boston,  809.      Bee  also   Balkis,  etc.,   Co.  v. 

etc.,  Co.,  4  Allen  277;  Davis  v.  Bank  Tomkinson,   L.    R.  (1893)  k.  C.  396. 

of  England,  2  Bing.  393.  As  to  the  liability  of  one  who  indoi  i  - 

1  Mandlebaum  v.  Mining  <'<>.,  I  a  forged  certificate  in  blank  to  subse- 
Mich.  165;  Machinists' Nat'l  Bank  v.  quenl  good  faith  purchaser  see  Mat- 
Field,  126  Ma  345;  New  York,  etc.,  thews  v.  Mass.  Nat'l  Bank,  1  Holmes 
B   Co.  v.  Schuyler,  84  \.  Y.  80.  896. 


§  453  TRANSFER    OF    SHARES.  483 

terial,  as  it  is  liable,  although  entirely  free  from  negligence. 
It  must  take  the  responsibility  of  the  transfer  being  genuine, 
and  may  refuse  to  recognize  the  same  until  satisfied  of  its  gen- 
uineness.1 Under  the  English  authorities  the  person  to  whom 
the  corporation  issues  a  new  certificate  becomes  a  member  of 
the  corporation,  and  the  former  stockholder  who  was  deprived 
of  his  shares  by  forgery  is  entitled  to  recover  from  the  com- 
pany the  value  of  the  shares  at  the  time  he  was  deprived  of 
them.2 

§  453.  Forgery  of  transfer — Negligence. — In  a  leading  case3 
it  appeared  that  the  guardian  of  the  owners  of  certain  shares 
of  stock  placed  the  certificates  in  a  box  and  deposited  them  in 
the  vault  of  the  bank  for  safe  keeping.  The  certificates  were  in 
the  name  of  the  owners,  and  contained  on  the  back  a  blank 
form  of  transfer  and  power  of  attorney.  One  of  the  officers  of 
the  bank,  a  brother  of  the  guardian,  had  access  to  the  box  for 
the  purpose  of  detaching  the  coupons  from  certain  bonds 
which  were  also  kept  there,  and  collecting  the  interest  thereon 
as  it  became  due.  He  took  the  certificates,  forged  the  names  of 
the  owner  to  the  transfer  and  power  of  attorney  and  sold  them 
to  an  innocent  purchaser  for  value,  who  had  them  transferred 
on  the  books  of  the  corporation  by  means  of  the  forged  power 
of  attorney.  In  a  suit  against  the  corporation  to  compel  it  to 
replace  the  shares,  Mr.  Justice  Field  said:  "Upon  the  facts 
stated  there  ought  to  be  no  question  as  to  the  right  of  the  plaint- 
iffs to  have  their  shares  replaced  on  the  books  of  the  company 
and  proper  certificates  issued  to  them  and  to  recover  the  divi- 
dends accrued  on  the  shares  after  the  unauthorized  transfer; 
or  to  have  alternative  judgments  for  the  value  of  the  shares 
and  the  dividends.  Forgery  can  confer  no  power  nor  transfer 
any  rights.  The  officers  of  the  company  are  the  custodians  of 
its  stock  books,  and  it  is  their  duty  to  see  that  all  transfers  of 

1  Chew  v.  Bank,  14  Md.  299.  poration  see  Kisterbock's  App.,  127  Pa. 

2  In  re  Bahia,  etc.,  R.  Co.,  L.  R.  3     St.  601;  Keller  v.  Eureka,  etc.,  Co., 
Q.  B.  584.     That  the  wronged  stock-    43  Mo.  App.  84. 

holder  is  entitled  to  have  his  name  3  Telegraph  Co.  v.  Davenport,  97 
placed  back  on  the  books  of  the  cor-    U.  8.  369. 


484  THE    LAW    OF    PRIVATE    CORPORATIONS.  §    454 

shares  are  properly  made,  either  by  the  stockholders  them- 
selves or  persons  having  authority  from  them.  If  upon  the 
presentation  of  a  certificate  for  transfer  they  are  at  all  doubtful 
of  the  identity  of  the  party  offering  it  with  its  owner,  or  if  not 
satisfied  of  the  genuineness  of  a  power  of  attorney  produced, 
they  can  require  the  identity  of  the  party  in  the  one  case  and 
the  genuineness  of  the  document  in  the  other  to  be  satisfactor- 
ily established  before  allowing  the  transfer  to  be  made.  In 
either  case  they  must  act  upon  their  own  responsibility.  In 
many  instances  they  may  be  misled  without  any  fault  of  their 
own  just  as  the  most  careful  person  may  sometimes  be  induced 
to  purchase  property  from  one  who  has  no  title,  and  who  may 
perhaps  have  acquired  its  possession  by  force  or  larceny. 
Neither  the  absence  of  blame  on  the  part  of  officers  of  the  com- 
pany in  allowing  an  unauthorized  transfer  of  stock  nor  the 
good  faith  of  the  purchaser  of  stolen  property  will  avail  as  an 
answer  to  the  demand  of  the  true  owner.  The  great  principle 
that  no  one  can  be  deprived  of  his  property  without  his  con- 
sent except  by  the  processes  of  the  law  requires,  in  the  cases 
mentioned,  that  the  property  wrongfully  transferred  or  stolen 
should  be  restored  to  its  rightful  owner.  The  maintenance  of 
that  principle  is  essential  to  the  peace  and  safety  of  society, 
and  the  insecurity  which  would  follow  any  departure  from  it 
would  cause  far  greater  injury  than  any  which  can  fall  in 
cases  of  unlawful  appropriation  of  property  upon  those  who 
have  been  misled  and  defrauded." 

It  was  further  held  that  there  was  no  such  negligence  as 
would  preclude  the  owner  of  the  shares  from  asserting  her  right 
as  against  the  bank. 

§  454.  Kii^hls  of  purchasers  of  shares  transferred  in  viola- 
tion of  a  trust. — Where  the  legal  title  and  apparently  unre- 
stricted power  "t  disposition  are  vested  in  a  person,  the  pur- 
chaser from  him  for  a  valuable  consideration,  without  notice 
of  ;i  secrel  trust  upon  which  the  shares  are  held,  is  unaffected 
by  the  trust.  In  Buch  ;i  case  the  equities  of  the  purchaser  are 
equal  to  those  of  the  defrauded  beneficiary,  and  the  purchaser 
having  also  the  Legal  title  will   prevail.     Tims,  a  purchaser 


§  454  TRANSFER  OF  SHARES.  485 

from  one  who  lawfully  has  the  certificate  of  stock  upon  which 
there  is  a  power  of  attorney  properly  signed  by  the  last  regis- 
tered owner  apparently  authorizing  their  absolute  transfer  to 
any  person,  takes  the  stock  free  from  any  secret  trust  ex- 
isting back  of  the  registry.1  But  a  pledge  by  a  trustee  of 
stock  confers  no  right  upon  one  who  takes  with  actual  or 
constructive  knowledge  of  the  trust.  As  said  by  the  New 
York  Court  of  Appeals,2  "Any  person  who  receives  prop- 
erty knowing  that  it  is  the  subject  of  a  trust,  and  that  it 
has  been  transferred  in  violation  of  the  duty  or  power  of 
the  trustee,  takes  it  subject  to  the  right  not  only  of  the  cestui 
que  trust,  but  also  of  the  trustee  to  reclaim  possession  of  the 
property.  Knowledge  of  the  trustee's  violation  of  the  trust 
condition  will  be  chargeable  to  the  person  dealing  with  him, 
if  the  facts  were  such  as  in  reason  to  put  him  upon  in- 
quiry, and  to  require  him  to  make  some  investigation,  as  the 
result  of  which  the  true  title  and  authority  of  the  trustee 
might  have  been  disclosed.  He  will  then  be  regarded  as  hav- 
ing constructive  notice  of  the  terms  of  the  trust  whence  the 
trustee  derives  his  power  to  act."  One  who  purchases  from 
an  executor  is  chargeable  with  notice  of  the  contents  of  the 
will  which  is  on  record.3  A  sale  by  an  executor  in  violation 
of  a  statute  passes  no  title  to  the  purchaser,  and  where  an  ad- 
ministrator can  transfer  personal  property  in  only  one  way 
under  the  statute,  a  corporation  is  liable  to  the  estate  if  it  al- 
lows a  transfer  by  an  administrator  who  has  not  complied 
with  the  law.4  It  is  sometimes  provided  by  statute  that  such 
transfer  shall  be  void.  It  was  held  in  Massachusetts  that  a 
sale  by  an  equitable  owner  of  stock  held  by  trustees  under  a 
trust  agreement  conveys  the  vendor's  interest  subject  to  the 
execution  of  the  trust,  and  is   not  within  the   provisions  of  a 

1  Winter  v.  Montgomery,  etc.,  Co.,  3  Lowry  v.  Bank,  Taney  310; 
89  Ala.  544,  Wilgus'  Cases;  Lowry  v.  Stewart  v.  Firemen's  etc.,  Co.,  53  Md. 
Bank,  Taney  310.  564.   See  Marbury  v.  Ehlen,  72  Md. 

2  First  Nat'l  Bank  v.  Nat'l  Broad-  206,  20  Am.  St.  Rep.  467. 

way  Bank,  156  N.  Y.  459,  42  L.  R.  A.        4 Citizens',  etc.,  R.  Co.  v.  Robbins, 
139;  Anderson  v.   Blood,  152  N.  Y.     128  Ind.  449. 
285 ;  1  Story  Eq.  Jur.,  §  400 ;  2  Perry  on 
Trusts,  §  831. 


4S6  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  455 

statute  which  renders  void  every  contract  for  the  sale  of  stock 
'•  unless  the  party  contracting  to  sell  or  transfer  the  same  is  at 
the  time  of  making  the  contract  the  owner  or  assignee  thereof, 
or  authorized  by  the  owner  or  assignee  to  sell  or  transfer  it."1 

§  435.  Transfers  in  breach  ot  trust — ^.ability  of  corpora- 
tion.— As  a  general  rule  a  corporation  may  safely  assume  that 
the  person  in  whose  name  shares  stand  on  the  books  of  the 
corporation  is  the  owner  thereof  and  entitled  to  sell  and  transfer 
the  same,  and  receive  the  benefits  resulting  from  such  owner- 
ship. Unless  the  corporation  has  actual  or  constructive 
notice  of  the  fact  that  the  holder  of  the  legal  title  is  not  the 
actual  and  beneficial  owner  it  may  safely  register  a  transfer 
without  danger  of  liability  to  beneficiaries  or  equitable  owners.2 
But  the  corporation  in  many  respects  occupies  the  position  of 
a  trustee  for  its  stockholders,  and  is  responsible  for  any  injuries 
sustained  by  the  beneficial  owner  through  its  negligence. 
Thus,  where  the  corporation  had  notice  of  the  facts  that  the 
shares  of  stock  in  question  were  held  by  A  as  trustee  for  B 
under  an  indenture  of  trust  which  authorized  the  trustee  to 
sell  and  reinvest  the  trust  property  only  upon  obtaining  the 
written  consent  of  the  cestui  que  trust,  the  corporation  was  held 
liable  to  B  for  permitting  a  transfer  of  the  shares  without  her 
consent  without  making  due  inquiry  as  to  the  authority  of  the 
trustee.  An  examination  of  the  powers  of  the  trustee  would  have 
revealed  thefactthathehad  no  authority  to  make  the  transfer  and 
ti,(.  failure  to  make  the  inquiry  was  negligence.    The  court  said: 

iDachemin  v.  Kendall,  L49  Mass.  Co.,  L37  Mass.  428;  Taii'i  v.  Presidio, 

171,  ::  1..  R.  A.  784.  etc.,  R.  Co.,84  Cal.  L31  ;  Shaw  v.Spen- 

2Sniith  v.  Nashville,  etc.,  R.  Co., 91  cer,  100  Mass.  882;  Fisher  v.  Brown, 

Tent).  221;  Read  v.  Cumberland,  etc.,  I'M  Mass.  269;  Bohlen's Estate,  75  Pa. 

I              ,                    The  corporation  Bt.  804;  Porter  v.  Bank  of  Rutland,  19 

required    to    exercise   only    ordi-  Vt.410;  Bayard  v.  Farmers' Bank,  52 

narycare  and  diligenceto  protect  its  Pa.  si.  •_':;■_•;  Parrotl  v.  Byers,  40  Cal. 

stockholders     against     unauthorized  <;i  I ;    Caulkins  v.  <ias,  etc.,  <'"..  85 

,,.,,,            i                   i        etc.,  <'".,  Tenn.683;  Railroad  <"•>.  v.  Humphries 

Rep.  786.  'Miss  ).  :  So.   Rep.  522;  Marbury  v. 

■Loring    v.     Salisbury    Mills,    126  Ehlen,  72  Md.  206.  "An  unauthorized 

18;  Bird  v.  Chicago,  etc.,  R.  transfer  may  work  a  Berious  wrong  to 


§  455  TRANSFER  OF  SHARE?  487 

"When  the  holder  of  a  certificate  of  shares  in  a  corporation 
is  the  absolute  owner,  his  assignment  and  delivery  thereof  will 
pass  the  title  to  the  assignee;  and  the  latter,  upon  surrendering 
the  former  certificate,  may  obtain  a  new  one  in  his  own  name. 
If  the  holder  appears  on  the  face  of  the  old  certificate  to  be  the 
absolute  owner,  and  the  corporation  has  no  notice  that  the  fact 
is  otherwise,  it  may  safely  issue  a  new  certificate  to  the  assignee 
which,  if  taken  in  good  faith  and  for  a  valuable  consideration, 
will  vest  and  perfect  the  title  in  him.  But  for  the  protection 
of  the  rights  of  the  lawful  owner  of  the  shares  the  corporation 
is  bound  to  use  reasonable  care  in  the  issue  of  certificates;  if 
by  the  form  of  the  certificate  or  otherwise  the  corporation  has 
notice  that  the  present  holder  is  not  the  absolute  owner,  but 
holds  the  shares  by  such  a  title  that  he  may  not  have  authority 
to  transfer  them,  the  corporation  is  not  obliged,  without  evi- 
dence of  such  authority,  to  issue  a  certificate  to  his  assignee, 
and  if  without  making  any  inquiry  it  does  issue  a  new  certifi- 
cate, and  the  rightful  owner  is  injured  by  its  negligence  and 
wrongfulact,  the  corporation  is  liable  to  him  without  proof  of 
fraud  or  collusion.  All  the  authorities  affirm  such  liability 
where  the  corporation  has  notice  that  the  present  holder  is  a 
trustee  and  of  the  name  of  his  cestui  que  trust,  and  issues  a  new 
certificate  without  making  any  inquiry  whether  his  trust  au- 
thorizes him  to  make  a  transfer."  The  fact  that  the  certificate 
shows  on  its  face  that  the  holder  is  a  trustee  or  executor  is  suf- 
ficient to  put  the  corporation  upon  inquiry  as  to  the  extent  of 
his  powers.1  The  taking  up  of  a  stock  certificate  by  the  corpo- 
ration from  one  to  whom  a  life  estate  therein  has  been  be- 
queathed, upon  the  presentment  of  the  certificate  with  an  in- 
dorsement by  the  executors  that  they  have  sold  the  stock  to 
the  life  tenant,  without  inquiry  as  to  whether  there  was  an  ac- 

the  equitable  owner,  and  if  the  cor-  a  party  to  the  wrong,"     Peck  v.  Bank 

poration  allows  it  to  be  made  with  no-  of  America,  16  R.  I.  710. 

tice  of  the  want  of  authority,  or  if  put  l  Shaw   v.    Spencer,   100  Mass.  382. 

upon  inquiry,  without  proper  investi-  See   Brewster  v.    Sime,  42  Cal.  139; 

gation  into  the  authority,  it  becomes  Bank  v.  Cady,  L.  R.  15  A.  C.  267. 


488  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  456 

tual  sale  for  value,  is  such  negligence  as  will  render  the  cor- 
poration liable  for  injuries  resulting  to  the  remainderman.1 

§  450.  When  the  power  to  sell  exists — Presumption  of 
right  doing. — It  is  more  difficult  to  determine  the  liabilit}7  of 
the  corporation  when  the  trustee  has  authority  to  sell  the 
shares,  but  in  fact  transfers  them  for  the  purpose  of  misap- 
propriating the  proceeds,  or  as  a  pledge  to  secure  his  own 
debt.  A  holds  stock  in  trust  for  B,  with  power  to  sell  the 
same  at  his  discretion,  and  exchange  for  other  securities.  C  is 
the  custodian  of  the  stock  with  knowledge  of  A's  trust,  and 
also  of  his  power  to  sell.  C  permits  A  by  his  lawfully  con- 
stituted attorney  to  transfer  a  part  of  the  stock  on  the  books 
of  the  corporation  to  another  bank.  The  transfers  were  in 
fact  by  way  of  pledge  to  secure  the  individual  debt  of  the  at- 
torney, and  were  made  without  authority  and  in  fraud  of  the 
rights  of  B.  C  had  no  knowledge  of  the  wrongful  act  of  A's 
attorney,  except  in  so  far  as  it  was  imputed  from  the  fact  that  he 
knew  that  A  held  the  stock  in  the  manner  aforesaid.  Under  these 
circumstances  the  supreme  court  of  Rhode  Island  held  that 
C  was  not  guilty  of  negligence  in  permitting  the  transfer  to 
be  made,  as  it  had  the  right  to  presume  that  the  transfer  was 
made  in  pursuance  of  the  authority  contained  in  the  will,  and 
nol  in  fraud  thereof.2  "  The  power  of  the  trustee  to  sell  the 
stock,  coupled  with  the  presumption  that  she  was  acting  hon- 
i  atly,  and  in  pursuance  of  that  power,  made  the  transfer  ap- 
parently rightful,  or  al  any  rate  the  act,  under  the  circum- 
stances, was  not  such  as  ought  to  cause  a  reasonably  prudent 
man  to  suspect  thai  it  was  wrongful.  Ordinary  diligence,  and 
not  suspicious  watchfulness,  is  the  measure  of  duty  which  a 
corporation  owes  to  its  stockholders  in  such  cases.  In  this 
case  we  do  uol  Bee  that  either  suggestion  of  danger  or  ground 
of  suspicion  exists. " 

'Cox  v.  I -"i i--i  Nat'l  Bank,  U9N.O.     R.  t.  275.    See,  also,  Peck  v.  Bank, 

etc.,  Co.,  16  R.  I.  710. 
"  Peel  v.  Providence,  etc.,  ( '<>.,  17 


§457 


TRANSFER    OF    SHARES 


489 


§  457.  Lien  of  corporation  upon  shares." — A  corporation 
has  no  lien  upon  the  shares  of  its  members  for  debts  due  it 
unless  it  is  created  or  authorized  by  the  charter  or  statute,  or  by 
agreement  of  the  parties.2  Under  authority  to  regulate  trans- 
fers by  the  weight  of  authority  a  lien  may  be  created  by  a  by- 
law adopted  by  a  majority  of  the  shareholders,3  which  will  be 
valid  as  against  stockholders  and  purchasers  with  notice,  but 
there  is  much  authority  to  the  contrary.  Where  a  lien  is  cre- 
ated by  the  charter  or  by  a  general  law,  all  persons  pur- 
chasing shares  are  bound  by  it,  and  the  corporation  may  re- 
fuse to  transfer  the  shares  until  its  claim  is  satisfied,4  but  if  it 
is  created  by  a  by-law  it  does  not  bind  a  purchaser  without 
notice.5  When  the  law  gives  to  a  corporation  a  lien  on  the 
shares  for  any  debt  due  the  bank  from  the  owner,  it  has  a 
vested  right  in  the  shares  which  can  not  be  divested  by  a  sub- 
sequent assignment  thereof  by  the  shareholder.6  The  lien  is 
not  confined  to   debts  growing  out  of  the  original   subscrip- 


1  See  Cook  on  Corps.,  4th  ed.,  §  522, 
and  cases  cited  from  Alabama,  Cali- 
fornia, New  York,  Louisiana,  Massa- 
chusetts, Missouri,  Mississippi  and 
Pennsylvania. 

2Gemmell  v.  Davis,  75  Md.  546; 
Dearborn  v.  Washington  Sav.  Bank, 
18  Wash.  8;  Case  v.  Bank,  100  U.  S. 
446;  Merchants  Bank  v.  Shouse,  102 
Pa.  St.  488 ;  Driscoll  v.  West  Bradley, 
etc.,  Co.,  59  N.  Y.  96;  Williams  v. 
Lowe,  4  Neb.  382 ;  Vansands  v.  Mid- 
dlesex, etc.,  Bank,  26  Conn.  144;  Sar- 
gent v.  Insurance  Co.,  8  Pick.  (Mass.) 
90 ;  Farmers',  etc.,  Bank  v.Wasson,  48 
Iowa  336;  Bank  v.  Lanier,  11  Wall. 
(U.  S.)  369.  When  no  restriction  is 
placed  by  law  on  the  transfer  of  cor- 
porate stock,  a  purchaser  of  such  stock 
is  not  affected  by  any  contractual  re- 
strictions on  the  power  of  transfer  of 
which  he  had  no  notice.  Brinkerhoff, 
etc. , Co. v.  Home,  etc.,  Co.,  118  Mo. 447, 
Wilgus'  Cases. 

3Lockwood  v.  Mechanics  Nat'l 
Bank,  9  R.  I.  308;  Morgan  v.  Bank, 


8  Serg.  &  R.  (Pa.)  73;  Vansands  v. 
Bank,  26  Conn.  144;  Planters',  etc., 
Bank  v.  Selma,  etc.,  Bank,  63  Ala.  585. 

4  Union  Bank  v.  Laird,  2  Wheat. 
(U.  S.)  390;  Bishop  v.  Globe  Co.,  135 
Mass.  132;  Oakland,  etc.,  Bank  v. 
State  Bank,  113  Mich.  284;  John  C. 
Graffin  Co.  v.  Woodside,  87  Md.  146. 

5 Driscoll  v.  West  Bradley,  etc.,  Co., 
59  N.  Y.  96;  Anglo-California  Bank  v. 
Grangers'  Bank,  63  Cal.  359;  Bishop 
v.  Globe  Co.,  135  Mass.  132;  Bank  of 
Atchison  v.  Durfee,  118  Mo.  431; 
Brinkerhoff,  etc.,  Co.  v.  Home,  etc., 
Co.,  118  Mo.  447,  Wilgus'  Cases  ;  Oak- 
land, etc.,  Bank  v.  State  Bank,  113 
Mich.  384. 

6  Geo.  H.  Hammond  Co.  v.  Hast- 
ings, 134  IT.  S.  401;  Prince,  etc.,  Co. 
v.  St.  Paul,  etc.,  Co.,  68  Minn.  121; 
Bank  of  Commerce  v.  Bank  of  New- 
port, 11  C.  C.  A.  484,  63  Fed.  Rep'. 
898;  Jennings  v.  Bank,  79  Cal.  323,  5 
L.  R.  A.  233;  Mohawk  Nat'l  Bank  v. 
Schenectady  Bank,  28  NY.  Supp.  1100, 
78  Hun  90. 


490  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  457 

tion  and  subsequent  calls  and  assessments.  It  includes  a 
debt  which  results  from  the  wrongful  use  of  the  money  of  the 
corporation  by  its  secretary,  who  was  also  a  stockholder.1  A 
stockholder,  who,  with  notice  of  a  by-law  which  provides  that 
no  stockholder  owing  the  corporation  a  matured  debt,  shall 
transfer  his  stock,  or  receive  a  dividend  thereon  until  the  debt 
is  paid,  contracts  a  debt  to  the  corporation,  will  be  held  to 
have  pledged  his  stock  to  the  corporation,  and  the  pledge  is 
binding  as  between  the  corporation  and  the  assignee  of  the 
stockholder.2  The  character  and  extent  of  the  lien  is  deter- 
mined by  the  terms  of  the  provision  creating  it.  When  the  stat- 
ute gives  the  corporation  a  lien  upon  the  stock  at  all  times  "  for 
all  the  debts  due  from  them  [the  stockholders]  to  such  corpora- 
tion," the  lien  attaches  for  debts  incurred  before  the  acquisi- 
tion of  the  stock.3  The  word  "  debt  "  includes  the  liability  on 
a  note  not  due,4  and  "  indebted  "  includes  the  collateral  lia- 
bility of  a  surety.5  But  such  provisions  do  not  prevent  an  as- 
signment of  the  equitable  interest  in  the  shares,  subject  to  the 
rights  of  the  corporation.6  The  corporation  may  waive  its 
lien  by  allowinga  transfer  on  its  books,7  or  by  inducing  a  pur- 
chaser to  act  upon  the  statement  that  there  are  no  claims 
against  the  stock.8  The  mere  taking  of  other  security  is  not 
a  waiver  of  the  lien.9  But  the  failure  to  put  a  copy  of  the  by- 
laws in  a  conspicuous  place,  as  required  by  the  statute,  will 
defeat  a  lien  conferred  by  the  by-law,  as  against  a  good-faith 
transfer  of  the  shares  without  knowledge  of  the  by-law.10  A 
national  l>ank  can  not  flcquife  a  lien  on  its  own  shares  for 
debts  from  its  stockholders  to  the  bank.11 

'National  Bank  v.  Rochester,  etc.,     Bank,  105  IT.  8.  217;   Moore  v.  Bank 
Co.,  17'_'  I'm.  St.  61 1.  of  Commerce,  52  M<>.  '577. 

*  John  C.  Oraffln  Co.  v.  Woodside,       7  Hill  v.  Pine  River  Bank,  45  N.  H 
S7  M.l.  I  16.  •"•I»>. 

•Schmidt  v.  Hennepin,  etc.,  Co.,  85       •National    Bank     v.    Watsontowr 
Minn.  511.  Bank,  105  U.  8.  217;  Bishop  v.  Globe 

•Granl  v.  Mechanics  Bank,  I68erg.    Co.,  136  Mass.  LS2. 

No;  Pittsburgh,  etc.,  R.  Co.  v.       'German  Nat'l   Bank  v.  Kentucky 
e-Thaw,  29  Pa.  8t.  148.  T.  Co.  (Ky.),  40  S.  W.  Rep.  458. 

Co  v.Q Ifellow,  9       ,0Des  Moines  Nat'l  Bank  v.  Bank, 

i  ii  v.  Bank, 24  N.Y.288.    97  lows  204. 

Bank     v.    Watsontown       uBullardv.Bank,18Wall.(U.8.)589. 


§  458  TRANSFER  OF  SHARES.  491 

It  has  been  held  that  the  identity  of  the  shares  is  not  affected 
by  their  transfer  and  that  a  stockholder  is  entitled  to  have  the 
shares  transferred  although,  at  the  time,  subject  to  a  lien  for  a 
delinquent  assessment;  the  lien  is  not  affected,  but  continues.1 
A  corporation  which  has  knowledge  of  a  pledge  of  stock 
can  not  extend  credit  to  the  stockholder  and  thus  acquire 
a  lien  on  the  stock  under  a  statute  which  provides  that 
transfers  or  liens  affecting  the  stock  if  not  made  or  registered 
upon  the  books  of  the  corporation  are  invalid  as  to  subsequent 
purchasers  without  notice.2  The  lien  is  for  debts  incurred  in 
good  faith  and  can  not  be  asserted  against  a  prior  claim  to  the 
stock  by  a  third  person  of  which  the  corporation  had  notice  at 
the  time  the  debt  was  contracted  although  the  stock  had  not 
then  been  transferred  on  the  books  of  the  corporation.3  But 
the  lien  given  by  statute  is  of  course  not  affected  by  the  mere 
sale  of  the  stock  to  an  innocent  purchaser.4  So  a  corporation 
with  knowledge  that  stock  has  been  pledged  acquires  no  lien  on 
the  stock  which  is  prior  to  the  lien  of  the  pledgee  for  a  debt  re- 
sulting from  an  embezzlement  by  its  stockholder  who  is  its 
president.5  The  lien  of  the  corporation  can  not  be  foreclosed 
by  a  bill  in  equity  when  there  is  an  adequate  remedy  by  exe- 
cution and  sale  of  the  shares.6 

§  458.  Effect  of  a  transfer  upon  rights  and  liabilities  of 
parties. — The  legal  effect  of  a  complete  transfer  of  shares  is  a 
novation  of  parties.  When  the  transfer  is  properly  and  legally 
made,  the  transferrer  is  discharged  from  any  further  liability  by 
reason  of  his  ownership  of  the  shares,  unless  the  liability  is 
continued  under  statutory  provisions.7  If  the  shares  are  not 
fully  paid  up,  the  transferee  becomes  liable  for  all  calls  made 
during  his  ownership,  and  the  transferrer  remains  liable  for 

1  Craig  v.  Hesperia,  etc.,   Co.,  113  Commerce  v.   Bank,   27  U.  S.   App. 

Cal.  7.  486,  63  Fed.  Rep.  898. 

Birmingham,    etc.,    Co.   v.   Bank  5Hotchkiss,    etc.,     Co.    v.     "Union 

(Ala.),  20  L.  R.  A.  600.  Nat'l  Bank,  37  U.  S.  App.  86. 

8 Prince,  etc.,  Co.  v.  St.  Paul,  etc.,  6Aldine,     etc.,     Co.      v.     Phillips 

Co.,  68  Minn.  121.  (Mich.),  42  L.  R.   A.  534,  76  N.  W. 

4  George    H.   Hammond  &   Co.   v.  Rep.  371. 

Hastings,   134    U.   S.   401;   Bank    of  ?  Rochester,  etc.,  Co.  v.  Raymond, 

158  N.  Y.  576,  53  N.  E.  Rep.  507. 


492 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§458 


calls  which  were  duly  made  before  the  transfer.1  The  trans- 
feree can  not  defend  an  action  for  assessments  by  showing 
that  the  original  subscription  was  induced  by  fraud.2  Ordi- 
narily the  transferee  becomes  liable  for  any  amount  unpaid 
on  the  subscription  ;3  but,  as  against  the  corporation,  he  is  not 
liable  when  the  certificate  asserts  that  the  stock  is  full  paid,4 
and  he  is  an  innocent  purchaser  of  the  shares  for  value;5  the 
transferrer  in  this  event  probably  continues  liable,  at  least  to 
creditors.6  As  the  transferee  assumes  the  subsequent  calls,  he 
becomes  entitled  to  all  dividends  subsequently  declared.7 

"  Stockholders  are,"  says  Judge  Jenkins,8  "  as  to  property 
of  the  corporations,  quasi  partners,  holding  per  my  et  per  tout. 
The  earnings  of  the  corporation  are  part  of  the  corporate  prop- 
erty, held  by  the  same  tenure,  and  until  separated  from  the 
general  mass,  the  interest  of  the  stockholders  therein  passes 
with  a  transfer  of  the  stock,  and  this,  irrespective  of  the  time 
during  which  earnings  have  accrued.  By  the  declaration  of 
a  dividend,  however,  the  earnings,  to  the  extent  declared,  are 
separated  from  the  general  mass  of  property  and  appropriated 
to  the  then  stockholders,  who  become  creditors  of  the  corpora- 
tion for  the  amount  of  the  dividend.  The  relationship  of  the 
stockholder  to  the  corporation,  as  to  the  amount  of  the  divi- 
dend, is  thus  changed  from  one  of  partnership  ownership,  to 
lWebster  v.   Upton,  91  IT.  S.  65;       "West   Nashville,  ft.-.,    R.  Co.  v. 


Hartford,  etc.,  l:.  Co.  v.  Boorman,  \-i 
< 'nun.  ">:;n.  As  to  the  release  of  the 
transferrer  from  further  liability,  see 
White  v.  <  rreen,  I1*"'  low a  L76;  I [er- 
rirk  v.Wardwell,58  0hioSl  294;  Rus- 
sell  v.  Easterbrook,  7]  Conn.  50.  As 
t«i  liability  of  transferee,White  v.  Mar- 
qnardl  &  Sons,  in:.  |,,u a  1 1:> ;  I  tarper 
v.  Carroll, 66  Minn.  187;  8turtevan1  v. 
National, etc., Works,  88  Fed.  Rep.  618, 
en  r.  8.  \i.|. 

*  Lewie  v.  Berryville,  etc.,  < '<>.,  90 
V:.  i  rdwell  v.  Kelly,  95  Ya. 
570,  I"  L.  R.   \.  240. 

"-  App.,  115  I'm.  st.  88,  2  Am. 
Rep.  632. 

♦  Appeal  -I  Kisterbock,  127  Pa,  St. 
601,  n  Am.  St,  Rep.  868.    |  822. 


Nashville,  etc.,  Bank,  <;  Am.  st.  Rep. 
<s:;.~>.  As  to  ct'i'cci  of  a  printed  state- 
ment on  the  certificate  as  notice,  see 
Jennings  v.  Bank,  79  Cal.323,  L2  Am. 
st.  Rep.  1 15;  Branl  v.  Ehlen,59  M.I.  I. 

G  Taylor  Corps.,  §  702,  Citing  Boyn- 
ton  v.  Hatch,  17  N.  Y.  225;  Tallmadge 
v.  I'islikill,  etc.,  Co.,  l  Barb.  (N.  Y.) 
382;  Pell's  Case,  L.  R.  5  Ch.  11.  Bu1 
Bee  Christensen  v.  Eno,  106  N.  Y.  97. 

7Supply,etc.,  Co.v.  Elliott,  LOColo., 
827,  3  Am.  St.  R  p.  586,  and  note; 
Libby  v.  Tobey,  82  Maim-  397;  Lip- 
pitl  \ .  American,  etc.,  Co.,  16  R.  1. 141. 

h  Wheeler  v.  Northwestern,  «•(<•., 
Co.,  39    F(  d.    Rep.  847.    See   ,  398, 


§  459  TRANSFER   OF    SHARES.  493 

that  of  creditor.  He  thereafter  stands  to  the  corporation  in  a 
dual  relation, — with  respect  to  his  stock,  as  partner  and  part 
owner  of  the  corporate  property,  with  respect  to  the  dividend 
as  creditor  upon  a  par  with  other  creditors  of  the  corporation. 
The  severance  of  the  earnings  from  the  general  mass  of  cor- 
porate property,  and  the  promise  to  pay,  arising  from  the 
declaration  of  the  dividend,  works  this  change.  The  earn- 
ings represented  by  the  dividend,  although  the  fruit  of  the 
general  property  of  the  company,  are  no  longer  represented  by 
the  stock,  but  become  a  debt  of  the  company  to  the  individual 
who,  at  the  time  of  the  declaration  of  dividend,  was  the  owner 
of  the  stock.  That  the  dividend  is  payable  at  a  future  date 
can  work  no  distinction  in  the  right.  The  debt  exists  from 
the  time  of  the  declaration  of  dividend,  although  payment  is 
postponed  for  the  convenience  of  the  company.  The  right  be- 
came fixed  and  absolute  by  the  declaration.  This  right  could, 
of  course,  be  transferred  with  the  stock  by  special  agreement, 
but  not  otherwise.  The  dividend  would  not  pass  as  an  inci- 
dent of  the  stock.1  *  *  *  The  dividends  are  earnings  grow- 
ing out  of  the  stock,  but  when  declared  are  immediately  sep- 
arated from  it,  and  exist  independently  of  it.  They  are  hap- 
pily likened  *  *  *  to  fallen  fruit  which  does  not  pass 
with  the  sale  or  gift  of  the  tree." 

§  459.   Remedies  for  a  wrongful  refusal  to  transfer.2 — When 

the  corporation  wrongfully  refuses  to  permit  the  registry  on 
its  books  of  a  transfer  of  shares,  the  party  entitled  to  the 
transfer  may  either  bring  an  action  for  damages  or  a  bill  in 
equity  to  compel  the  transfer,  and  in  some  jurisdictions  he 
will  be  entitled  to  a  mandamus. 

§  460.  An  action  for  damages, — The  usual  remedy  is  an  ac- 
tion for  damages  and  when  new  shares  can  be  purchased  in 
the  market  it  is  reasonably  adequate.  There  is  some  conflict 
among  the  authorities  as  to  the  proper  measure  of  damages  in 
case  of  a  conversion  of  shares  by  a  refusal  to  permit  a  transfer 

1  Brundage  v.  Brundage,  60  N.  Y.     Boardman  v.  Railway  Co.,  84  N.  Y« 
544;    Hill  v.  Newichawanick   Co.,  8     157. 
Hun    459,    affirmed    71    N.  Y.  593;        *  See  Wilgus'  Cases. 


494 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§461 


to  be  registered.  One  group  of  cases  holds  that  the  measure 
of  damages  is  the  market  value»of  the  shares  at  the  time  of  the 
conversion,1  in  accordance  with  the  general  rule  for  the  meas- 
ure of  damages  for  the  conversion  of  personal  property.  "In 
the  absence  of  special  circumstances  in  an  action  for  conver- 
sion of  personal  property  as  well  as  one  for  failure  to  deliver  it  in 
performance  of  a  contract  where  consideration  has  been  received, 
the  value  of  the  property  at  the  time  of  such  conversion  or  de- 
fault, with  interest,  is  the  measure  of  compensation. ":  A  few 
cases  hold  that  the  measure  of  damages  is  the  value  of  the 
shares  on  the  day  of  the  trial,3  while  a  third  class  holds  that  it 
is  the  highest  market  price  reached  by  the  shares  between  the 
time  of  the  refusal  to  permit  the  transfer  and  the  day  of  the 
trial.4 

§  461.    A  suit  in   equity. — Another   remedy  of  which    the 
party  may  avail  himself  is  a  suit  in  equity  to  compel  a  trans- 


'IJussey     v.     Manufacturers,    etc., 

Bank,  10  Pick.  415;  Barnes  v.  Brown, 

130  N.  Y.372;  North  v.  Phillips, 89 Pa. 

St.  250;   Work  v.  Bennett,  70  Pa.  St. 

Baker  v.   Drake,  66  X.  Y.  518; 

Colt  v.  Owens,  90  X.  Y.368;  Pinkerton 

v.  Manchester,  etc.,  R.  Co.,  42  N.  II. 

424;  McKenney  v.  Haines,  63   Maine 

74;  Duty  v.  First  Nat']  Bank,  3  N.  D. 

9,  53   N.    W.    Rep.   77;  Rio  Grande, 

Co.  v.  Burns,  82  Texas  50,  17  B. 

W.    Rep.    1043;   Gresham   v.    Island 

City,etc.,  Bank  Texas  Civ.  App., 1893), 

21  B.  W.  Rep.  556;  Eortrighl  v.  Buf- 

felo.etc.,  Bank,  20 Wend. 90;  Nicollet, 

Bank  v.  City  Bank,  38  Minn.  85. 

Balkie,  etc.,  Co.  v.  Tompkinson, 

L.  R.  (1893     LC.  396. 

•Barnesv.  Brown,  ISO  N.  Y.872. 

;,  .    Routh,  II  C.  B.  327;  Ber- 

cich  v.  M.i.  112. 

4  Fromm  -  Nevada,  etc  .  Co., 

61   Cal.  629;    Denl   v.   Holbrool 

v .    K  raft,   9  <  !al 
■.    Mitchell,   i    v  I 
McC   334;   Central,  etc.,  Co.   v.    i\ 


lantic,  etc.,  R.  Co.,  50  Ga.  444.  This 
was  the  rule  established  by  the  early 
New  York  cases.  Markham  v.  Jau- 
don,41  N.  Y.  235;  Kortright  v.  Buf- 
falo, etc.,  Bank,  20  Wend.  90;  Ro- 
maine  v.  VanAllen,  26  X.  Y.  309,  but 
in  the  more  recent  cases  the  general 
rule  is  adopted  that  the  measure  of 
damages  is  the  value  at  the  date  of 
the  conversion.  Maker  v.  Drake,  66 
N.  Y.  518;  Harris  v.  Tumbridge  R3 
N.  Y.  92. 

"Morehead  v.  Western,  etc.,  R .  Co., 
96  N.  c.  362,  2  s.  K.  Rep.  247;  Live- 
zey  v.  N.  P.  R.  Co.,  L57  Pa.  St.  75; 
Archer  v.  Water-works  ( '"..  ■"'<•  N.  J. 
Eq.  33;  Slemmons  v.  Thompson,  •_':{ 
Ore.  215,  31  Pac.  Rep.  51 1 :  Cushman 
v.  Thayer,  etc.,  Co.,  76  N.  Y.  865; 
Walker  v.  Detroit,  etc.,  R.  Co.,  17 
Mich.  338;  tasigi  v.  Chicago,  etc.,  R. 
Co.,  129  Mass.  48;  Campbell  v.  Ameri- 
can, etc.,  Co.,  122  N.  Y.  155;  Hill  v. 
/Atoka,  etc.,  Co,  (  M<  I  i  11  B.  W. 
Rep. 508 ; Gould  v.  Head,  li  Fed  Rep 
Rici   i    Rockefeller,  134  N.  Y       I 


§  462  TRANSFER  OF  SHARES.  495 

fer.5  "To  say  that  the  holder  shall  not  he  entitled  to  the  stock 
because  the  corporation,  without  any  just  reason,  refuses  to 
transfer  it,  and  that  he  shall  be  left  to  pursue  the  remedy  of 
an  action  for  damages,  in  which  he  can  recover  only  a  nominal 
amount,  would  establish  a  rule  which  must  work  great 
injustice  in  many  cases,  and  confer  a  power  on  corporate  bodies 
which  has  no  sanction  in  the  law.  A  court  of  equity  will  en- 
force a  specific  performance  on  a  contract  for  the  sale  of  real 
estate,  and  compel  the  execution  of  a  deed  by  the  vendor  to  the 
vendee,  although  an  action  at  law  may  be  brought  to  recover 
damages  for  the  breach  of  the  contract.  Such  a  case  bears  a 
striking  analogy  to  the  one  now  presented,  and  the  same  prin- 
ciple is  manifestly  applicable  when  the  remedy  in  law  is  in- 
adequate to  furnish  the  proper  relief."1  The  bill  may  be  in 
the  alternative  for  a  transfer  of  the  stock  or  for  damages.2 

§  462.  Mandamus. — The  great  weight  of  authority  is  against 
the  rule  that  mandamus  will  lie  to  compel  the  registry  of  a 
transfer  of  shares.  The  reason  for  denying  this  remedy  is  thus 
stated:      "The  applicants  have  an  adequate  remedy,  by  a  spe- 

Wilgus'  Cases.     Suit  for  specific  per-  specifically  enforce  the  contract,  but 

forrnance.     New  England,  etc.,  Co.  v.  will  leave  the  parties  to  their  remedy 

Abbott,  162  Mass.  148.  at  law.   Eoss  v.  U.  F.  E.  Co.,  1  Wo<  »lw. 

Bushman  v.  Thayer,  etc.,  Co.,  76  C.  C.  26."    Taylor,  §790.     See  Foils' 

N.  Y.   365.     "This   is,   it   seems,   the  Appeal,  91  Pa.   St.  434.     "In  such  a 

surest,  most  complete  and  most  just  case  it  is  well  settled  that,  although 

remedy  for  compelling  a  corporation  the  common  law  remedy  for  damages 

to  register  a  transfer  of  stock,  and  for  is  available,  it  is  inadequate ;  the  only 

adjusting  the  various  conflicting  rights  effective  remedy  is  an    order  of  the 

or  claims  of  other  parties."   Cook  I,  §  court  of  equity  to  compel  such  officers 

391.  "A  contract  for  the  sale  of  shares  to  make  transfer  of  the  stock  on  the 

will  be  specially  enforced  in  equity  books  of  the  company  to  the  assignee, 

if   it    is    not    unconscionable    (Miss,  and  thus  enable  such  assignee  to  en- 

&   M.   E.   Co.  v.   Cromwell,  91  XJ.  S,  joy  all  the  rights  of  the  stockholder 

643) r  or  against  public    policy,  when  in  such  corporation,  and  likewise  to 

from   the    scarcity   of  the   shares  or  compel  such  officers  to  issue  new  eer- 

other  reasons  the  purchaser  can  not  tificates  of  stock  upon  the  surrender 

go  into  the  market  and  purchase  simi-  of  the  old  ones."   Tiedeman  Eq.  Jur., 

lar  ones.     Johnson  v.  Brooks,  93  N.  §  504. 

Y.  337.     But  if  shares  similar  to  the        2 Birmingham  Nat'l  Bank  v.  Eoden, 

ones  which  are  the  subject  of  the  sale  97    Ala.   404,  11    So.  Eep.  883;  In  re 

are  readily  purchasable  in  the    mar-  Eeading  Iron  Works,  149  Pa.  St.  182, 

ket,  equity  will  not,  as  a  general  rule,  24  Atl.  Eep.  202. 


496 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§462 


cial  action  on  the  case,  to  recover  the  value  of  stock  if  the 
bank  has  unduly  refused  to  transfer  it.  There  is  no  need  of 
the  extraordinary  remedy  by  mandamus  in  so  ordinary  a  case. 
It  might  as  well  be  required  in  every  case  where  trover  would 
lie.  It  is  not  a  matter  of  public  concern,  as  in  the  case  of  pub- 
lic records  and  documents,  and  there  can  not  be  any  necessity 
or  even  a  desire  of  possessing  the  identical  shares  in  ques- 
tion."1 As  said  by  one  writer:2  "Shares  of  stock  in  a  trad- 
ing corporation  are  supposed  to  possess  a  market  value  which 
may  be  made  the  basis  for  calculating  the  measure  of  damages 
for  the  losses  resulting  from  a  failure  or  refusal  to  enter  their 
transfer  on  the  registry  of  the  corporation.  Mandamus  is 
therefore  seldom  granted  to  compel  their  transfer."  But  there 
are  many  authorities3  which  hold  that  mandamus  will  lie,  par- 


1  Shipley  v.  Mechanic's  Bank,  10 
John.  484;  State  v.  Rorabauer,  46 
Mo.  155;  Stackpole  v.  Seymour,  127 
Mass.  104;  Townes  v.  Nichols,  73  Me. 
515;  Gray  v.  Portland  Bunk,  3  Mass. 
364  ;  Murray  v.  Stevens,  110  Mass.  95; 
Baker  v.  Marshall,  15  Minn.  177  (( rill. 
13G) ;  Tobey  v.  Hakes,  54  Conn.  274; 
Burnsville,  etc.,  Co.  v.  State,  119  Ind. 
382;  Freon  v.  Carriage  Co.,  42  Ohio 
St.  30;  Kimball  v.  Union,  etc.,  Co., 
II  Cal.  173;  Bank  oi  Ga.  v.  Harrison, 
66  Ga.  696. 

1  Spelling  Extraordinary  Relief,  II, 
S  1615. 

3tate  v.  Mclver,  2  S.  0.  (N.  B.) 
25 ;  State  v.  < Iheraw,  etc.,  R.  < Jo.,  L6 
-  0.  524;  In  re  Klaus  67  Wis. 
in]  ;  Green  Mount,  etc.,  Co.  v.  Bulla, 
r>    I  ad.    i ;    People    v.    <  rose,    etc., 

99  [II.  355;  State  v.  First   Nat'l 

Bank,  B9  [nd.  802;  People  \ .  Crockett, 

I  i  iwford   v.    Prov.,  etc., 

-  i  C.  0.  P.  268;  Goodwin  v. 
Ottawa,  etc.,  i:.  Co.,  18  U.  C.  (C.  P.) 

Slemmons  v.  Thompson,  23  <  >re, 

31  Pac.  Rep.  61 1:  Campbell  v. 
Morgan,  I  ill.  \pp.  100;  Norris  v. 
Irish  &  I'.l.  512;  Ward 


v.  S.  E.  R.  Co.,  2  El.  &  El.  812;  Ex 
parte  Sargent,  L.  R.  17  Eq.  273. 
"There  is  not  wanting  strong  author- 
ity, both  in  numbers  and  eminence, 
for  the  doctrine  that  rightful  registry 
may  be  compelled  by  mandamus. 
When  this  is  the  rule,  a  demand  by 
letter  is  sufficient,  and  the  writ  may 
issue  upon  noncompliance  therewith. 
State  v.  Mclver,  2  S.  C.  25.  But  man- 
damus will  not  ho  granted  where  the 
relator  is  guilty  of  bad  faith,  Bog.  v. 
Liverpool,  etc.,  Co.,  21  L.  J.  (}.  11.  (X. 
S.)  284,  nor  where  the  certificates  have 
been  issued  to  another  whoso  rights 
would  be  prejudiced.  Bailey  v.  Stro- 
hecker,  38  Ga.  259;  state  v.  First 
Nat'l  Bank,  89  [nd,  302;  Durham  v. 
M"ii.,  etc.,  Co.,  it  Ore.  41,  unless, 
indeed,  the  applicanl  shows  a  better 
title.  Reg.  v.  Charwood,  etc.,  Co., 
i  t '.  .v  F.  i  r.i,  nor  even  \\  here  the 
duty  to  register  is  prescribed  by  stat- 
ute, unless  the  applicant's  right  to 
ion  i-  clear  and  unquestion- 
able. Slemmone  v.  Thompson,  28 
Ore.  216,  81  Pac.  Rep.  51 1.  Compare, 
Bangor,  etc., Co.  v.  Robinson, 52  Fed. 
Rep,  520."    Spelling  says  that  the  re  is 


§  462 


TRANSFER    OF    SHARES. 


497 


ticularly  where  there  appears  to  be  no  good  reason  why  the 
registry  of  the  transfer  should  not  be  allowed. 

an  exception  to  the  general  rule  that  proper  entries  of  a  transfer  after  the 
mandamus  will  not  lie,  when  by  stat-  sale  of  shares  on  execution  against 
ute  it  is  made  the  plain  ministerial  the  original  shareholder.  Extr.  Re- 
duty  of  the  corporation  to  make  the  lief,  II,  §  1616. 

43 — Private  Corp. 


CHAPTER  17. 


CORPORATE    MEETINGS    AND    ELECTIONS. 


§463. 

In  general. 

§480 

Number  of  votes  by  each  stock- 

464. 

Calling  meetings. 

holder. 

465. 

The  place  of  meeting. 

481. 

Cumulative  voting. 

466. 

Regular  and  special  meetings. 

482. 

The  majority  and  quorum. 

467. 

Notice  of  corporate  meeting. 

483. 

Powers  of  the  majority  to  man- 

468. 

Adjourned  meetings. 

age  the  corporation. 

469. 

Manner    of  conducting  meet- 

484. 

Rights  of  the  minority. 

ings. 

485. 

Power  of  majority  to  wind  up 

470. 

Records — Evidence. 

business. 

471. 

Who  entitled  to  vote. 

486. 

Power    of    majority  to  accept 

472. 

Right  of  bondholders  to  vote. 

amendments. 

473. 

Voting  by  proxy. 

487. 

Power  to  accept  amendments 

474. 

Personal     interest    of     stock- 

continued. 

holder  —  Motive    governing 

488. 

Immaterial    amendments   and 

vote. 

alterations. 

475. 

Voting  trusts  and  agreements. 

489. 

Material      beneficial     amend- 

476. 

Voting  agreements  continued. 

ments. 

477. 

Voting  agreements  continued. 

490. 

Elections — Presumption  of  reg- 

478. 

The     Shepaug    Voting    Trust 

ularity. 

cases. 

491. 

Inspectors  of  elections. 

479. 

Specific  enforcement    of  such 

492. 

Illegal  votes. 

contracts. 

493. 

Control  of  courts  over  corpo- 
rate elections. 

§  403.  In  general. — The  powers  which  are  conferred  upon 
a  corporation  can  be  exercised  only  at  a  regularly  convened 
meeting  of  the  stockholders  or  of  the  board  of  directors;  and 
the  action  of  individual  stockholders  or  directors  elsewl 
than  al  a  properly  convened  up  Hing  does  not  hind  the  corpo- 
ration, unless  it  is  subsequently  ratified  by  proper  authority.1 


'Buttrick    v.    Nashua,   etc.,    I.\.  82     R.O.Church,89 Hun (N.Y.) 498; North 

H     ii;.    L8    \m.    st     Rep.    578;     Hudson,  etc.,  Aesn.  v.  Childs,  82  Wis. 

Gaahwilerv.  Willi--,::::  Cal.  11;  A.lta,     160;  Sayles  v.  Brown,  W  Fed.  Rep.8. 

etc.,  Co.  v.  Alta,  etc.,  Co.,78  Oal.  629;     In  Longmont,  etc.,  Co.  v.  Ooffman,  1 1 

People's  Bank  v.  Bt.  Anthony's,  etc.,    Colo.   661,  it  is   held  thai   where  a 

(498) 


§  404  '    CORPORATE    MEETINGS    AND    ELECTIONS.  499 

For  certain  purposes  it  is  held  that  the  action  of  all  the  stock- 
holders will  bind  the  corporation,  although  they  acted  indi- 
vidually and  not  at  a  regular  meeting.1  But  this  is  excep- 
tional, and  the  general  rule  is  as  stated  above.  Thus,  the 
consent  of  a  majority  of  the  stockholders  to  the  appointment 
of  an  agent  of  the  corporation  to  execute  a  mortgage,  given 
separately  and  at  different  times,  is  ineffective;  and  a  mort- 
gage executed  by  one  assuming  to  act  as  an  agent  under  such 
an  appointment  is  a  nullity.2  A  strictly  corporate  meeting, 
that  is,  a  meeting  of  the  stockholders,  must  be  distinguished 
from  a  meeting  of  the  board  of  directors,  which  ordinarily 
exercises  the  general  powers  conferred  upon  the  corporation. 

§  464.  Calling  meetings. — Unless  otherwise  provided  by 
the  charter  or  by-laws,  a  corporate  meeting  may  be  called  by 
the  directors,  or  the  general  agent  of  the  corporation  to  whom 
is  entrusted  the  control  and  management  of  its  affairs, 
whenever  in  their  judgment  a  meeting  is  necessary.3  If 
the  manner  of  calling  such  meetings  is  determined  by  the 
charter  or  by-laws,  a  meeting  called  in  any  other  way  is  in- 
valid unless  all  the  stockholders  are  present.4  The  board  of 
directors,  however,  it  has  been  held,  may  call  a  meeting,  al- 
though the  by-laws  confer  the  power  upon  other  officers.5 
Where  the  authority  is  vested  in  the  trustees  or  directors,  the 
president  can  not  call  a  meeting  to  elect  officers.6 

§  465.  The  place  of  meeting. — A  corporate  meeting  must 
be  held  at  a  time  or  place  which  is  reasonably  convenient 
for  the  shareholders  who  are  expected  to  attend  it.     It  is  ordi- 

majority  of    the  board  of    directors  5  Citizens',  etc.,   Co.   v.  Sortwell,  8 

acting  separately  in  accordance  with  Allen  (Mass.)  217.      See  Chamberlain 

usage,   approved   claims   against   the  v.  Painesville,  etc.,  R.  Co.,  15  Ohio 

corporation,  the  corporation  is  bound  St.  225. 

by  the  act.  6  State  v.   Pettineli,    10   Nev.    141. 

1  See  Woodbridge  v.  Pratt,  etc.,  Co.,  Statutes  sometimes  provide  for  a  pro- 
39  Conn.  304,  37  Atl.  Rep.  688.  ceeding  by  which  a  meeting  may  be 

2  Duke  v.  Markham,  105  N.  C.  131.  called  by  a  justice  of  the  peace  when 
"Stebbinsv.  Merritt,  10  Cush.  27,33.  the  proper  officers  are  absent.  See 
4  See  Evans  v.  Osgood,  18  Me.  213.    Gen.  St.  Minn.  1894,  §3409. 


500  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  465 

narily  held  at  the  office  of  the  corporation.1  There  is  some 
question  as  to  the  validity  of  acts  done  at  a  stockholders'  meet- 
ing held  outside  of  the  state  which  created  the  corporation.  On 
the  ground  that  such  a  meeting  is  a  strictly  corporate,  as  distin- 
guished from  a  business  act,  it  has  been  broadly  held  that 
the  transactions  of  such  a  meeting  are  void,  although  there  is 
no  express  prohibition  in  the  charter  or  by-laws,  and  all  the 
members  consent.  "  As  the  corporate  faculty  can  not  accom- 
pany the  natural  person  beyond  the  bounds  of  the  sover- 
eignty which  confers  it,  and  they  can  not  possess  or  exercise 
it  there,  they  can  have  no  more  power  there  to  make  the  arti- 
ficial being  act  than  other  persons  not  named  as  associates  or 
incorporators.  Any  attempt  to  exercise  such  a  faculty  there 
is  merely  a  usurpation  of  authority  by  persons  destitute  of  it, 
and  acting  without  any  legal  capacity  to  act  in  that  manner. 
It  follows  that  all  votes  and  proceedings  of  persons  professing 
to  act  in  the  capacity  of  corporators,  when  assembled  without 
the  bounds  of  the  sovereignty  granting  the  charter,  are  wholly 
void."2  If  such  a  meeting  is  expressly  prohibited  it  is  illegal, 
but  in  the  absence  of  such  a  prohibition  there  appears  to  be  no 
very  good  reason  why  the  shareholders  of  an  ordinary  business 
corporation  should  not  provide  in  their  articles  that  meetings 
may  be  called  at  convenient  places  outside  of  the  state  under 
whose  laws  the  company  is  formed.8 

If  the  meeting  is  not  prohibited,  and  all  the  stockholders 
consent,  it  will  generally  be  treated  as  merely  irregular  and 
the  transaction  binding  upon  all  parties. 

Where  an  Illinois  corporation  held  a  meeting  and  elected 
directors  in  Missouri,  and  certain  stockholders  attempted  to 
defeat  :iu  action  on  their  stock  subscriptions  on  the  ground 
that  the  proceedings  of  the  meeting  in  Missouri  at  which  the 

t The  office  of  the  presidenl  will  be  Tr.Laigle,69Tex.839;  Dakev.  Taylor, 

presumed  to  be  the  proper  place  for  87  Fla.  64,  81   I..  R.  A..  484.    Confer- 

holding  a  meeting.    Troy,  etc.,  Co.  v.  ring  authority  upon  an  agent  to  ex- 

Whit,.,  in-   Dai    175,  12  I.  R.  Al.649.  ecute  a  <I-'<'<1  is  nut  :(  corporate  art. 

Miller  v.  Ewer,27  Me.509  Bee§247,  A.rms  v.  Conant,  86  Vt.  744;    Bellows 

.•<;//,,.<.   Ormsby  v  Vermont,  etc.,  Co.,  v.  Todd,  89  la.  209. 
56  N.  V.  823;  Franco  Texan,  etc.,  ('<>.       'See  Morawetz  Priv.  Corp.,  §  488. 


§  465  CORPORATE    MEETINGS    AND    ELECTIONS.  501 

call  was  made  were  void,  the  court  said:1  "  The  utmost  that 
can  be  said,  under  such  circumstances,  is  that  the  election 
was  irregular.  The  corporation  having  once  been  put  into 
existence,  if  the  members  of  the  board  of  directors,  whether 
charter  or  their  appointees,  or  those  elected  by  the  stockhold- 
ers in  St.  Louis,  accepted  their  office,  and  acted  under  their 
appointment  or  election,  as  the  evidence  shows  was  the  case, 
they  become  de  facto  directors,  and  their  authority  to  act  on  be- 
half of  the  corporation  could  not  be  questioned  by  the  appel- 
lants in  this  collateral  suit  without  showing  a  judgment  of 
ouster  against  them  in  a  direct  proceeding  by  the  government 
for  that  purpose." 

In  some  states  stockholders'  meetings  held  in  another  juris- 
diction are  forbidden  by  law.  Where  the  by-laws  provided 
that  the  meetings  should  be  held  at  a  designated  place  in  the 
state  it  was  held  that  a  meeting  for  the  election  of  officers 
held  out  of  the  state,  all  the  stockholders  not  consenting,  was 
illegal  and  the  election  void.2 

The  corporation  itself  and  the  stockholders  who  attend  an 
extraterritorial  meeting,  and  creditors  who  voluntarily  dea) 
with  the  corporation,  are  estopped  to  deny  its  validity  and 
regularity.3     As  against  officers  elected  at  an   illegal  meeting 

1  Ohio,  etc.,  R.  Co.  v.  McPherson,  ings  of  such  meeting  would,   within 

35  Mo.  13.  the  rule  laid  down  by  this  court  in 

2 Hodgson  v.  Duluth,   etc.,  R.  Co.,  Galveston,  etc.,  R.  Co.  v.  Cowdrey, 

46  Minn.  454.  11  Wall.  459,  with  regard  to  directors' 

'Wright  v.  Lee,  2  S.  Dak.  596,  51  meetings,  be  binding  upon  all  those 

N.  W.  Rep.  706.  participating  in,  as  well  as  upon  those 

In  Handley  v.  Stutz,  139  U.  S.  417,  acting  upon  the  faith  of  its  validity, 
the  court  said:  "Nor  were  the  pro-  on  receiving  stock  authorized  to  be 
ceedings  of  such  meeting  any  the  less  issued  at  such  meeting.  It  is  true 
binding  upon  those  participating  in  it  that  there  are  cases  holding  that  stock- 
by  reason  of  the  fact  that  it  was  held  holders'  meetings  can  not  be  legally 
without  call  or  notice,  and  outside  the  held  outside  of  the  home  state  of  the 
boundaries  of  the  state  under  the  laws  corporation,  but  the  question  has  gen- 
of  which  the  company  was  incorpo-  erally  arisen  where  a  majority  pres- 
rated.  *  *  *  Beyond  the  election  ent  at  such  meeting  has  attempted  by 
of  officers,  however,  there  is  no  statu-  their  action  to  bind  a  dissenting  mi- 
tory  restriction  of  corporate  action  to  nority,  or  had  taken  action  prejudicial 
the  limits  of  the  state,  and  in  the  ab-  to  the  rights  of  third  persons, 
sence  of  such  inhibition  the  proceed-  Ormsby    v.    Vermont,   etc.,    Co.,  56 


502 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


466 


held  outside  of  the  state,  those  previously  in  office  retain  the 
right  to  control  the  affairs  of  the  corporation.1 

When  a  corporation  is  incorporated  in  several  states  a  meet- 
ing in  one  of  the  states  in  respect  of  the  property  in  that  state 
is  valid  without  a  repetition  of  the  meeting  in  the  other  states.1 

§  466.  Regular  and  special  meetings. — The  charter  or  by- 
laws of  a  corporation  ordinarily  provide  a  time  for  holding 
regular  meetings  and  for  the  calling  of  special  meetings.  The 
difference  is  of  importance  by  reason  of  the  necessity  for  special 
notice  of  special  meetings. 

§  467.  Notice  of  corporate  meeting, — No  power  or  function 
entrusted  to  a  body  consisting  of  a  number  of  persons  can  be 
legally  exercised  without  notice  to  all  the  persons  composing 
such  body.3  Hence  there  can  be  no  valid  stockholders'  meet- 
ing unless  all  the  shareholders  have  had  proper  notice  of  the 
day,  hour  and  place  of  meeting.4  Notice  will  be  presumed 
until  the  contrary  appears.5  If  the  time  for  the  regular  meet- 
ing is  fixed  by  charter,  by-law,6  or  by  usage,7  no  other  notice  is 
necessary.8     If  a  by-law  fixes  merely  the  day  of   a   meeting, 


N.  Y.623;  Hilles  v.  Parrish,  14  N.J. 
Eq.380.  Indeed,  so  far  as  we  know,  the 
authorities  are  uniform  to  the  effect 
(hat  the  action  taken  at  such  meeting 
ts.  hi inling  upon  those  who  partici- 
pated in  or  take  t lie  benefit  of  them. 
Heatli  v.  Silverthorn,  etc.,  Co.,  39 
Wi-   in;." 

1  Hodgson  v.  Duluth,  etc.,  Co.,  46 
Minn.  454. 

» (Sahara  v.Railroad.Co.,118TJ.8.161. 

'§296,  supra)  People  \.  Batchelor, 
22  N.  V.  L28. 

'San  Buenaventura,  etc.,  I  !o.  v.Vas- 
iHult,  60  Cal.  534  ;  State  v.  Bonnell,86 
Ohio  Bt.  i".  In  \in.  Nat'l  Bank  v. 
Oriental  Mills,  17  R.  I.  551,  23  Ml. 
Rep.  795,  it  was  held  thai  it  was  suffi- 
cient to  give  ' be  notice  to  the  bolder 
of  the  equitable  title,  the  former  holder 
having  the  bare  legal  title  not  coupled 


with  an  interest.  Notice  to  the  pledgor 
of  shares  is  sufficient.  McDaniels  v. 
FIow.t  Brook,  etc.,  Co.,  22  Vt.  27-4. 
Notice  to  one  member  of  a  firm  is  suf- 
ficient. Kenton,  etc.,  Co.  v.  McAlpin, 
5  Fed.  Rep.  737. 

"Sargenl  v.  Webster,  L3  Mete.  \S7\ 
McDaniele  v.  Flower  Brook,  etc.,  Co., 
22  Vt.274. 

Minn-ill  v.  Little  Falls,  etc.,  Co., 53 
Minn.  371,21   L.  R.  A.  171;  Winner  v. 

Mower,  n  Vt.  385;  state  v.  Bonnell, 
35  <>hi<»  St.  in. 

'Atlantic,  etc.,  Co.  v.  Sanders,  36 N. 
M.  252.  See  Wiggin  v.  Freewill  Bap- 
tist Church,  8  Mete  (Mass.)SOl. 

•Morrill  v.  Manufacturing  Co.,  58 
Minn.  371  ;  state  v.  Bonnell, 85  Ohio 
St.  Ki;  Stow  v.  Wyse,  7  Conn.  214,  L8 
Am.    Dec.    99,    and    imle;    Warner  v. 

Mower,  u  Vt. 


§  4G8  CORPORATE    MEETINGS    AND    ELECTIONS.  503 

notice  must  be  given  of  the  hour.  The  notice  must  fix  the 
exact  hour1  and  place  of  meeting.2  If  the  meeting  is  a  special 
one,  or  the  business  of  an  extraordinary  character,3  such  as  a 
sale  of  the  property  of  the  corporation,4  or  the  dissolution  of  the 
corporation,5  the  notice  must  also  indicate  the  nature  of  the  busi- 
ness to  be  transacted  .6  Notice  of  a  general  meeting  need  not  state 
the  business  to  be  transacted.7  A  notice  stating  that  the  an- 
nual meeting  will  be  held  at  a  certain  time  and  place,  to  act 
on  the  report  of  the  directors  and  transact  such  other  business 
as  may  be  brought  before  the  meeting,  will  not  authorize  an 
increase  of  the  capital  stock  at  the  meeting  under  a  statute 
which  permits  such  increase  "at  any  meeting  called  for  the 
purpose."8  At  a  special  meeting  only  the  particular  business 
for  which  it  was  called  can  be  transacted.9  The  notice  must 
be  served  a  reasonable  time  before  the  meeting.10  The  acts  of 
a  meeting  at  which  all  the  stockholders  are  present  is  valid, 
although  no  notice  of  the  meeting  was  given.11  So  the  acts  of 
a  majority  at  a  meeting  which  was  not  regularly  called  may 
be  ratified  at  a  subsequent  meeting.12 

§  468.    Adjourned  meetings. — A  meeting  may  adjourn  from 
time  to  time  without  further  notice  to  the  shareholders,13  and 

1  San  Buenaventura,  etc.,  Co.  v.Vas-  under  a  statute  which  required  that 
sault,  50  Cal.  534.  the  meeting  should  be  called  for  that 

2  Miller  v.  English,  21  N.  J.  L.  317.  purpose. 

3  Warner  v.  Mower,  11  Vt.  385 ;  Peo-  7  Warner  v.  Mower,  11  Yt.  385. 
pie's,  etc.,  Co.v.Westcott,  14  Gray  440.  8  Jones  v.  Concord,  etc.,  R.  Co.,  67 

4  Stockholders,    etc.,   v.   Louisville,  N.   H.   119.     As  to    deflniteness    re- 
etc,  R.  Co.,  12  Bush  (Ky.)  62.  quired  in  describing  the  business  to 

5 St.  Mary's,  etc.,  Assn.  v.  Lynch  be  transacted,  see  Market,  etc.,  R.  Co. 

(N.  H.),  9  Atl.  Rep.  98.  v.  Helhnan,  109  Cal.  571. 

6 Atlantic,  etc.,  Co.  v.  Mason,  5  R.  I.  9  Warner  v.  Mower,  11  Vt.  385. 

463;  Evans  v.  Heating  Co.,  157  Mass.  i0Cassell  v.    Lexington,    etc.,    Co. 

37,  31  N.  E.  Rep.  698;  In  re  Bridge-  (Ky.),  9  S.  W.  Rep.  502. 

port,    etc.,    Co.,   L.    R.     2    Ch.   191.  » Stutz  v.  Handley,  41  Fed. Rep. 531, 

A  notice  which  states  the  object  to  be  s.  c.  139  U.  S.  417;  Stebbins  v.  Mer- 

"to  consider  the  question  of  an  issue  ritt,  10  Cush.  (Mass.)  27. 

of  bonds  of  the  company,  secured  by  1Z  Richardson  v.  Railroad  Co.,  44  Vt. 

a  mortgage  on  its  property,"  is  sum-  613. 

dent  to  authorize  the  taking  of  a  vote  "  Smith  v.  Law,  21  N.  Y.  296.    In  re 

authorizing  the  giving  of  a  mortgage,  Newcomb  (N.  Y.),  18  N.  Y.  Supp.  16. 


504  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  4G9 

the  adjourned  meeting  is  but  a  continuation  of  the  meeting 
adjourned.1  Corporations  "may  transact  any  business  at  an 
adjourned  meeting  which  they  could  have  done  at  the  original 
meeting.  It  is  but  a  continuation  of  the  same  meeting. 
Whether  the  meeting  is  adjourned  without  interruption  for 
many  days,  or  by  adjournment  from  day  to  day,  or  from  time 
to  time,  many  days  intervening,  it  is  evident  it  must  be  con- 
sidered the  same  meeting  without  any  loss  or  accumulation  of 
powers.2  In  order  that  notice  of  a  prior  meeting  may  extend 
and  apply  to  a  subsequent  meeting,  the  latter  must  be  held 
merely  for  the  purpose  of  completing  the  unfinished  business 
of  the  former.3  The  hour  of  adjournment  should  be  definitely 
fixed  and  should  be  entered  upon  the  minutes  in  order  to  affect 
the  members  absent  from  the  first  with  notice  of  the  adjourned 
meeting.4  The  president  of  a  mining  company  has  no  authority 
to  adjourn  a  meeting  of  the  stockholders  against  their  express 
will,  because  in  his  opinion  a  majority  of  the  subscribed  stock 
is  not  represented.5 

§469.  Maimer  of  conducting  meetings. — Members  may  con- 
duct a  corporate  meeting  in  any  manner  convenient  and  agree- 
able to  themselves,  so  long  as  they  do  not  violate  any  of  the  pro- 
visions of  their  charter  or  by-laws.  No  particular  formalities  are 
required,6  but  the  statutory  or  charter  provisions  must  be  ob- 
served.7 By-laws  regulating  the  manner  of  conducting  a  meet- 
ing and  voting  must  be  consistent  with  the  charter  and  laws.8 

§  170.  Records — Evidence. — The  failure  to  enter  a  resolu- 
tion passed  at  bhe  stockholders'  meeting  in  the  minute  book  of 

Bee  Weston,  etc.,  Co.  v.  Dea  Moines,  Philips  v.    Wickham,    1    Paige   Oh. 

etc.,  Bank  L03  [owa  165.  (N.  y.)690;   Downing  v.  Potts,  23  N. 

1  State  v.  Oronan,   23   Nev.   137,   19  J.L.86.     [n  re  Horbury,  etc.,  Co.,  L. 

I';i.-.  Rep.  U.  R.  n  Ch.  Div.  109;  Hughes  v.  Parker, 

•Warner   v.  Mower,    M    Vt.    385;  20N.H.58. 
Bmith   v.    Law,  21   N.  Y.  296;  People  '  People  v.  Peck,  1 1   Wend.  (N.  Y.) 
v.  Batchelor,  22  N.  Y.  L28;  Farrarv.  604.    The  presiding  officer  <>r  mod- 
Perl  ey,  7  Maine  104.  eratorneed  nol  be  a  stockholder un- 
iple  v.  Batchelor,  22  V  Y.  128.  less  ii  is  required  by  statute.  Btebbins 
•Thompson  v.  Williams, 76 Cal.  L58.  v.  Merritt,  10  Cush.  (Mass.)  -11. 

I     man,  23  Nev.  i  ■  Commonwealth  v.  Woelper,3  8.  A 

Brown,   10  Fed.  Rep.  8;  R.   I  Pa.)  30;   People  v.  Crossley,  69 


§  471  CORPORATE    MEETINGS    AND    ELECTIONS.  505 

the  corporation  does   not  affect  its  validity,  as  the  corporate 
acts  can  generally  be  proved  as  well  by  parol  as  by  the  written 

entry.1 

§  471.  Who  entitled  to  vote. — The  right  to  vote  at  corpo- 
rate meetings,  upon  complying  with  reasonable  rules  and  reg- 
ulations, is  an  incident  to  the  ownership  of  shares  in  private 
corporations.  Hence,  every  shareholder  has  a  right  to  at 
least  one  vote,  and  of  this  right  he  can  not  be  deprived  by 
legislation;  unless  the  power  was  reserved  before  the  stock  was 
issued.  If  there  are  no  provisions  in  the  charter  or  by-laws 
regulating  the  matter,  the  right  and  manner  of  voting  must 
be  determined  by  the  corporate  meeting,  and  not  by  the  pre- 
siding officer.2  The  corporation  may,  by  properly  adopted  by- 
law, prohibit  the  transfer  of  the  shares  on  the  corporate  books 
for  a  reasonable  period  prior  to  an  election.8  The  general 
rule  is  that  the  stock  books  are  prima  facie  evidence  of  who 
is  entitled  to  vote,  and  as  this  is  one  of  the  objects  for  which 
the  corporation  is  required  to  keep  such  books,  it  can  not  be 
required  to  go  outside  of  the  books  in  order  to  determine  who 
it  should  recognize.4  But  the  books  are  not,  under  all  circum- 
stances, conclusive  evidence,5  although  the  inspectors  of  elec- 
tion need  not  go  behind  them.6  The  general  rule,  however, 
has  received  so  many  modifications,  that  many  states  have 
found  it  necessary  to  regulate  the  matter  by  statutory  provis- 
ion.' The  right  to  vote  can  not  be  impaired  by  a  by-law 
enacted  after  the  stockholder  acquired  his   shares,  unless  un- 

111.  195 ;  Brewster  v.  Hartley,  37  Cal.  Long  Island,  etc.,  R.  Co.,  19  Wend.  38 ; 

15;  Camden,  etc.,  R.  Co.  v.   Elkins,  Prince  Inv.  Co.  v.  St.  Paul,  etc.,  Co., 

37  N.  J.  Eq.  273.  68  Minn.  121;    In  re  Argus  Pt.   Co. 

»Handley  v.  Stutz,  139  U.  S.  417;  (N.  Dak.),  48  N.  W.  Rep.  347.    That 

Moss  v.  Averell,  10  N.  Y.  449.     See  the  corporate  books  are  conclusive, 

note  on  corporate  records  in  Sawyer  v.  see  Morrill  v.  Little  Falls,  etc.,  Co, 

Manchester,  etc.,  R,  Co.    (N.  H.),  13  53  Minn.  371,  21  L.  R.  A.  174. 

Am.  St.  Rep.  550-552 ;  Schell  v.  Second  5  Strong  v.  Smith, 15  Hun  (N.Y  )  222. 

Nat'l  Bank,  14  Minn.  43  (Gil.  34).  6In  re  St.  Lawrence,  etc.,  Co.,  44 

2  State  v.  Chute,  34  Minn.  135.  N.  J.  L.  529. 

8  In  re  Glenn  Salt  Co.,  17  App.  Div.  7  Ex  parte Willcocks,  7  Cowen  |  N.Y.) 

234,  153  N.  Y.  688.  402;    Commonwealth   v.   Dalzell,    152 

4Hoppin  v.  Buffum,  9   R.    I.   513;  Pa.  St.  217,  34  Am.  St.  Rep.  640;  Mc- 

State  v.  Ferris,  42  Conn.  560;    In  re  Neil  v.  Tenth    Natl    Bank,  4(3  N.  Y. 


506 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§471 


der  reserved  power.1  The  corporation  may  at  the  time  of  is- 
suing the  shares,  provide  that  the  holder  shall  not  participate 
in  the  management  of  the  corporation.2  Thus,  it  is  not  un- 
common for  the  charter  or  statute  to  provide  that  non-resident 
stockholders  shall  not  be  entitled  to  vote.3  Under  such  cir- 
cumstances, the  provision  can  not  be  evaded  by  a  gratuitous 
transfer  of  the  shares  to  some  other  party.4  The  holder  of  the 
legal  title  is  entitled  to  vote  unless  the  rule  has  been  changed 
l>v  the  statute  or  contract,5  and  even  when  this  is  the  case  an 
exception  is  usually  made  in  the  case  of  executors,  adminis- 
trators and  trustees.6  A  pledgee,  in  whose  name  the  stock 
stands  on  the  books  of  the  corporation,  is  entitled  to  vote  the 
shares,  unless  the  right  has  been  reserved  by  the  pledgor.7 
In  such  case  the  pledgee  holds  the  legal  title,  and  in  the  ab- 
sence of  an  agreement  to  the  contrary,  the  right  to  vote  follows 
the  legal  title.  As  between  pledgor  and  pledgee,  the  pledgor 
is  entitled  to  exercise  the  voting  power  until  the  title  of  the 
pledgee  is  perfected;8  and  if  the  stock   stands  in  the  name  of 

325.     The  stock   books,  when   identi-  90  Ala.  396,  9  L.  R.  A.  650;  State  v. 

fi<"l.  are  competent  evidence  to  show,  Hunton,  28  Vt.  594. 

prima    facie,    who    are   shareholders.  e  See,  where  the  holder  was  a  mere 

Turnhull    v.    Payson,    95  U.  S.  418;  stockholder,    Clarke  v.  Central,  etc., 

Boagland   v.  Bell,  36  Barb.  (N.  Y.)  R.  Co.,  50  Fed.    Rep.  338;  Common- 


Vandermerker  v.  Glenn,  85  Ya. 
9;  Liggett  v.  Glenn,  2  C.  C.  A.  285; 
Glenn  v.  Lisreett,  47  Fed.  Rep.  472  ;  In 
re  St.  Lawrence,  etc.,  Co.,  44  N.  J.  L. 
529.  In  Carey  v.  Williams,  79  Fed. 
!:•  p.  906,  n  ".  .is  held  that  the  corpora- 


wealth  v.  Dalzell,  152  Pa.  St.  217,34 
Am.  St.  Rep.  040;  Miller  v.  Murray,  17 
Colo.  408.  A  prima  facie  right  to 
vote  does  not  exist  until  the  stock  is 
registered  in  the  name  of  the  person 
seeking  to  vote  it.     Reynolds  v.  Brid- 


tion   books   were   not   admissible  for  enthal  (Neb.),  77  N.  W.  Rep.  658. 

this    purpose.     Bee    §348,  supra.     A  B  See  Hoppin  v.  Buffum,  9  R.  I.  518 ; 

cription  list,  the  signatures    Comi wealth  v.  Dalzell,  L52  Pa.St. 

of  which  are  shown  to  be  genuine,  is  217,34  Am.  St.  Rep.  640;   Brewster  v. 

sufficient  proof  in  the  absence  of  re-  Hartley,  37  Cal.  L5,  99  Am.  Dec.  237; 

butting  evidence.     Glenn  v.  Liggett,  In  re  Barker,  6  Wend.  609. 

17  Fed.  Rep.  172.  'Commonwealth  v.  Dalzell.  L52  Pa. 

1  Hrew-ter  v.  Hartley,  87  Cal.  16,99  si.  217,  ::i    Am.  si.  Rep.  640;  In    re 

Am.  Dec.237.  Argus,  etc.,  Co.,  1   N.   I».    184,26  \m. 

•Miller  v.  Ratterman,   17  Ohio  St.  Rep.  639.     Dnder  Hie  Colorado  stat- 


141,  24  N.  E.  Rep.  196. 

•  v.  Hunton,  28  Vt.  594. 

DeBardeleben,  etc.,  Co., 


ute  the  owner  of  pledged  shares  may 

vole  the   shares.       .Miller    v.  .Murray, 
17  Colo.   ins. 

h  Hoppin   v.  Buffum,  9  R.   I.  518; 


§  471  CORPORATE    MEETINGS    AND    ELECTIONS.  507 

the  pledgee  on  the  books  of  the  corporation,  the  pledgor  may, 
by  a  suit  in  equity,  compel  the  pledgee  either  to  transfer  the 
shares  to  him,  or  to  give  him  a  proxy.  But  this  right  can  not 
be  exercised  for  the  purpose  of  changing  the  results  of  the 
election  after  the  shares  have  been  voted   by  the  pledgee.1 

Where  the  stock  is  held  jointly,  as  by  three  executors,  it  can 
not  be  voted  unless  all  agree  upon  the  vote.2  In  California  it 
is  held  that  one  in  whose  name  shares  stand  on  the  books  as  a 
trustee  can  not  vote  them  if  he  has  no  actual  interest  in  them.3 
One  who  held  stock  as  a  mere  dummy  for  the  owner,  for  the 
purpose  of  avoiding  statutory  liability,  was  held  not  a  bona  fide 
holder  within  the  meaning  of  a  statutory  provision,  and  there- 
fore not  entitled  to  vote  the  stock.4  The  shares  held  by  an  es- 
tate may  be  voted  by  the  executors  without  a  transfer  to  them 
on  the  books  of  the  corporation.5  Stock  held  by  or  for  the  cor- 
poration can  not  be  voted  either  directly  or  through  a  trustee.6 
When  one  corporation  has  power  to  hold  the  stock  of  another 
it  may  vote  its  stock  in  the  same  manner  as  an  individual 
stockholder.7  But  "in  the  absence  of  legislative  authority 
or  sanction  for  such  a  course  of  proceeding  it  is  against  public 

Merchants'  Bank  v.  Cook,  4  Pick.  405.  judgment  against  defendant  for  con- 
In  State  v.  Smith,  15  Ore.  98,  it  was  version  of  the  stock,  because  it  had 
held  that  the  pledgee  who  had  se-  refused  to  transfer  the  same  on  its 
cured  a  transfer  to  himself  of  the  corporate  books  to  the  name  of  the 
stock  on  the  books  of  the  corporation,  pledgee  before  the  foreclosure  of  the 
under  the  authority  of  the  express  pledge,  while  still  a  mere  pledgee, 
language  of  the  assignment  of  the  ^oppin  v.  Buffum,  9  R.  I.  513. 
stock,  empowering  the  pledgee  to  2Tunis  v.  Hestonville,  etc.,  R.  Co., 
transfer  the  stock  to  his  own  name  149  Pa.  St.  70. 

upon  the  books,  was  nevertheless  not  3  Stewart  v.  Mahoney,  etc.,  Co.,  54 

entitled  to  vote  the  stock.     The  court  Cal.  149. 

held    that    the    power    to  make  the  4  Smith  v.  San   Francisco,  etc.,   R. 

transfer   on  the  books,  although  un-  Co.,  115  Cal.  584,  35  L.  R.  A.  309. 

limited  and  without  condition  as  to  5  Market  St.  R.  Co.  v.  Hellman,  109 

time    when  it    might    be  exercised,  Cal.  571. 

could  not  lawfully  be  exercised  until  6  American,  etc.,  R.  Co.  v.  Haven, 
the  pledgee  had  destroyed  the  equity  101  Mass.  398;  Ex  parte  Holmes,  5 
of  the  pledgor  by  foreclosure.  This  Cowen  (N.Y.)  426;  M'Neely  v.  Wood- 
decision  is  clearly  opposed  to  that  of  ruff,  13  N.  J.  L.  352. 
the  court  in  Nicollet,  etc.,  Bank  v.  7  Davis  v.  United  States,  etc.,  Co., 
City  Bank,  38  Minn.  85.  8  Am.  St.  77  Md.  35. 
Rep.  643,  where  the  court  affirms  the 


SOS  THE    LAV*    OF    PRIVATE    CORPORATIONS.  §  472 

policy  to  allow  one  corporation  to  purchase  a  majority  of  the 
shares  in  another  for  the  purpose  of  absorbing  it,  controlling 
it,  and  effecting  an  unlawful  consolidation  with  it,  and  a  court 
of  equity,  having  jurisdiction  in  the  premises,  will  restrain  the 
purchasing  corporation  from  voting  at  an  election  in  respect  of 
such  shares."  " 

§  472.  Right  of  bondholders  to  vote. — When  the  law  confers 
the  voting  power  upon  the  stockholders,  the  corporation  can 
not,  by  a  contract  and  by-law,  confer  it  upon  the  bondholders. 
Thus,  where  the  constitution  of  the  state  conferred  the  power 
to  elect  directors  upon  the  stockholders,  it  was  held  that  a  by- 
law which  also  gave  the  right  to  the  holders  of  the  bonds  of 
the  corporation  was  invalid.  The  by-law  was  adopted  in 
pursuance  of  a  contract  entered  into  between  the  corporation 
and  certain  individuals  who  sold  a  railroad  to  the  corporation 
and  took  the  bonds  and  stock  of  the  company  in  payment. 
'•  The  provision  made  by  the  corporation,  and  contained  in  the 
bonds  and  mortgage,  that  the  holders  of  bonds  might  vote  at 
any  and  every  meeting  of  stockholders,  is  subject  to  the  same 
objections  as  the  by-laws.  Being  in  violation  of  express  statu- 
tory and  constitutional  provisions,  the  agreement  was  inopera- 
tive and  void.  Nor  has  such  provision  become  binding  by 
subsequent  ratification,  acquiescence  or  estoppel.     *     *  A 

contract  which  the  corporation  could  not  make,  itcould  not  rat  i  1'y 
or  make  valid  by  any  subsequent  act.  If  there  was  no  power 
to  make  it  there  would  be  equally  a  lack  of  power  to  confer  it. "' 

§  473.    Voting  by  proxy. — At  common  law  all  votes  must  be 

given  in  person.'     There  is  no  right  to  vote  by  proxy  unless  it 

ie  conferred  by  statute,  charter,  or  by-law/    An  invariable  usage 

■Thompson  Corps.,  §  8878.      Mem-  benefit   the    requiremenl  of  registry 
phis,  etc.,   R.  Co.  v.  Wbods,88  Ala.  exists,  can  nol  refuse  to  recognize  the 
!'•..    \m.  st.  Rep.  81,  7  L.  R.  A.  transferee  after  it  wrongfully  refuses 
Clarke  v.  Central,  etc.,  E.  Co.,  50  to  permit  a    transfer.     Robinson  v. 
15  I..  R.   L.  683.    Bee  Bank,  96  N.  Y.  641;  [sham  v.  Buck- 
pro.     As between  the  trans-  Ingham,  19N.  Y.222. 
i  and  the  transferee  there  may  be  *Durkee  v.  People,  156  111.  856 
Bpecial circumstances  which  will  ena-  Am.  st.  Rep.  840. 
ble  the  ti                to  vote  the  stock,  'Taylor  v.   Griswold,    ll  N.  .1.    L 
although  ii    i-  aol  transferred  on  the  222,  27  Am.  Dec.  S3. 
buuks,    The  corporation,  lor   whose  *  Commonwealth  v.  Bringhurst,  103 


§473 


CORPORATE    MEETINGS    AND    ELECTIONS. 


509 


of  a  corporation  to  permit  voting  by  proxy  is  as  authoritative 
as  a  by-law.1  General  power  to  enact  by-laws  includes  the 
power  to  authorize  voting  by  proxy.2  No  particular  form  is 
necessary.3  The  proxy  need  not  be  acknowledged  or  wit- 
nessed.4 It  need  not  state  the  day  of  election.5  The  blank  of 
the  day  and  hour  of  the  meeting  in  proxies  sent  by  a  stock- 
holder to  the  secretary  may  be  filled  in  by  the  secretary  after 
their  execution.6  The  general  rule  is  that  a  stockholder  can 
not  give  an  irrevocable  proxy,7  even  for  a  valuable  considera- 
tion,8 although  it  has  been  held  that  he  may  transfer  the  legal 
title  to  a  trustee  for  the  purpose  of  voting,  as  the  transfer  is 
presumably  revocable  at  the  will  of  the  beneficial  owner.9 
"Irrevocable  proxies,"  not  coupled  with  an  interest,  according 
to  this  view,  are  revocable,  but  not  necessarily  void.10 

A  right  to   vote  by  proxy  can  only  be  given  by  the  legal 


Pa.  St.  134,  49  Am.  Rep.  119;  Craig  v. 
First  Presbyterian  Church,  88  Pa.  St. 
42;  Taylor  v.  Griswold,  14  N.J.  L. 
222;  Harben  v.  Phillips,  L.  R.  23  Ch. 
Div.  14;  In  re  St.  Lawrence,  etc.,  Co., 
44  N.  J.  L.  529;  Market  St.  R.  Co.  v. 
Hellman,  109  Cal.  571 ;  Commonwealth 
v.  Detwiler,  131  Pa.  St.  614;  People  v. 
Crossley,  69  111.  195 ;  State  v.  Tudor, 
5  Day  329;  Phillips  v.  Wickham,  1 
Paige  Ch.  (N.  Y.)  590 ;  Perry  v.  Tuska- 
loosa,  etc.,  Co.,  93 Ala.  364.  See  note 
to  27  Am.  Dec.  60. 

Archer  v.  Murphy,  26  Wash.  L. 
Rep.  98.  Same  principle,  see  Bank  v. 
Pinson,  58  Miss.  421,  38  Am.  Rep  330; 
Miller  v.  Esbach,  43  Md.  1. 

2 Archer  v.  Murphy,  26  Wash.  L. 
Rep.  98. 

8  "A  stockholder  who  desires  to  ex- 
ercise his  right  to  vote  on  his  stock  by 
proxy  is  undoubtedly  bound  to  fur- 
nish his  agent  with  such  written  evi- 
dence of  the  latter's  right  to  act  for 
him  as  will  reasonably  insure  inspec- 
tors that  the  agent  i-s  acting  by  the 
authority  of  his  principal,  but  the 
power  of  attorney  need  n*  t  be  in  any 
prescribed  form,  nor  be  executed  with 


any  peculiar  formality.  It  is  sufficient 
that  it  appears  on  its  face  to  confer  the 
requisite  authority,  and  that  it  be 
free  from  reasonable  grounds  of  sus- 
picion of  its  genuineness  and  authen- 
ticity ;  and  the  court  in  reviewing  the 
proceedings  at  an  election  must  be 
satisfied  that  the  inspectors  had  rea- 
sonable grounds  for  rejecting  the 
proxy."  In  re  St.  Lawrence,  etc.,  Co., 
44  N.  J.  L.  529;  Maria  v.  Garrison,  13 
Abb.  New  Cas.  (N.  Y.)  210. 

4  In  re  Cecil,  36  How.  Pr.  (N.Y.)  477. 

5  In  re  Townsend,  18  N.  Y.  Supp.  905. 

6  Ernest  v.  Loma,  etc.,  Co.,  75  Law 
T.  Rep.  N.  S.  317. 

7  See  §  475;  Woodruff  v.  Dubuque, 
etc.,  R.  Co.,  30  Fed.  Rep.  91 ;  Griffith 
v.  Jewett,  15  Week.  L.  B.  419;  In  re 
Director  Germicide  Co.,  55  Hun  606. 

8  Reed  v.  Bank  of  Newburgh,  6  Paige 
(N.  Y.)  337. 

9  State  v.  Ohio,  etc.,  R.  Co.,  6  Ohio 
C.  C.  415.     See  next  section. 

10  Brown  v.  Pacific,  etc.,  Co.,  5 
Blatch.  (C.  C.)  525;  Woodruff  v.  Du- 
buque, etc.,  R.  Co.,  30  Fed.  Rep.  91. 
See  Gage  v.  Fisher,  5  N.  Dak.  297,  65 
N.  W.  Rep.  809. 


510  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  474 

owner  of  the  shares,  and  in  the  manner  authorized  by  the 
charter  or  by-law.  Under  authority  to  give  a  proxy  to  "a 
citizen  of  the  United  States,"  a  valid  proxy  can  not  be  given 
to  an  alien.1  After  the  death  of  a  stockholder,  a  proxy  must 
be  given  by  his  executors.  It  can  not  be  given  by  will,  nor 
are  the  executors  bound  to  observe  a  provision  in  the  will  that 
a  proxy  shall  be  given  by  them  to  a  certain  person.2  A  sale 
of  the  stock  will  revoke  the  authority  given  a  third  person  to 
vote  the  stock  at  a  stockholders'  meeting.3  Under  a  statute 
which  authorizes  voting  by  proxy,  a  by-law  providing  that  no 
proxy  shall  be  voted  by  any  one  who  is  not  a  stockholder  of 
the  corporation  is  invalid.4 

§  474.    Personal  interest  of  stockholder— Motive  governing 

vote. — A  shareholder  has  a  legal  right,  at  a  meeting  of  the 
shareholders,  to  vote  for  a  measure,  although  he  has  a  per- 
sonal interest  therein  distinct  from  that  of  the  other  share- 
holders. In  such  a  meeting  each  shareholder  represents  him- 
self and  his  own  interests  solely  and  does  not  act  as  trustee  or 
representative  of  others.5  The  motives  of  the  stockholder  can 
not,  as  a  general  rule,  be  made  the  subject  of  judicial  inquiry.6 
He  may,  therefore,  vote  upon  a  proposition  to  ratify  a  contract 
made  by  the  directors  for  the  purchase  of  property  by  the  cor- 
poration from  himself.7  This  rule  is  not  changed  by  the  fact 
that  the  stockholder  owns  the  majority  of  the  stock.  In  such 
a  case  the  stockholder  voted  the  stock  in  favor  of  ratifying  a 
contract  which  he  had  made  with  the  corporation  as  a  director, 
and  the  supreme  court  of  Canada  ordered  a  rescission  of  the 
contract.8     Chief  Justice   Richie  said  :     ''It  does  seem  tome 

in,  ,     Barker,  6  Wend.    N.  Y.)609.     Mathews  v.  Columbus  Nut.  Bank,  79 

'Tunisv. Railroad  Co.,  I  !9Pa.  si.  70.     Fed.  Rep.  558. 

•Ryan  v.  8eaboard,  etc.,  R.  Co.,  89       "Gamble  v.  Water  Co.,  123  N.  Y- 
Rep.897.  91,97. 

i  Peoples',  etc  .  Bani  v.  Sup.  Court,       B  For  an  exception  to  tin's  rule.  Bee 

l04Cal.649,29L. R.A.844,48  \m.st.     Memphis,  etc.,   R.  Co.  v.  Woods,  88 

147,     \  stockholder  ie   not  es-     Ua.  880,  L8  Am.  St.  Rep.  81.    See  § 

..l  to  question  the  validity  ol  a    471,  supra.  > 

meeting  by  the  participation  o!  his       'Bjorngaard  v.  Goodhue,  etc.,  Bank 

proxy  therein,  as  the  latter  ia  author-     19  Minn    188. 

Ized  to  vote  only  at  a  lawful  meeting.       'Beatty  v.  Transportation  <'<>.,  12 

Canada  8,  0.  598. 


§  474  CORPORATE    MEETINGS    AND    ELECTIONS.  511 

that  fair  play  and  common  sense  alike  dictate  that  if  the 
transaction  and  act  of  the  director  are  to  be  confirmed,  it 
should  be  by  the  impartial,  independent  and  intelligent  judg- 
ment of  the  disinterested  shareholders,  and  not  by  the  inter- 
ested director  himself,  who  should  never  have  departed  from  his 
duty."  On  appeal,  the  judgment  was  reversed  by  the  judicial 
committee  of  the  Privy  Council.1  "The  question  involved," 
said  the  court,  "  is  doubtless  novel  by  its  circumstances, 
and  the  decision  is  important  in  its  consequences.  It  would 
be  very  undesirable  even  to  appear  to  relax  the  rules  relating 
to  dealings  between  trustees  and  beneficiaries  ;  on  the  other 
hand,  great  confusion  would  be  introduced  into  the  affairs  of 
joint  stock  companies  if  the  circumstances  of  shareholders  vot- 
ing in  that  character  at  general  meetings  were  to  be  examined, 
and  their  votes  practically  nullified  if  they  also  stood  in  some 
fiduciary  relation  to  the  company.  *  *  *  rphe  only  unfair- 
ness or  impropriety  which,  consistently  with  the  admitted  facts, 
could  be  suggested,  arises  out  of  the  fact  that  the  defendant 
possessed  a  voting  power  as  a  shareholder  which  enabled  him, 
and  those  who  thought  with  him,  to  adopt  the  by-law,  and 
thereby  either  to  ratify  and  adopt  a  voidable  contract,  or  to 
make  a  similar  contract,  which  latter  seems  to  have  been  what 
was  intended.  *  *  *  It  may  be  right  that,  in  such  cases, 
the  opposing  minority  should  be  able,  in  a  suit  like  this,  to 
challenge  the  lien  action,  and  to  show  that  it  is  an  improper 
one,  and  to  be  freed  from  the  objection  that  a  suit  with  such  an 
object  can  only  be  maintained  by  the  company  itself.  But  the 
constitution  of  the  company  enabled  the  defendant  to  acquire 
the  voting  power;  there  was  no  limit  upon  the  number  of  shares 
which  a  stockholder  might  hold,  and  for  every  share  so  held  he 
was  entitled  to  a  vote.  *  *  He  had  a  perfect  right  to  acquire 
further  shares,  and  to  exercise  his  voting  power  in  such  a 
manner  as  to  secure  the  election  of  directors  whose  views  upon 
policy  agreed  with  his  own,  and  to  support  those  views  at  any 
shareholders'  meeting;  the  acquisition  of  the  United  Empire 
was  a  pure  question  of  policy,  as  to  which  it  might  be  expected 
that  there  would  be  differences  of  opinion,  and  upon  which  the 
L.  R.  12  App.  Cas.  598. 


512  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  474 

voice  of  the  majority  ought  to  prevail;  to  reject  the  votes  of 
the  defendant  upon  the  question  of  the  adoption  of  the  by-law 
would  be  to  give  effect  to  the  views  of  the  minority,  and  to  dis- 
regard those  of  the  majority." 

Lord  Justice  Mellish  said:  "I  am  of  opinion  that,  although 
it  may  be  quite  true  that  the  shareholders  of  a  company  may 
vote  as  they  please,  and  for  the  purpose  of  their  own  interests, 
yet  that  the  majority  of  shareholders  can  not  sell  the  assets 
of  the  company  and  keep  the  consideration."1  In  comment- 
ing upon  this  language,  Sir  George  Jessel  said:2  "A  man 
may  be  actuated  in  giving  his  note  by  interests  entirely 
adverse  to  the  interest  of  the  company  as  a  whole.  He 
may  think  it  more  for  his  particular  interest  that  a  certain 
course  may  be  taken,  which  may  be,  in  the  opinion  of  others, 
very  adverse  to  the  interests  of  the  company  as  a  whole,  but 
he  can  not  be  restrained  from  giving  his  note  in  what  way  he 
pleases  because  he  is  influenced  by  that  motive.  There  is,  if 
I  may  say  so,  no  obligation  on  a  shareholder  of  a  company  to 
give  his  vote  merely  with  a  view  to  what  other  persons  may 
consider  the  interests  of  the  company  at  large.  He  has  a  right, 
if  he  thinks  fit,  to  give  his  vote  for  motives  or  promptings  of 
what  he  considers  his  own  individual  interests." 

But  a  stockholder  is  not  entirely  free  from  obligation  to  the 
other  stockholders.  Thus,  a  contract  between  two  stockholders 
and  a  third  person,  by  which  he  was  to  purchase  a  part  of  their 
stock  at  par,  on  condition  of  being  elected  treasurer  of  the  cor- 
poration, with  a  condition  that  the  stock  should  be  taken  back, 
in  case  it  should  be  desirable  for  any  reason  to  dispense  with 
the  plaint  ill's  services  as  treasurer,  was  held  invalid.  The  pur- 
pose ;in<l  effecl  of  the  contract  was  to  influence  the  stockholders 
in  the  decision  of  a  question  affecting  the  private  rights  of 
others,  by  considerations  foreign  t<>  these  rights.  The  promisee 
was  placed  under  direct  inducement  t<>  disregard  his  duties  to 
other  members  "f  the  corporation  who  had  ;i  right  to  demand 
In-  disinterested  action  in  the  selection  of  suitable  officers.  He 
in  a  relation  of  trust  and  confidence,  which  required  him 
'Menier  v.  Hoopers,  etc.,  Works,  ■lVmlerv.  l.uHhington,  L.  R.  6  Ch. 
L.  El,  8  Ch,  App,  Oa  L»iv.  70,  71. 


§  475  CORPORATE    MEETINGS    AND    ELECTIONS.  513 

to  look  only  to  the  best  interests  of  the  whole,  uninfluenced  by- 
private  gain."  ' 

§  475.  Voting  trusts  and  agreements, — Numerous  devices 
have  been  tried  by  those  who  were  in  control  of  a  corporation, 
for  the  purpose  of  keeping  a  present  majority  united  for  the 
future.  Some  such  agreements  have  been  sustained,  but  the 
courts  have  as  a  rule  frowned  upon  them  as  having  a  monopo- 
listic tendency,  being  in  restraint  of  trade,  and  against  public 
policy,  because  severing  the  voting  power  from  the  ownership 
of  the  stock.  Thus,  proxies  in  form  irrevocable  have  been  held 
revocable  at  pleasure.  The  plan  of  placing  the  stock  in  the 
hands  of  trustees,  with  power  to  hold  and  vote  the  same,  and 
issuing  to  the  stockholders  certificates  specifying  the  amount  of 
stock  deposited  and  the  beneficial  interest  of  the  stockholder 
therein,  failed  because  the  courts  held  that  the  holders  of  the 
certificates  could  at  any  time  demand  the  return  of  the  stock 
to  them.2  Agreements  not  to  sell  their  stock  for  a  certain  time 
without  the  consent  of  the  other  stockholders,  or  to  purchas- 
ers agreeable  to  the  old  stockholders,  were  held  illegal  because 
in  restraint  of  trade.3  "The  most  effective  way,"  says  Cook,* 
"in  which  the  majority  of  all  the  stock  in  a  corporation  may 
be  pooled  or  tied  up  seems  to  be  selling  or  transferring  it  to 
another  corporation  formed  for  that  purpose.  Such  corpora- 
tion may  be  organized  under  the  laws  of  many  of  the  states. 
The  objection  to  this  plan  is  that  it  enables  the  directors  of 
the  second  corporation  to  sell  the  stock  at  any  time,  and  it  in- 
volves, not  merely  a  temporary  pooling  of  the  stock,  but  a  per- 
manent parting  with  the  title  and  interest  in  it." 

§  476.  Voting  agreements  continued. — By  the  weight  of 
authority  the  law  does  not  absolutely  forbid  the  separation  of 
the  voting  power  from  the  ownership  of  the  stock.  Each  case 
must  be  determined  by  its  own  facts  and  tendencies.5     In  Ala- 

1  Guernsey  v.  Cook,  120  Mass.  501.     See  an  article  by  Mr.  Justice  Baldwin 
See  Gage  v.  Fisher,  5  N.  Dak.  297,  31     in  1  Yale  Law  Jour.  1. 

L.  R.  A.  557.  3 Fisher  v.   Bush,   35  Hun   (N.  Y.) 

2  Woodruff  v.  Dubuque,  etc.,  R.  Co.,    641. 

30  Fed.  Rep.  91 ;  Hafer  v.  New  York,        *  Cook  Corp.  (3d  ed),  §  622. 
etc.,  R.  Co.,  14  Weekly  Law  Bui.,  68.        5  Fishery.  Bush,  35  Hun  (N.  Y.)641. 
33— Private  Corp.  See  In  re  Argus  Co.,  138  N.  Y.  557, 


514  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  476 

baraa  it  was  held  that  there  was  no  objection  to  a  contract  by 
which   the  stockholders  irrevocably   surrendered  their  voting 
power  to  a  trustee  for  the  benefit  of  the  creditors  of  the  corpo- 
ration.1   An  agreement  between  several  stockholders,  whereby 
the  stock  is  to  be  placed  with  a  trust  company  for  a  period  of 
six   months,   and  not  to  be   sold   during  that  time,  is   legal 
when   there  is  no  provision   depriving  the  owner  of  the  right 
to  vote  on  the  stock.      The  contract  being  made  for  the  purpose 
of  preventing  the  sacrifice  of  the  stock,  was  held  not  void  as 
against  public  policy,  in   restraint  of  trade,  or  objectionable 
because   suspending  the   power  of  alienation.2     In   California 
it  was  held    that  there  may    legally    be  a  separation   of  the 
voting  power  and  the  ownership  of  stock,  and  that  the  own- 
ers of  the  majority  of  stock   may  lawfully   agree  to  be  bound 
by   the   will   of    the   majority,    in  voting    the    stock.     It  was 
agreed  that  each   one   would   hold  his   own   shares,  but  that 
they  should  be  voted  for  five  years   in.  the   way  to  be  deter- 
mined by  the  majority   of  the   stock  included  in  the   agree- 
ment.3    In  Ohio,  an  agreement  between  stockholders  to  trans- 
fer their  stock  to  a  depositary,  who  should  vote  it  as   directed 
by  a  committee  of  the  stockholders  for  the  purpose  of  adjust- 
ing differences  between  the  holders  of  common  and  preferred 
shares,  was  sustained.     It  was  held  not  to  be  a  voting  trust, 
but  merely  "  a  convenient  method  by  means  of  which  distant 
;in<l  widely  separated  shareholders  became  enabled  indirectly 
to  participate  in  the  control  and  management  of  the  company, 
and    from    which  each  could  recede  at  any  time  ami   demand 
the    return    of    his   stock   without   violating  any   term   of    the 
agreement.     The  depositary  is  a  proxy   required  to  vote  the 
k  as  directed   by  the  committee. "      It  was,  therefore,  held 
thai   directors  elected  by   the  vote  of  the  depositary   were  le- 
gally elected.1     A    number  of  shareholders   may  agree  to  com- 
bine for   the   purpose  of  controlling  a  corporate  election  and 

'Mobile,  etc.,  I'.  Co.  v.  Nicholas,       8Siniili  v.  Ban  Francisco,  (•(<•.,  R. 

Co.,  1 1  »  Oal.  584,  85  L.  R.   \.  809. 
•Williams  v.   Montgomery,  lis  N.       '  Ohio,  etc.,  R.  Co.  v.  State,  49  Ohio 
thi  •  ca  le  b  i  i"  teal   at    St.  868. 
alienability  of  personal  prop< 


§  477  CORPORATE    MEETINGS    AND    ELECTIONS.  515 

the  election  of  such  officers  as  they  deem  for  the  best  interests 
of  the  corporation.1  A  majority  who  are  in  accord  as  to  the 
future  policy  of  a  corporation  which  is  to  be  formed,  may  en- 
ter into  a  valid  agreement  for  its  future  management  and  con- 
trol, if  no  statutory  provisions  are  violated.2  But  an  agree- 
ment by  a  majority  of  the  stockholders  who  control  the  board 
of  directors  to  the  effect  that  the  corporation  shall  be  managed 
by  certain  persons  is  invalid.3  In  North  Carolina  it  was  held 
that  an  agreement  by  which  the  shares  were  to  be  transferred 
to  trustees,  to  be  voted  as  directed  by  a  majority  of  the  stock- 
holders for  a  period  of  five  years,  unless  the  holders  of  two- 
thirds  of  such  stock  should  vote  to  end  the  trust,  was  con- 
trary to  public  policy  and  void  as  against  the  rights  of  an  as- 
signee of  one  of  the  trustees'  certificates  to  have  the  shares 
thereby  represented  issued  to  him  in  his  own  name.4 

§  477.  Voting  agreements  continued. — In  the  Alabama 
case  referred  to  in  the  previous  section,5  it  appeared  that  the 
corporation  was  in  the  hands  of  a  receiver,  and  that  its  total 
indebtedness  was  in  excess  of  its  assets.  An  arrangement  was 
made  between  the  creditors  and  the  company  whereby  the 
creditors  accepted  debentures  in  lieu  of  their  original  evidences 
of  debt  and  the  stockholders  assigned  their  stock  to  a  com- 
mittee of  reorganization,  which  gave  to  a  trust  company  an 
irrevocable  power  of  attorney  to  vote  the  stock  so  long  as  any 
of  the  debentures  were  outstanding. 

The  shareholders  who  thus  assigned  their  stock  received  in 
exchange  new  certificates  which  entitled  them  to  all  the  priv- 
ileges of  ownership  of  the  shares,  except  to  the  voting  power 
which  had  been  granted  to  the  trust  company.  Several  years 
after  this  arrangement  had  been  made,  one  of  the  stockhold- 
ers denied  the  right  of  the  trust  company  to  vote  his  stock 
aud  filed  a  bill  for  an  injunction.     It  was  held  that  the  agree- 

1  Faulds  v.  Yates,  57  111.  416;  Have-  and  see  Woodruff  v.  Wentworth,  133 

myer  v.  Havemyer,  11  J.  &  S.  506,  86  Mass.  309. 

N.  Y.  618;  Beitman  v.  Steiner  Bros.,  4  Harvey  v.  Linville,  etc.,   Co.,  118 

98  Ala.  241.  N.  C.  693,  32  L.  R.  A.  265. 

*  King  v.  Barnes,  109  N.  Y.  267.  5  Mobile,  etc.,  R.  Co.  v.  Nicholas,  98 

8  Wilbur  v.  Stoepel,  82  Mich.  344,  Ala.  92. 


516  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  ^77 

ment  was  valid  and  binding,  and  the  court  said  that,  "if  there 
were  no  precedents,  upon  principle  we  should  hold  that  in  deter- 
mining the  validity  of  an  agreement  which  provides  for  the 
vesting  of  the  voting  power  in  a  person  other  than  the  stock- 
holder, regard  should  be  had  to  the  condition  of  the  parties, 
the  purpose  to  be  accomplished,  the  consideration  of  the  un- 
dertaking, interests  which  have  been  surrendered,  rights  ac- 
quired, and  the  consequences  to  result.  The  law  does  not 
make  contracts  for  parties,  neither  will  it  annul  them,  except 
to  preserve  its  own  majesty  and  to  conserve  the  greater  interest 
of  the  public.  *  *  *  The  execution  of  the  decrees 
of  foreclosure  by  a  sale  of  the  property,  and  the  prosecu- 
tion of  the  admitted  claims  against  the  railroad  company, 
would  necessarily  have  transferred  the  property  to  other  parties 
and  wiped  out  every  vestige  of  present  available  interest  or 
right  of  the  stockholder  or  hope  of  future  profit.  The  credit- 
ors held  the  vantage  ground,  and  in  law  their  rights  and  interest 
were  paramount  to  those  of  the  stockholders.  The  latter  might 
accept  propositions,  but  were  in  no  condition  to  dictate  terms. 
These  were  the  circumstances  under  which  the  settlement  and 
agreement  were  made.  Stated  in  short,  the  compromise  and 
settlement  led  to  the  issue  of  the  debentures  to  the  creditors  in 
lieu  of  their  original  evidences  of  debt  and  a  mortgage  upon 
certain  property  to  secure  them  ;  a  plan  for  a  sinking  fund  for 
their  benefit,  and  the  right  and  privilege  under  an  irrevocable 
power  of  attorney  to  vote  the  stock  until  the  debentures  were 
paid.  The  power  of  attorney  was  not  in  perpetuity  or  abso- 
lute, but  only  until  the  debentures  were  paid,  and  a  fair  con- 
struction, under  the  circumstances,  required  that  the  voting 
power  should  be  used  fairly  and  honestly  to  this  end. 
•  *  *  Good  faith  on  the  part  of  the  assenting  stock- 
holdere,  whose  interests  were  Hms  preserved,  and  to  those  who 
accepted  the  debentures  in  lieu  of  other  evidences  of  debt  and 
irities,  and  to  those  who  have  sinee  purchased  them  upon 
the  faith  of  the  plan  of  compromise,  demand  thai  the  terms  of 
the  contracl  be  fulfilled.    Tested  by  any  principle  of  law,  legal 


§  477  CORPORATE    MEETINGS    AND    ELECTIONS.  517 

or  equitable,  the  agreement  was   not  only  valid,  but  fair,  at 
least,  to  the  corporation  and  stockholders." 

Even  where  there  can  not  ordinarily  be  a  separation  of  the 
ownership  of  the  shares  and  the  voting  power,  there  may  be 
such  a  division  and  conflict  of  interests  as  to  justify  it.  In 
one  case  l  it  appeared  that  the  railway  corporation  was  in  great 
financial  difficulties,  and  the  creditors  were  threatening  to  be- 
gin foreclosure  proceedings.  This  would  have  been  injurious 
to  the  rights  of  all  the  stockholders,  and  as  a  compromise  it 
was  agreed  that  the  creditors'  securities  and  the  certificates  of 
stock  should  be  placed  under  the  control  of  a  reconstruction 
board  with  power  to  adjust  priorities,  execute  mortgages  and 
issue  new  certificates  of  stock.  This  board  was  armed  with 
wide  discretion,  but  was  to  act  with  the  advice  and  consent  of 
another  body  known  as  the  "  voting  trust,"  which  consisted 
of  five  persons.  This  voting  trust  was  to  supervise  the  recon- 
struction of  the  company,  and  when  that  was  accomplished 
the  certificates  of  stock  were  to  be  issued  to  them  in  order 
that  they  might  elect  a  president  and  manager  of  the  road. 
They  were  to  hold  the  legal  title  to  the  stock,  which  was  to  be 
transferable  only  on  their  books,  but  they  were  to  give  the 
persons  who  surrendered  their  stock  certificates  a  beneficial 
interest,  devoid  of  the  right  to  vote  the  stock.  The  court  said: 
"  Under  the  statutes  of  this  state,  and  on  general  principles, 
the  right  to  vote  on  stock  can  not  be  separated  from  the  own- 
ership in  such   sense  that  the  elective  franchise  shall  be  in 

1  Shelmerdine  v.  Welsh,  20  Phila.  York,  etc.,  R.  Co.,  14  Weekly  Law 
Rep.  199,  Hare,  J.,  2  Smith's  Corp.  Bulletin  68,  an  agreement  of  a  similar 
Cas.  1039.  In  Vanderbilt  v.  Bennett,  character,  by  which  the  stock  was 
6  Pa.  Co.  Ct.  R»p.  193,  2  Smith's  placed  in  the  hands  of  the  representa- 
Corp.  Cas.  1029,  an  agreement  by  tive  of  a  rival  company,  was  held  in- 
which  the  shares  were  vested  in  certain  valid,  "  both  on  the  ground  that  the 
trustees  who  were  to  have  perpetual  power  is  denied  to  one  corporation 
power  to  vote  the  same,  for  the  pur-  thus  to  acquire  control  of  another, 
pose  of  carrying  out  the  purpose  and  and  that  the  stockholder  can  not 
policies  defined  in  the  agreement,  was  barter  away  the  right  to  vote  upon 
invalid.  At  the  most  it  was  said  to  his  stock."  See,  also,  Griffith  v.  Jew- 
be  simply  a  power  of  attorney  or  ett,  15  Weekly  Law  Bulletin  419; 
proxy,  and  revocable  at  the  option  Moses  v.  Scott,  84  Ala.  608,  4  So.  Rep. 
of  any  party  to  it.     In  Hafer  v.  New  742. 


518  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  478 

one  man,  and  the  entire  beneficial  interest  in  another,  nor  to 
any  extent,  unless  the  circumstances   take  the  case  out  of  the 
general  rule.     It   matters   not  that  the  end   is  beneficial  and 
the  motive  good,  because  it  is  not  always  possible  to  ascertain 
objects  and  motives,  and  if  such  a  severance  were  permissible 
it  might  be  abused.    The  person  who  votes  must  consequently 
be  an  owner,  but  it  does   not  follow  that  he  must  be  the  only 
one.     If,  for  instance,  stock  is  pledged  as  a  collateral,  whether 
the    debtor  or  creditor    shall  vote  depends  on   the    terms  on 
which  the  pledge  is  made.     The  power  is,  under  these  circum- 
stances, necessarily,  to  some  extent,  severed    from  the  owner- 
ship, and  the  parties  may,  consequently,  determine  on   which 
side  it  shall  lie.     So  much  is  conceded  on  each  side  of  this 
controversy,  and  the  question  is,  can  the  debtor  and  creditor 
agree  to  lodge  the  vote   in   some  one  who  is  to  act  for  both  so 
long  as  the  debt  remains   and  the  stock  is  held  as   surety  for 
its  payment?"     The  court  held  that  there  is  no  reason  that 
forbids   a   stockholder   to  transfer  his  shares  to  one  man  as  se- 
curity for  a  debt  due  another,    with  a  stipulation    that    the 
holder  should  have  the  right  to  vote,  and  that  the  case  was  not 
changed  by  the  fact  that  the  intermediary  gave  the  debtor  a 
certificate  that  the  equitable  ownership  was  in  him,  subject  to 
the  payment  of  the  amount  due.     It  further  appearing  that 
the  trustee  had  duties  to  perform,  that  is,  was  not  a  dry  trust, 
the  agreement  was  held  valid. 

§  478.  The  Shepaug  Voting  Trust  cases. — In  these  cases  the 
supreme  court  of  Connecticut  held  that  it  was  contrary  to  pub- 
lic policy  to  allow  the  shareholders  to  deprive  themselves  of  the 
power  to  vole  their  shares,  and  thai  an  irrevocable  proxy  can 
qoI  be  given  permanently  or  for  a  definite  period  to  one  who 
haa  in-  beneficial  interest  or  title  in  the  shares.1  The  voting 
power  was  placed  in  a  committee,  and  the  court  said:  "The 
character  ol  this  trust,  bo  Ear  as  the  trust  company  is  concerned, 
is  a  dry  trust.     The  trusl  company  has   no  beneficial   interest 

•  The  Shepaug  Voting  Trusl   Oases,  60  Conn.  (Supp.)  553.   SeeGrifflthv. 
Jewett,  !•">  W(  i  1  ly  Law  Bulletin  419. 


§  479  CORPORATE    MEETINGS    AND    ELECTIONS.  519 

whatever  in  the  shares  of  stock  which  are  made  the  subject  of 
the  trust.  They  have  no  interest  in  favor  of  which  they  can 
claim  a  continuance  of  the  trust,  neither  has  the  committee 
named  in  the  trust  any  interest  which  they,  as  such  commit- 
tee, can  set  up  for  the  continuance  of  the  trust.  *  *  * 
It  is  the  policy  of  our  law  that  an  untrammeled  power  to  vote 
shall  be  incident  to  the  ownership  of  the  stock,  and  a  contract 
by  which  the  real  owner's  power  is  hampered  by  a  provision 
therein  that  he  shall  vote  just  as  somebody  else  dictates,  is  ob- 
jectionable. I  think  it  is  against  the  policy  of  our  law  for  a 
stockholder  to  contract  that  his  stock  shall  be  voted  just  as 
some  one  who  has  no  beneficial  interest  or  title  in  or  to  the 
stock  directs,  saving  to  himself  simply  the  title,  the  right 
to  dividends,  and  perhaps  the  right  to  cast  the  vote  directed, 
willing  or  unwilling,  whether  it  be  for  his  interest,  for  the  in- 
terest of  other  stockholders,  or  for  the  interest  of  the  corpora- 
tion, or  otherwise.  This  I  conceive  to  be  against  the  policy 
of  the  law,  whether  the  power  so  to  vote  be  for  five  years  or 
for  all  time.  It  is  the  policy  of  our  law  that  ownership  of 
stock  shall  control  the  property  and  the  management  of  the 
corporation,  and  this  can  not  be  accomplished,  and  this  good 
policy  is  defeated,  if  stockholders  are  permitted  to  surrender 
all  their  discretion  and  will  in  the  important  matter  of  voting, 
and  suffer  themselves  to  be  mere  passive  instruments  in  the 
hands  of  some  agent  who  has  no  interest  in  the  stock,  equitable 
or  legal,  and  no  interest  in  the  general  prosperity  of  the  cor- 
poration." 

§  479.  Specific  enforcement  of  such  contracts. — A  court  of 
equity  will  not  enforce  specific  performance  of  a  contract  by 
which  one  person  agrees  that  another  shall  control  his  stock 
without  purchasing  it,  where  the  sole  object  is  to  secure  con- 
trol of  the  corporation  through  the  use  of  the  stock  which  the 
plaintiff  is  seeking  to  acquire.  Corporate  stock  comes  within 
the  general  rule  that  the  specific  performance  of  a  contract  for 
the  sale  of  personal  property  will  not  be  enforced  unless  under 
exceptional  circumstances.1 

Eckstein  v.  Downing,  64  N.  H.  248,    9  Atl.  Rep.  626;  Appeal  of  Goodwin, 


520  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  480 

§  480.  Number  of  votes  by  each  stockholder. — At  common 
law  each  shareholder  was  entitled  to  one  vote  irrespective  of 
the  number  of  shares  held,  but  by  statute  and  custom  it  is 
now  the  rule  to  allow  one  vote  for  each  share  of  stock.1  In 
Taylor  v.  Griswald8  a  by-law  which  gave  each  shareholder  a 
vote  for  each  share  of  stock  held  by  him  was  held  invalid,  as 
contrary  to  the  common  law  which  gives  to  all  members  equal 
rights,  and  in  violation  of  the  charter.  The  court  said  :  "  The 
charter,  if  not  in  terms,  yet  in  its  spirit  and  legal  intend- 
ment, gives  each  member  the  same  rights,  and,  consequently, 
but  one  vote,  whereas  this  by-law  gives  them  unequal  rights 
and  an  unequal  number  of  votes.  It  makes  one  a  member 
for  one  purpose,  and  another  a  member  for  another  purpose. 
It  imposes  a  test  or  qualification  unknown  to  the  charter,  by 
which  to  determine  how  many  votes  a  member  may  give, 
whether  one,  five,  ten  or  fifty.  In  short,  a  by-law  excluding 
a  member  from  office,  or  from  the  right  to  vote  at  all,  unless 
he  owns  five,  ten  or  twenty  shares,  would  not  be  a  more  palpa- 
ble, though  it  might  be  a  more  flagrant,  violation  of  the  charter. 
A  man  with  one  share  is  as  much  a  member  as  a  man  with  fifty, 
and  it  is  difficult  to  perceive  any  substantial  difference  between 
a  by-law  excluding  a  member  with  one  share  from  voting  at  all, 
and  a  by-law  reducing  his  one  vote  to  cipher  by  giving  another 
member  fifty  or  a  hundred  votes."  But  in  modern  times  it  is 
the  interest  and  not  the  member  which  votes,  and  the  practice  of 
giving  the  shareholder  a  vote  for  each  share  he  holds  has  be- 
come so  well  established  that  it  is  fair  to  imply  an  intention  to 
follow  tliis  custom  in  the  absence  of  any  contrary  indication.3 
A  by-law  containing  such  a  provision  is,  of  course,  valid.4 

etc.,  Co.,117  Pa.  614,  12  Atl.  Rep.  736.  Mark  v.  De  Bardeleben,  etc.,  Co.,  96 

In  Gage  v.   Fisher,6  N.  Dak.  297,  66  Ah.  396,  9  L.   R.    \.  650;  Common- 

N.  \v.  Rep.  809,  this  subjecl  is  die-  wealthv.  Detwiller,  13]  Pa.  St.  614. 

cussed  by  Chief  Justice  Corliss  with  Ml  N.J.  L.  222  (1884),  27  Am.  Dec. 

hi-    usual    clearness   and    thorough-  83.    Bee  Angel]  &   Ames  Corps.,  62; 

Res  v.  <  Hnever,  8  T.  R.  782 ;   Res    v. 

1  Procter,  etc.,  Co.  v.  Finley,  98  Ky.  Decant,     I    sir.    586,    Harvard    l. aw 

1                 tati     the  number  ol  l»v\ ..  Nov.,  1888,  p.  156. 

which  may  be  cast  by  one  stock-  :)  Morawetz  Priv.  Corp.,  §  476a. 

bolder    is   limited  by  statute.     Bee  'Commonwealth  v.  Detwiller,   181 


§  481  CORPORATE    MEETINGS    AND    ELECTIONS.  521 

§  481.  Cumulative  voting. — Under  the  system  of  cumulative 
voting  which  has  been  adopted  in  a  number  of  states  the  mi- 
nority stockholders  are  authorized  to  cast  a  greater  number  of 
votes  for  a  particular  candidate  than  they  would  be  entitled  to 
under  the  ordinary  method  of  casting  one  vote  for  each  share 
of  stock  held.1  This  enables  the  minority  to  have  a  represen- 
tation on  the  board  of  directors,  and  thus  to  a  certain  extent 
limits  the  control  of  the  majority  over  the  business  policy  of 
the  corporation.  The  right  does  not  exist  unless  conferred  by 
statute.2  This  method  of  voting  can  not  be  forced  upon  the  corpo- 
ration contrary  to  the  wishes  of  the  majority  of  stockholders,  as 
it  would  impair  their  contractual  rights,  unless  the  state  has  re- 
served power  to  alter,  amend,  or  repeal  the  corporate  charter.3 

§  482.  The  quorum  and  majority. — A  quorum  is  such  a 
number  of  the  members  of  a  body  as  is  necessary  to  transact 
the  business  at  a  meeting  thereof.1  Less  than  a  quorum  have 
power  only  to  meet  and  adjourn.  The  statute  or  by-laws 
generally  provide  that  a  majority  of  the  stocks  shall  consti- 
tute a  quorum  at  a  stockholders'  meeting,  and  a  majority  in 

Pa.  St.  614,  18  Atl.  Rep.  990;  Hays  v.  poration  reserves  the  right  to   alter 

Commonwealth,  82  Pa.  St.  518.  and  amend,  and  in  the  latter  part  of 

'See  Wright  v.  Central,  etc.,  Co.,  67  the  first  section  requires  that  all  the 

Cal.  532,   8  Pac.  Rep.  70,  and  State  v.  rules,   by-laws  and  regulations  shall 

Pierce,  51  Kan.  241,  29  Pac.  Rep.  565,  not  he  repugnant  to  any  law  of  the 

for  construction  of  constitutional  pro-  state  then  in  force,  or  which  might  be 

visions.  passed  under  the  power  reserved.     In 

2 State  v.  Greer,  78  Mo.  188;  Hays  Hays  v.  Com.,  82  Pa.  St.  518,  such  a 

v.  Comw.,  82  Pa.  St.  518 ;  Baker's  App.,  mode  of  voting  was  held  to  be  within 

109  Pa.  St.  461;  Smith  v.  Railroad  Co.,  the  protection  of  the  constitution  of 

64  Fed.  Rep.  272.  the  United  States,  as  within  the  obli- 

3  Attorney-General   v.   Looker,    111  gation  assumed  by  grant  of  the  charter. 

Mich.  498,  69  N.  W.  Rep.  929;  Cross  I  do  not  propose  to  discuss  this  ques- 

v.  Railway  Co.,  35  W.  Va.  174;  State  tion.     Here  the  power  to  alter  is  re- 

v.  Stockley,  45  Ohio  St.  304 ;  Pierce  v.  served,  and  such  mode  of  voting  is  not 

Comw.,  104  Pa.  St.  150.     In  Cross  v.  irrepealable  or  beyond    amendment. 

W.  Va.,  etc.,  R.  Co.,  35  W.  Va.  174,  State  v.  Miller,  30  N.  J.  L.  368,  86  Am. 

the  court  said:     "The  state  constitu-  Dec.     188    and    notes;     Murray    v. 

tion    and    laws   authorizing  a  stock-  Charleston,  96  U.  S.  432;  Railroad  Co. 

holder  to   cumulate  his  votes  consti-  v.  Gaines,  97  U.  S.  697." 

tutes  no  such  impairment,  for  the  rea-  4  Citizens',  etc.,  Co.  v.  Shortwell,  8 

son,  among  others,  that  the  legislature  Allen  (Mass.)  217. 
in  the  last  section  of  the  act  of  incor- 


522  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  482 

number  at  a  directors'  meeting.1  A  majority  of  a  quorum 
may  bind  the  corporation.2  A  statute  which  provides  for 
the  adoption  of  a  by-law  by  a  "  majority  of  the  stockhold- 
ers "  means  a  majority  in  interest  of  the  stockholders,  and 
not  necessarily  a  majority  in  number.3  Where  the  charter 
and  by-laws  are  silent  on  the  subject,  the  common-law  rule  is 
that  such  of  the  stockholders  as  actually  assemble  at  a  prop- 
erly convened  meeting,  although  a  minority  of  the  whole 
number,  and  representing  only  a  minority  of  the  stock,  con- 
stitute a  quorum  for  the  transaction  of  business,  and  may 
express  the  corporate  will,  and  the  body  will  be  bound  by 
the  acts.4  "There  is  a  distinction,"  says  Chancellor  Kent, 
"between  a  corporate  act  to  be  done  by  a  select  and  defi- 
nite body,  as  by  a  board  of  directors,  and  one  to  be  per- 
formed by  the  constituent  members.  In  the  latter  case  a 
majority  of  those  who  appear  may  act,  but  in  the  former  a 
majority  of  the  definite  body  must  be  present,  and  then  a 
majority  of  the  quorum  may  decide.  This  is  the  general  rule 
on  the  subject.,  and  if  any  corporation  has  a  different  modifi- 
cation of  the  expression  of  the  binding  will  of  the  corpora- 
tion, it  arises  from  the  special  provisions  of  the  act  or  char- 
ter of  incorporation."5 

It  has  been  held  that  a  majority  of  the  stock  represented  at 
tin' meeting  must  be  voted,6  but  the  prevailing  rule  is  that 
those  present  and  not  voting  are  assumed  to  vote  in  the  af- 
firmative, and  that  a  majority  of  the  legal  votes  actually  cast,  al- 

'Foster  v.  Mullanphy,  etc.,  Co.,  92  3  Weinburg  v.  Union,  etc.,  1\.  Co., 

Mo.  79;  Ellsworth, etc., Co.v.  Fau ,  55  N.  .1.  Eq. 640. 

79  Maine  440;  Chase  v.  Tuttle,  55  'Morrill  v.  Little  Falls,  etc.,  Co., 58 
Conn.  455;  Bargenl  v.  Webster,  LS  Minn.  371,21  L.  R.  A.  174;  Craig  v. 
Met.  497.  Wl,:,i  shall  constitue  a  Firs!  Presbyterian  Church,  88  Pa.  St. 
quorum  may  be  determined  by  a  by-  r_';  Columbia,  etc.,  Co.  v.  Meier,  89 
law.  A  by-law  providing  thai  two-  Mo.  58;  Ex  parte  Willcocks,  7  Cow. 
thirds  of  the  stock  shall  be  necessary  402;  Rex  v.  Varlo,  I  Cowp.  248, 
for  a  quorum  may  l>"  repealed  by  a  "Com.,  vol.  2,  p.  298.  See,  also,  i 
vote  of  "  majority  of  ihe  stock.  Rich-  Kyd  Corp.,  p.  401;  Ex  parte  Will- 
on  v.  Union  Cong.  Society,  58  cocks,  7  Cowp.  (N.  V.)  402;  Elliotl 
N.  II  Pub.  Corp.,  §  257. 

1  Field  v.  Field,  9  Wend.   N.Y.)894.  » Oomw.  v.  Wickersham,  66  Pa.  Bfc 

184. 


§  483  CORPORATE    MEETINGS    AND    ELECTIONS.  523 

though  a  minority  of  the  votes  present,  prevails.1  When  a 
meeting  is  duly  called  and  proper  notice  given,  it  is  not  in- 
validated by  the  fact  that  one  of  the  stockholders  is  non  compos 
mentis,  or  under  other  legal  disability.2  If  the  rule  were  other- 
wise "  the  legal  incapacity  of  a  stockholder,  such  as  coverture, 
infancy  or  insanity,  would  operate  as  an  effectual  obstacle  to 
a  valid  assembly  of  any  aggregate  corporation.  The  law  con- 
fers the  attribute  of  individuality  on  the  entire  body  consti- 
tuting a  corporation,  and  in  which  the  individuals  are 
merged.  When  duly  assembled,  the  corporation  itself  becomes 
the  individual  or  person  whose  acts  and  proceedings  the 
law  alone  can  regard.  If,  therefore,  it  is  legally  called  to- 
gether, the  law  presumes  that  the  individual  members  are 
competent  to  transact  the  business." 

The  phrase,  "  holding  at  least  one-third  of  the  shares  of 
stock,"  in  a  by-law  requiring  that  number  for  a  quorum,  re- 
fers to  the  stock  issued  and  not  to  the  stock  authorized,  at 
least  when  less  than  one-third  of  the  authorized  stock  has  been 
issued.3 

It  requires  at  least  two  to  constitute  a  ''meeting."  One 
individual  can  not  hold  a  meeting,  although  he  is  the  owner 
of  a  majority  of  the  stock.4  It  has  been  held,  however,  that 
where  one  person  owns  the  entire  stock,  he  may  bind  the  cor- 
poration by  contract.5 

§  483.    Powers  of  the  majority  to  manage  the  corporation. — 

The  majority  of  a  corporation  means  that  portion  of  the  stock- 
holders present  at  a  general  meeting  who  are  entitled  to  con- 
trol the  corporation  by  their  votes.6     The  right  of  the  majority 

1  State  v.  Chute,  34  Minn.  135;  First  L.   J.  (Q.  B.)  104,    one   stockholder 
Parish  v.Stearns,  21  Pick.  (Mass.)  148.  held  a  meeting,  transacted  the  busi- 

2  Stebbins    v.    Merritt,     10     Cush.  ness,  voted  himself  a  vote  of  thanks 
(Mass.)  27.  and  adjourned.     See  Morrill  v.  Little 

3Castner  v.  Twitehell,  etc.,  Co.,  91  Falls,  etc.,  Co.,  53  Minn.  371. 

Maine  524,  distinguishing  Ellsworth,  5  Swift  v.  Smith,  65  Md.  428.     But 

etc.,  Co.  v.  Faunce,  79  Maine  440.  see  Button  v.  Hoffman,  61  Wis.  20. 

4  England  v.  Dearborn,  141    Mass.  6Morawetz    Priv.  Corp.,  §  476.     In 

590;  Hopkins  v.  Roseclare,  etc.,  Co.,  Chollar,  etc.,  Co.  v.  Wilson,  66  Cal. 

72  111.  373.     In  Sharpe  v.  Dawes,  46  374,  the    words   "majority  of  share- 


524  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  484 

to  control  is  implied  in  the  contract  of  membership,  and  they 
have  supreme  authority  within  the  scope  of  the  corporate 
powers  to  direct  the  policy  of  the  corporation.1  Every  person 
who  becomes  a  member  agrees,  by  necessary  implication,  "that 
he  will  be  bound  by  all  the  acts  and  proceedings  within  the 
scope  of  the  powers  conferred  by  the  charter,  which  shall  be 
adopted  or  sanctioned  by  vote  of  the  majority  of  the  corpora- 
tion, duly  taken  and  ascertained  according  to  law."1 

But  this  power  does  not  extend  to  changing  the  scope  and 
object  of  the  corporation,  or,  except  under  exceptional  circum- 
stances, to  dissolving  the  corporation  before  the  expiration  of  the 
time  fixed  in  the  charter.8  The  majority  of  the  stockholders  can 
not  exercise  powers  which  are  vested  in  the  board  of  directors 
by  the  charter.4  "The  holders  of  a  majority  of  the  stock  of  a 
corporation,"  says  Judge  Baxter,  "may  legally  control  the 
company's  business,  prosecute  its  general  policy,  make  them- 
selves its  agents,  and  take  reasonable  compensation  for  their 
services.  But  in  thus  assuming  the  control,  they  also  take 
upon  themselves  the  correlative  duty  of  diligence  and  good 
faith.  They  can  not  lawfully  manipulate  the  company's  busi- 
ness in  their  own  interests  to  the  injury  of  other  stockholders.5 

§  484.  Rights  of  the  minority. — While  the  majority  of  the 
stockholders  is  entitled  to  control  the  policy  and  general  busi- 
ness of  the  corporation,  this  power  must  not  be  used  for  the 
purpose  of  defrauding  the   minority.6     In  a  case  where   this 

holders,"  as  used  ina  Btatute,   wen-  *McCullough     v.    Moss,  5     Denio 

construed  to  mean  the  majority  of  all  (N.Y.)567.    The  judgment  of  the  di- 

as  holding  shares,  and  not  the  rectors  will  nol  be  controlled  by  the 

holders  of  a  majority  of  the  stuck.  courl  al  the  instance  of  a  majority  of 

1  See  §  132,  supra.  the  stockholders.     Wright   v.  Lee,  2 

i  Durfee  v.  Old  Colony,  etc.,  R.  Co.,  S.  Dak.  596. 

5  Allen    (Mass.)  230;    Alexander  v.  'Meeker  v.  [ron  Co.,  17  Fed.  Rep. 

Searcy,  81    Ga.  536;  Meeker  v.  Win-  18. 

throp,  etc.,  Co.,  17  Fed.  Rep.  18,  s.  c.  8See   §  431,   supra;  Bjorngaard   v. 

109U.8.  180;  [rvin  v.  Railway  Co.,     Good! etc.,    Bank,  49  Minn.  483; 

16;  ]  »udley  v.  Kentucky  <  [amble  v.  Queens,  etc.,(  V.  123  V  Y. 

High  School  9  Bush    Ky  1676.  91;  Commonwealth  v.  Cullen,  IS  Pa. 

lartoo   v.   Association,    ill    1ml.  St.  L33;  Chicago,  etc.,  Co.  v.  Ferkes 

226,  L6H   E.  Rep.  :  (III.  i,  :;u  V  E,  Rep.  667;  Fougerayv. 


§  484  CORPORATE    MEETINGS    AND    ELECTIONS.  525 

was  attempted  the  court  said:1  "  Plainly,  the  defendants  have 
assumed  to  exercise  a  power  belonging  to  the  majority,  in  or- 
der to  secure  personal  profit  to  themselves,  without  regard 
to  the  interests  of  the  minority.  They  repudiate  the  suggestion 
of  fraud,  and  plant  themselves  upon  their  right  as  a  majority  to 
control  the  corporate  interests  according  to  their  discretion. 
They  err  if  they  suppose  that  a  court  of  equity  will  tolerate  a 
discretion  which  does  not  consult  the  interests  of  the  minority. 
It  can  not  be  denied  that  minority  stockholders  are  bound 
hand  and  foot  to  the  majority  in  all  matters  of  legitimate  ad- 
ministration of  the  corporate  affairs;  and  the  courts  are  power- 
less to  redress  many  forms  of  oppression,  practiced  upon  the 
minority  under  a  guise  of  legal  sanction,  which  fall  short  of 
actual  fraud.  This  is  a  consequence  of  the  implied  contract  of 
association  by  which  it  is  agreed  in  advance  that  a  majority 
shall  bind  the  whole  body  as  to  all  transactions  within  the 
scope  of  the  corporate  powers.  But  it  is  also  the  essence  of  the 
contract  that  the  corporate  powers  shall  only  be  exercised  to 
accomplish  the  objects  for  which  they  were  called  into  exist- 
ence, and  that  the  majority  shall  not  control  these  powers  to 
pervert  or  destroy  the  original  purposes  of  the   corporation.' ' 

The  minority  is  entitled  to  be  heard,  and  the  majority  can 
not  arbitrarily  refuse  to  hear  arguments  against  the  proposi- 
tion before  the  meeting.8  But  a  court  of  equity  will  not  re- 
Cord  (N.  J.  Ch.),  24  Atl.  Rep.  499.  abuse  of  trust,  or  misappropriation 
See  Barr  v.  Pittsburg,  etc.,  Co.,  51  of  corporate  funds,  at  the  instance  of 
Fed.  Rep.  33.  a  single  shareholder,  to  grant  relief, 

1  Wallace,  J.,  in  Ervin  v.  Railway  and  compel  a  restitution ;  and  where 
Co.,  27  Fed.  Rep.  625.  See,  also,  the  holders  of  the  majority  of  stock 
Miner  v.  Belle  Isle,  etc.,  Co.,  93  Mich,  control  the  directorate,  and  are  them- 
97,  17  L.  R.  A.  412;  Livingstone  v.  selves  the  wrongdoers,  without  any 
Lynch,  4  John.  Ch.  573 ;  Hutton  v.  showing  that  the  directors  have  been 
Hotel  Co.,  2  Drew  &  Sm.  514;  Brewer  requested,  or  the  corporation  has  re- 
v.  Boston,  etc.,  Co.,  104  Mass.  378;  fused,  to  act.  Dodge  v.  Woolsey,  18 
Kean  v.  Johnson,  9  N.  J.  Eq.  401;  How.  331;  Pond  v.  Railway  Co.,  12 
Rollins  v.  Clay,  33  Maine  132;  Clear-  Blatchf.  280;  March  v.  Railway  Co., 
water  v.  Meredith,  1  Wall.  25 ;  Clinch  40  N.  H.  548 ;  Allen  v.  Curtis,  26  Conn, 
v.  Financial  Corp.,  L.  R.  4  Ch.  App.  456;  Hersey  v.  Veazie,  24  Maine  9. 
117.  There  is  no  doubt  of  the  power  2The  majority  can  not  exclude  mi- 
of  a  court  of  equity,  in  case  of  fraud,     nority  from  the  corporate  meeting  or 


526  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  485 

strain  the  contemplated  action  of  the  majority  unless  it  clearly 
appears  that  it  is  so  much  opposed  to  the  true  interests  of  the 
corporation  as  to  lead  to  the  clear  inference  that  no  one  so  acting 
could  be  influenced  by  an  honest  desire  to  advance  the  interests 
of  the  corporation.  An  attempt  by  the  majority  to  exercise  a 
power  not  possessed  by  it  may  result  in  releasing  minority 
stockholders  from  liability  on  their  stock  subscriptions.1 

§  4S5.  Power  of  majority  to  wind  up  the  business. — A  cor- 
poration can  not  dissolve  itself,  and  possibly  thus  defeat  the 
just  rights  of  its  creditors,  without  the  consent  of  the  state.2 
But  when  the  business  is  manifestly  a  failure,  by  the  weight 
of  authority  the  majority  of  the  stockholders  may  authorize 
the  sale  of  the  entire  property  of  the  corporation  and  wind  up 
the  business.8  "It  is  unquestionabty  true,"  says  Mr.  Justice 
Givens,*  "that  a  private  corporation  holds  its  property  as  a 
trust  fund  for  the  stockholders,  and  that,  when  a  majority 
of  the  stockholders  act  together,  they  are  in  a  sense  the 
corporation,  and  must  act  with  due  regard  to  the  rights  of 
the  minority.  If  the  majority  decide,  arbitrarily  and  with- 
out just  cause,  to  sell  the  property  of  the  corporation  to 
the  prejudice  of  the  minority,  and  thereby  compel  the  winding 
up  of  the  business  of  the  corporation,  it  is  a  fraud  upon  the 
minority,  and  courts  of  equity  will  interfere.  If,  however, 
just  cause  exists  for  selling  the  property,  as  when  the  corpora- 
tion is  insolvent,  and  the  sale  is  necessary  to  pay  debts,  or 
where,  from  any  cause,  the  business  is  a  failure  and  an  un- 
profitable one,  and  the  best  interests  of  all  require  it,  the  ma- 
jority have  clearly  the  power  to  order  the  sale,  and  in  such 
case  their  acts  are  not  ultra  vires.  Cook  says:8  'If,  however, 
th<-  corporation  is  an  unprofitable  and  failing  enterprise,  then 

deprive  them  of  the  right  to  be  heard,  (R.  I.  L899),  43  Ail.  R.  598,  reviewing 

by   delegating  the  general   power  of  <':isr-s.    See  article  in    in  Nat.  Corp. 

management  t"  :<  committee.    Great  Rep.  35. 

Weal    R.  •'■■.  v.  Rnshout,  ■">  !><■<;.  &  •Price  v.  Bolcomb    (Iowa),  56  N. 

Bm.  290.  W.    Rep.    n>7;    Sawyer    v.    Printing 

1  Gamble  v.  Water  <'<>.,  L28  N.  Y.'.H.  Co., 77  [owa  -2\-i.   Bee  Barton  v.  Asso- 

16,  Infra.  ciation,  1 1 1  [nd.  226. 

■Phillips  v.   Providence,  etc.,  Co.  » Cook  Corp.,  §§  666,  662,  667. 


§  486  CORPORATE    MEETINGS    AND    ELECTIONS.  527 

a  sale  of  all  the  corporate  property,  with  a  view  to  dissolution, 
may  be  made  by  the  majority  of  the  stockholders.'  It  would 
be  a  harsh  rule  that  would  permit  one  stockholder  to  hold  the 
others  to  their  investment  when  just  cause  existed  for  closing 
the  business  of  the  corporation."1  The  rule  applicable  in 
cases  of  a  co-partnership  has  been  held  to  apply  to  such  a  case. 
"If  it  were  shown  to  the  court,"  says  Lord  Cairns,  "that  the 
whole  substratum  of  the  partnership — the  whole  of  the  busi- 
ness which  the  company  was  incorporated  to  carry  on — has 
become  impossible,  I  apprehend  the  court  might,  either  under 
the  act  of  parliament  or  on  general  principles,  order  the  com- 
pany to  be  wound  up.  But  what  I  am  prepared  to  hold  is 
this :  that  this  court,  and  the  winding-up  process  of  the  court, 
can  not  be  used  as  the  means  of  invoking  a  judicial  decision 
as  to  the  probable  success  or  non-success  of  a  company  as  a 
commercial  speculation. ' ' 2 

§  486.  Power  of  majority  to  accept  amendments. — There  is 
some  conflict  of  authority  on  the  question  of  the  right  of  the 
majority  to  accept  amendments  to  the  charter  which  materially 
change  the  character  of  the  corporate  enterprise.  We  have 
already  seen  that  the  state  can  not  impose  an  amendment  of  this 
kind  on  the  corporation  without  its  consent  unless  it  has  ex- 
pressly reserved  the  power  to  do  so,3  and  the  question  is  whether 
the  giving  of  this  consent  is  fairly  within  the  power  conferred 
upon  the  majority  by  the  nature  of  the  contract  of  membership. 
The  rule  of  the  common  law  is  that  when  a  number  of  persons 
associate  themselves  as  partners  for  a  business,  and  time  speci- 
fied by  the  articles  of  agreement  between  them,  or  become  mem- 
bers of  a  corporation  for  definite  purposes  and  objects  specified 
in  their  charter,  the  objects  and  business  of  the  corporation  can 
not  be  changed  or  abandoned  within  the  specified  time,  with- 
out the  consent  of  all  the  partners  or  corporators.  One  part- 
ner or  corporator,  however  small  his  interest,  can  prevent  it. 
This  general  rule  is  admitted,  although  by  law  a  majority  in 
either  case  can  control   or  manage  the   business,  against  the 

1  Lauman  v.  Railroad  Co.,  30  Pa.  St.     R.  2  Ch.  App.  737 ;  Miner  v.  Belle  Isle, 
42.  etc.,  Co.,  93  Mich.  97. 

2  See  In  re  Suburban,  etc.,  Co.,  L.        3  Section  103,  supra. 


528 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  486 


will  and  interest  of  the  minority,  so  long  as  they  act  honestly, 
and  within  the  scope  of  the  partnership  or  corporate  business. 
The  principle  seems  to  be  unquestioned,  although  there  is 
some  conflict  among  the  decisions  which  consider  the  effect  of 
such  material  changes  and  departures  under  direct  authority 
of  the  legislature.  "This  rule  is  founded  on  principle,  the 
great  principle  of  protecting  every  man  and  his  property  by 
contracts  entered  into,  a  guiding  principle  in  all  right  legisla- 
tion, and  incorporated  into  the  constitution  of  the  United 
States  and  almost  every  state  of  the  Union,  and  the  rule  is  not 
changed  because  the  new  business  or  enterprise  proposed  is  al- 
lowed by  law,  or  has  been  made  lawful  since  the  association 
was  formed."1  Many  decisions  are  to  the  effect  that  an  amend- 
ment which  effects  a  radical  change  in  the  corporate  enterprise 
will  release  a  stockholder  from  liability  on  his  contract  of  sub- 


1  Chancellor  Zabriskie  in  Zabriskie 
v.  Railway  Co.,  18  N.  J.  Eq.  178.  See, 
also,  Meadow  Dam  Co.  v.  Gray,  30 
Maine  547;  Old  Town,  etc.,  R.  Co.  v. 
Veazie,  39  Maine  571.  The  leading  case 
of  Natusch  v.  Irving  was  decided  by 
Lord  Eldon  in  1824.  It  is  not  con- 
tained in  tin-  regular  reports, but  may 
be  found  in  tin-  appendix  to  (low- 
on  Partnership,  3d  ed.  576,  and  in 
Lindley  on  Partnership,  p.  511.  There 
a  partnership  was  formed  for  life  in- 
surance, and  after  it  was  entered  into 
an  act  of  parliament  made  it  lawful 
for  such  a  linn  to  enter  upon  the  busi- 
ness of  marine  insurance,  which  was 
prohibited  to  them  before.  A  majori- 
ty of  the  partners  determined  to  em- 
bars  in  the  bu  linese  of  marine  insur- 
ance thus  made  lawful.  Lord  Eldon 
held  them  barred  by  the  contract  of 
co-partnership,  unless  every  partner 
agreed  to  alter  it.  In  England  this 
docti  ine  i ;  rigidly  applied  t<>  corpo- 
rations and  is  recognized  in  all  the 
\  ml  although  from  the  om- 
ni potent  power  of  parliament  re- 
strained bv  do  written  con  ititution, 


it  is  held  that  the  contract  can  be 
changed  by  act  of  parliament,  yet  the 
court  of  chancery  will  enjoin  the  di- 
rectors or  the  corporation,  on  the  appli- 
cation of  a  single  stockholder,  from  us- 
ing the  common  fund  to  apply  to  par- 
liament for  a  change.  The  doctrine  of 
Natusch  v.  Irving  was  adopted  in  New 
York  by  Chancellor  Kent  in  the  case 
of  Livingston  v.  Lynch,  4  Johns.  Ch. 
573,  and  in  New  Jersey  in  Kean  v. 
Johnson,  9  N.J.  Eq.  401.  The  opinion 
of  Chancellor  Bennett  in  Stevens  v. 
Rutland,  etc.,  R.  Co.,  29  Vt.  548,  con- 
tains a  very  able  exposition  and  ap- 
plication of  the  rule.  See,  also,  Angel 
and  Anus  on  Corp.,  §§  391,  393,  and 
§§  536,  539;  Lindley  on  Partnership, 
615;  Pierce  on  Railroads,  78.  Hart- 
ford, etc.,  R.  Co.  v.  Croswell,  6  Hill 
(N.  Y.)  883;  Troy,  etc.,  R,  Co.  v. 
Ken-,  17  Barb. (N.  Y.i  581 ;  Macedon, 
etc.,  Co.  v.  Lapham,  L8  Barb.  ( \  Y.) 
312;  Buffalo,  etc.,  R.  Co.  v.  Pottle,  23 
Barb.  (N,  Y.)  21 ;  Banel  v.  Alton, 
etc.,  R.  Co.,  18  ill.  504;  Graham  v. 
Birkenhead,  etc.,  R.  Co.,  2  McN.  & 


§  487  CORPORATE    MEETINGS    AND    ELECTIONS.  529 

scription.1  In  some  cases  it  is  held  that  the  reserved  power 
to  alter  and  amend  a  charter  will  authorize  the  majority  of  a 
corporation  to  extend  its  enterprises  without  the  consent  of  the 
minority  of  the  stockholders.  The  rule  was  first  adopted  to  ena- 
ble corporations  to  subscribe  for  the  stock  and  bonds  of  cor- 
porations engaged  in  other  enterprises  that  brought  business 
to  them,  and  was  then  extended  to  cases  where  railroads  were 
authorized  to  build  extensions  and  branch  lines.  This  rule  was 
adopted  in  New  York,8  but  it  was  said  in  New  Jersey,8  "That  if 
the  change  in  the  act  is  simply  offering  the  corporation  the  privi- 
lege of  entering  on  another  and  a  different  enterprise,  it  is  not 
within  the  condition  to  the  subscription.  The  only  construc- 
tion to  be  given  is  that  the  legislature  may  alter,  not  that  the 
stockholders  may  as  between  each  other.  The  case  of  Natusch 
v.  Irving  was  decided  upon  this  very  ground.  The  act  of  par- 
liament had  given  the  company  power  to  embark  in  marine 
insurance,  but  the  consent  of  all  the  parties  was  still  held 
necessary.  The  plain  object  of  the  reservation  in  this  case 
was  to  give  the  legislature,  not  a  bare  majority  of  the  stock- 
holders, power.  This  view  of  the  case  is  so  clear  upon  princi- 
ple that  I  feel  constrained  to  be  guided  by  it,  although  the 
weight  of  decisions  in  other  states  is  against  it." 

§  487.  Power  to  accept  amendments,  continued. —  In  a  few 
cases  it  is  held  that  the  majority  may  accept  an  amendment 
offered  by  the  legislature,  which  authorizes  the  corporation  to 
enter  upon  a  new  and  different  enterprise.  The  leading  case  was 
an  application  for  an  injunction  by  a  minority  shareholder  to 
restrain  the  corporation  from  constructing  an  extension  to  its 
line  of  railroad.     Chief  Justice  Bigelow   said: 4     "The  case  for 

1  Ashton  v.  Burbank,  2  Dill.  (C.  C.)  Plank  Road  Co.  v.  Thatcher,  1  Kern 

435;  Union   Locks,   etc.,   v.   Towne,  (N.  Y.)  102;  Buffalo,  etc.,  R.  Co.,  v. 

1   N.  H.  44;   Manheim,   etc.,  Co.  v.  Dudley,  4  Kern  (N.  Y.)  336. 

Arndt,  31  Pa.  St.  317;  Southern,  etc.,  "Zabriskie  v.  Railroad  Co.,  18  N.  J. 

R.   Co.  v.   Stevens,   87  Pa.   St.   190;  Eq.  178. 

Hartford,  etc.,  R.  Co.  v.   Croswell,  5  4  Durfee  v.  Old  Colony,  etc.,  R.  Co.,  5 

Hill  (N.  Y.)  383.  Allen  (Mass.)  230.  See  also  White  v. 

2 North,  etc..  R.   Co.  v.  Miller,  10  Railroad   Co.,    14  Barb.   N.   Y.   559; 

Barb.  (N.Y.)  260;  White  v.  Syracuse,  Buffalo,   etc.,   R.   Co.   v.  Dudley,  14 

etc.,  R.  Co.,  14  Barb.   (N.  Y.)  559;  N.Y  336,  §432. 
34 — Private  Corp. 


530  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  487 

the  plaintiff  mainly  rests  on  the  single  proposition  of  law 
that  a  corporation  established  by  the  legislature  of  this  com- 
monwealth by  acts  which  *  are  subject  to 
alteration,  amendment  or  repeal  at  the  pleasure  of  the 
legislature,  can  not  engage  in  any  new  enterprise  or 
enter  upon  any  new  undertaking  in  addition  to  that  contem- 
plated by  and  embraced  in  the  original  charter  of  the  company 
against  the  consent  of  any  one  of  its  stockholders,  although 
such  new  enterprise  or  undertaking  is  of  the  same  kind  with 
that  for  which  the  corporation  was  originally  established,  and 
is  authorized,  sanctioned  and  adopted  by  an  express  legislative 
grant  and  by  a  vote  of  the  majority  of  the  stockholders  duly 
ascertained  according  to  law.  *  *  *  We  suppose  it  may 
be  stated  as  an  indisputable  proposition  that  every  person  who 
becomes  a  member  of  a  corporation  aggregated  by  purchasing 
and  holding  shares,  agrees,  by  necessary  implication,  that  he 
will  be  bound  by  all  acts  and  proceedings  within  the  scope  of 
the  powers  and  authority  conferred  by  the  charter,  which 
shall  be  adopted  or  sanctioned  by  a  vote  of  the  majority  of  the  cor- 
poration duly  taken  and  ascertained  according  to  law.  This  is 
the  unavoidable  result  of  the  fundamental  principle  that  the  ma- 
jority of  the  stockholders  can  regulate  and  control  the  lawful 
exercise  of  the  powers  conferred  on  a  corporation  by  its  charter. 
Tin'  holder  of  shares  in  an  incorporated  body,  so  far  as  his  in- 
dividual rights  and  interests  may  be  involved  in  the  doings  of 
the  corporation,  acting  within  the  legitimate  sphere  of  its  cor- 
porate power,  has  no  other  legal  control  over  them  than  that 
which  he  can  exercise  by  his  single  vote  in  tin;  meetings  of 
the  company.  *  *  *  When,  therefore,  it  is  expressly  pro- 
vided, between  the  legislature  on  the  one  hand  and  the  corpora 
tion  on  the  other,  as  part  of  tin'  original  contract  of  incorpo- 
ration, thai  the  former  may  alter  or  change  or  abrogate  it  or 
any  portion  of  it,  it  can  not  be  >;m<1  thai  any  contracl  is  broken 
or  infringed  when  the  power  thus  reserved  is  exercised,  with 
II,,.  consenl  of  the  artificial  body  of  whose  original  creation 
and  existence  such  reservation  formed  an  essentia]  part. 
h'  i!  !„•  asked  by  whom    uch  amendment  or  alteration  is  bo  he 


§  488       CORPORATE  MEETINGS  AND  ELECTIONS.         $31 

made,  the  answer  is  obvious,  by  the  parties  to  the  contract, 
the  legislature  on  the  one  hand  and  the  corporation  on  the 
other ;  the  former  expressing  its  intention  by  means  of  a  legis- 
lative act,  and  the  latter  assenting  thereto  by  a  vote  of  the  ma- 
jority of  the  stockholders,  according  to  the  provisions  of  its 
charter. 

§  488.    Immaterial     amendments    and     alterations.  —  An 

amendment  which  does  not  materially  change  the  charter  or 
affect  the  scope  of  the  corporate  enterprise,  and  thus  the  con- 
tract of  membership,  may  be  accepted  by  the  majority  acting 
under  legislative  authority.  Under  this  rule  the  difficulty  is 
in  determining  what  are  material  and  fundamental  altera- 
tions, and  no  general  rule  can  be  laid  down.1  Thus,  where 
an  amendment  changed  the  name,  increased  the  capital  and 
extended  the  road  of  a  plank  road  and  railroad  corporation,  the 
court  said:  "The  change  is  not  fundamental.  The  new 
powers  conferred  are  identical  in  kind  with  those  originally 
given.  They  are  enlarged  merely,  the  general  objects  and 
purposes  remaining  the  same.  It  may  be  admitted  that  under 
this  reserved  power  to  alter  and  repeal,  the  legislature  would 
have  no  right  to  change  the  fundamental  character  of  the  cor- 
poration and  convert  it  into  a  different  legal  being,  for  in- 
stance, a  banking  corporation,  without  absolving  those  who 
did  not  choose  to  be  bound."2 

The  majority  can  not  accept  an  amendment  which  author- 
izes an  insurance  company  organized  to  transact  a  "life  and 
accident  insurance  business,"  to  do  "fire,  marine  and  inland 
insurance."  Judge  Dillon  said:3  "The  change  in  the 
charter  by  which  a  life  and  accident  company  was  authorized 
to   transact   fire,  marine  and   inland  insurance,  is  an  organic 

*See  cases  cited   by  Justice  Strong    v.    Alton,   etc.,   R.    Co.,   13   111.  504 
in  Nugent  v.  Supervisors,  19  Wall.  (U.     Pacific  R.  Co.  v.  Renshaw,  18  Mo.  210 
S.)  241 ;  Witter  v.  Miss.,  etc.,  R.  Co.,     Pacific  R.  Co.  v.  Hughes,  22  Mo.  291 
20  Ark.  463,  493;  Taggart  v.  Railroad     Howard  v.  Glenn,  85  Ga.  238. 
Co.,  24  Md.   563;   Union,  etc.,  Assn.        2 Buffalo,  etc.,  Co.  v.  Dudley,  14  N. 
v.  Neill,  31  Iowa  95;  Union,  etc.,  Co.     Y.    336;     Schenectady,   etc.,    Co.    v. 
v.  Hersee,  79  N.  Y.  454;  Rutland,  etc.,     Thatcher,  11  N.  Y.  102. 
R.  Co.  v.  Thrall,  35  Vt.  536;  Everhart        3Ashton  v.  Burbank,  2  Dill.  C.  CL 
v.  Railway  Co.,  28  Pa.  St.  339;  Banet,     435. 


532  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  489 

change  of  such  a  radical  character  as  to  discharge  previous 
subscribers  to  the  stock  of  the  company  from  any  obligation 
to  pay  their  subscription,  unless  the  change  is  expressly  or 
impliedly  assented  to  by  them.  Here  there  was  no  such 
assent,  and  no  acquiescence  in  the  structural  change  made 
in  the  charter  of  the  company.  The  company  could  not, 
against  such  a  subscriber,  maintain  a  suit  to  collect  his  sub- 
scription, and  take  the  money  and  use  it  as  capital  for  the 
transaction  of  business  under  the  charter  as  altered.  We 
think  in  such  a  case  the  subscriber  is  not  bound  to  enjoin  action 
under  the  amended  charter,  but  may,  if  he  elects,  defend 
against  an  action  to  recover  on  his  subscription  to  the  stock. 
If  the  company  accepted  the  amended  charter,  as  it  did  by 
adopting  the  new  name,  it  is  not  essential  to  such  a  defense  to 
show  that,  at  the  time  of  the  trial,  the  corporation  had  actually 
exercised  the  enlarged  powers  conferred  upon  it.  The  de- 
fendants are  not  bound  on  their  subscription  to  pay  to  the 
company  money  which,  if  paid,  may  be  used  as  capital  to 
carry  on  the  business  authorized  by  the  amended  charter." 

A  subscriber  is  not  released  by  the  acceptance  of  an  amend- 
ment to  the^charter  of  a  railroad  corporation  authorizing  it  to 
build  a  branch  road1  or  slightly  altering  the  route.2  But  a 
substantial  change  of  the  route  will  discharge  the  subscriber.8 

§  489.  Material  beneficial  amendments. — One  line  of  author- 
ities holds  that  the  majority  may,  against  the  wishes  of  the 
minority,  accept  an  amendment  which,  although  it  materially 
alters  the  charter,  is  manifestly  beneficial  to  the  corpora- 
tion, and  along  the  line  of  the  general  objects  for  which  it  was 
originally  created.  The  reasons  upon  which  this  rule  rests 
are  thus  stated  by  tin'  supreme  court  of  Illinois.4     "An  alter- 

1  Peoria,  etc.,  R.  Co.  v.  Preston,  35  504.    See,  also,  Illinois,  etc.,  R. Co.  v. 

[0Wa  L15.  Zimmer,20  [11.654;  Pacific  I!.  Co.  v. 

•Wilson  v.  Valley,  etc.,  R.  Co.,  33  Renshaw,  18  Mo.  210;  Hartford,  etc., 

Ga.  166.  R.  Co.  v.  Croswell,  •",   urn   ,\.  v., 

etc.,  Corp.  \.  Locke,  8  883;  Gray  v.  Navigation  (V,  :.'  Walls. 

268;    Buffalo,  etc.,    R.   <'".   v.  ,v  s.  (Pa.)   156.    Sec  comment  upon 

Pottle,  28  Barb.  (N.  Y.)  21 ;  Moore  v.  this  ens.-  in  Hartford  R.  Co.  v.  Cros- 

Hanover,  etc.,  R.  Co.,  M  Pa.  St.  824.  well,  5  Hill  (N.  Y.)  383. 

«  Banel  v.  Alton,  etc.,  R.  Co.,  18  ill. 


§  490  CORPORATE    MEETINGS    AND    ELECTIONS.  533 

ation  in  a  charter  may  be  so  extensive  as  to  work  a  dissolution 
of  the  contract  of  subscription.  An  amendment  which  essen- 
tially changes  the  nature  or  objects  of  a  corporation  will  not 
be  binding  on  the  stockholders.  A  corporation  formed  for 
the  purpose  of  constructing  a  railroad  can  not  be  converted 
into  a  company  to  construct  an  improvement  of  a  different 
character  without  the  consent  of  all  the  corporators.  A  road 
intended  to  secure  the  advantages  of  a  particular  line  of  travel 
and  transportation  can  not  be  so  changed  as  to  defeat  that  gen- 
eral object.  The  corporation  must  remain  substantially  the 
same,  and  be  designed  to  accomplish  the  same  general  pur- 
poses and  subserve  the  same  general  interests.  But  such 
amendments  of  the  charter  as  may  be  considered  useful  to 
the  public  and  beneficial  to  the  corporation,  and  which  will 
not  divert  its  property  to  new  and  different  purposes,  may 
be  made  without  absolving  the  subscribers  from  their  en- 
gagement. The  straightening  the  line  of  the  road,  the  loca- 
tion of  a  bridge  at  a  different  place  on  a  stream,  or  a  devia- 
tion in  the  route  from  an  intermediate  point,  will  not  have 
the  effect  to  destroy  or  impair  the  contract  between  the  corpora- 
tion and  the  subscribers.  We  regard  these  conclusions  as  rea- 
sonable and  just,  and  as  well  calculated  to  facilitate  the  construc- 
tion of  improvements  and  promote  the  best  interests  of  the 
public  and  the  stockholders.  The  incidental  benefit  which  a 
few  subscribers  may  realize  from  a  particular  location  ought 
not  to  interfere  with  the  general  interest  of  the  public  and  the 
great  mass  of  the  corporators.  These  interests  of  the  public 
and  the  majority  of  the  subscribers  may  with  propriety  be  con- 
sulted and  encouraged,  especially  where  the  alteration  will  not 
operate  to  depreciate  the  value  of  stock." 

§  490.  Elections — Presumption  of  regularity. — The  manner 
of  electing  the  officers  and  directors  of  a  corporation  is  ordina- 
rily regulated  by  the  charter  or  by-laws  or  by  custom.  In  the 
absence  of  any  specific  provision,  all  that  is  essential  to  a  valid 
election  is  that  the  will  of  the  members  be  fairly  expressed.1 

lIn  re  Chenango  Co.,  etc.,  Co.,  19    etc.,  19  Wend.  (N.  Y.)  135. 
Wend.   (N.  Y.>  635-    Tn  re  Election, 


584:  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  491 

Every  presumption  is  in  favor  of  the  validity  of  the  proceed- 
ings.1 Thus  it  will  be  presumed  that  a  quorum  was  present 
until  the  contrary  appears.2  So,  where  the  by-laws  provide 
that  the  stockholders'  meeting  shall  be  held  at  the  counting- 
room  of  the  corporation,  and  it  appeared  that  it  was  held  at 
the  dwelling-house  of  the  manager,  it  was  presumed  that  the 
counting-room  was  in  the  dwelling-house.3 

§  491.  Inspectors  of  elections. — The  right  to  appoint  in- 
spectors or  judges  of  election  is  vested  in  the  shareholders, 
ami  not  in  the  board  of  directors.1  Such  power,  however,  may 
be  delegated  to  the  directors  by  a  by-law.  The  legal  owner  of 
stock  is  entitled  to  vote  upon  it,  and  the  inspectors  have  no 
power  to  inquire  into  the  question  of  the  equitable  ownership,5 
or  to  assume  a  judicial  power  to  try  the  genuineness  of  a  proxy 
if  it  is  in  regular  form.6  The  duties  are  ministerial,  and  not 
judicial.7  The  fact  that  the  inspectors  are  not  sworn,  or  are 
sworn  in  an  improper  manner,  will  not  invalidate  an  election, 
if  no  objection  is  interposed  at  the  time.8 

§  492.  Illegal  votes. — An  election  is  not  necessarily  ren- 
dered void  by  the  reception  of  illegal  votes.  Where  a  candi- 
date at  a  corporate  election  receives  a  majority  of  the  legal 
votes  cast,  the  receipt  of  illegal  votes  in  his  favor  does  not 
defeat  his  election.9  Votes  for  ineligible  candidates  are  gener- 
ally disregarded  or  "thrown  away."  "Votes  cast  for  a  candi- 
date who  is  disqualified  for  the  office  will  not  be  thrown  away  so 
as  to  make  the  election  fall  on  a  candidate  having  a  minority  of 
votes,  unless  the  electors  casting  such  votes  had  knowledge  of 
1 1  j « ■  facts  on   which   I  lie  disqualification  of   the  candidate  for 

'Hathaway  v.   Addison,  48  Maine  7<  lomw.  v.  Woelper,  S  Berg.  &  R.29. 

140,  H  iii  re  Election  of  Directors,  etc.,  19 

■Citizens',  etc.,  Co.  v.  Sortwell,  8  Wend.  (N.Y.)  135. 

Allen  (Mass.)  217.  BIn  re  Argus  Co.,  L88  N.Y.  657;  First 

■McDaniels  v.  Manufacturing  Co.,  Parish   v.  Stearns,  21    rick.   (Mass.) 

22Vt.274.  L48;    En    re   Chenango,  etc.,   Co.,  19 

•State  v    Merchant,87  Ohio  St.  251.  Wend.  (N.  V.)  635;  Ex  parte  Murray, 

e  Morawetz  Priv.  Corp.  I,  i  484.  7  Oowen  (N.  Y.)  L53. 

■  Matter  of  Cecil,  36  How.  Pr.  (N. 
Y.     177. 


§  493       CORPORATE  MEETINGS  AXD  ELECTIONS.         535 

whom  they  voted  rested,  and  also  knew  that  the  latter  was  for 
that  reason  disqualified  from  holding  office."1  It  has  been  held 
that  votes  improperly  cast  should  be  disregarded  by  the  court.* 
The  objection  that  illegal  votes  were  cast  at  an  election  must 
be  made  at  the  time  they  are  offered.3  If  there  are  no  inspec- 
tors of  election,  the  meeting  itself  must  determine  who  are  en- 
titled to  vote,  as  the  presiding  officer  has  no  such  power.  A 
person  who  refrains  from  voting  because  the  presiding  officer 
rules  that  he  is  not  entitled  to  vote  can  not  afterwards  be  heard 
to  complain,  as  he  should  have  appealed  from  the  decision  to 
the  meeting.4  He  must  show  that  he  properly  presented  his 
claim  to  vote,  and  that  it  was  rejected  by  the  proper  authority. 

§  493.   Control  of  courts  over  corporate  elections. — If  the 

proper  officers  of  a  corporation  fail  or  refuse  to  call  a  meeting 
for  the  election  of  officers  or  directors  at  a  proper  time,  they 
may  be  compelled  to  do  so  at  the  instance  of  a  stockholder.5 
A  court  of  law  is  the  proper  tribunal  to  try  the  validity  of  a 
corporate  election,  and  it  is  generally  held  that  a  court  of 
equity  has  no  jurisdiction,  unless  it  is  specially  conferred  upon 
it  by  statute,6  or  the  question  arises  in  the  determination  of  a 
suit  which  is  properly  cognizable  by  a  court  of  equity.7  An 
injunction  will  issue  on  the  application  of  the  real  owner  of 
the  stock  to  restrain  the  voting  of  stock  under  a  pooling  ar- 
rangement which  is  against  public  policy.8  So  it  has  been 
held  that  by  an  injunction  a  stockholder  may  obtain  the  can- 
cellation  of  illegal   shares,  and  restrain  the  holders  from  vot- 

2In  re  St.  Lawrence,  etc.,  Co.,  44  N.  etc.,  Co.,  32  N.  J.  Eq.  236;  Kean  v. 

J.  Law  529.   See  Horton  v.  Wilder,  48  Union,  etc.,  Co.,  52  N.    J.  Eq.  813; 

Kan.  222;  Thompson  Corp.,  §  752.  Neall  v.  Hill,  16  Cal.  145.     A  method 

2  Baker's  App.,  109  Pa.  St.  461.  for  reviewing  corporate  elections  is 

3  In  re  Chenango,  etc.,  Co.,  19  Wend,  often  provided  by  statute.      See  Re 
(N.  Y.)  635.  Newcomb,  42  N.  Y.  St.  442;  Wicker- 

4  State  v.  Chute,  34  Minn.  135.     See  sham  v.  Brittan,  93  Cal.  34,  15  L.  R. 
19   Wend.   37;    1   Denio  388,   396;    1  A.  106. 

Wend.  98.  7  As  to  the  limitations,  see  New  Eng- 

5  People  v.  Cummings,  72  N.  Y.  433 ;  land,  etc.,  Co.v.  Phillips, 141  Mass.  535. 
State  v.  Wright,  10  Nev.  167.  8  Harvey  v.  Linville,  etc.,  Co.,  118 

6  Mechanics,  etc.,  Bank  v.  Burnet,  N.  C.  693,  32  L.  R.  A.  265. 


536 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


493 


ing  such  shares.1  So  a  stockholder  may  restrain  the  voting  of 
stock  in  a  manner  contrary  to  the  charter  of  the  corporation.' 
The  prevailing  view  seems  to  be  that  a  court  of  equity  has  no 
superintendence  over  corporate  elections,  although  it  is  said  to 
possess  an  imperfect  jurisdiction,  and  the  tendency  is  to  ex- 
tend this  and  to  hold  that  when  necessary  in  order  to  secure  a 
fair  and  honest  election,  it  may  appoint  a  master  to  conduct 
the  same.3  A  proceeding  to  set  aside  an  election  of  officers, 
because  not  made  in  conformity  to  the  law,  may  be  brought  by 
one  who  has  not  been  a  stockholder  long  enough  to  entitle  him 
to  vote  under  the  rules  of  the  corporation.' 


1T\Tood  v.  Church,  etc.,  Assn.,  63 
Wis.  9. 

*  Webb  v.  Ridgely,  38  Md.  364. 
•Tunis  v.  Railway  Co.,  149  Pa.  St. 

70;  Wright  v.  Central,  etc.,  R.  Co.,  67 
Cal.  532.  See  Thompson's  Corps., 
§§  3877,  3878,  and  cases  there  cited. 

•  Wright  v.  Central,  etc.,  R.  Co.,  67 
Cal.  532.    The  ordinary  method  by 


which  to  try  the  title  to  an  office  is  an 
information  in  the  nature  of  a  quo 
icarranto.  See  Elliott  Pub.  Corp. 
§  349 ;  State  v.  Sullivan,  45  Minn.  309, 
11  L.  R.  A.  272;  State  v.  Bulkeley, 
61  Conn.  287, 14  L.  R.  A.  657;  People 
v.  Londoner,  13  Colo.  303,  6  L.  R.  A. 
444. 


CHAPTER  18. 


OFFICERS  AND  AGENTS  AND  THE  MANAGEMENT  OF  CORPO* 

RATIONS. 


494.  General  statement.  §  514. 

495.  Presumption  of  authority. 

496.  The  general  management — Di-  515. 

rectors — Directors'  meetings.  516. 

497.  Place  of  directors'  meeting. 

498.  Qualifications  of  directors.  517. 

499.  Powers  of  directors.  518. 

500.  Stockholders'  control  over  di-  519. 

rectors.  520. 

501.  Delegation  of   authority — Ex- 

ecutive committee.  521. 

502.  Relation  of  officers  and  direc-  522. 

tors  to  the  corporation.  523. 

503.  Contracts  between  a  corpora- 

tion and  its  officers. 

504.  When  an  officer  may  deal  with  524. 

his  corporation. 

605.  Right  of  corporation  to  repudi-  525. 

ate  such  contract. 

606.  Contracts  between  corporations  526. 

having    common  officers  or  527. 
directors. 

507.  The  prevailing  rule.  528. 

508.  Liability  of  a  corporation    for  529. 

torts  of  its  agents.  530. 

509.  Ratification.  531. 

510.  Liability  for  torts  in  ultra  vires  532. 

transactions.  533. 

511.  Liability  of  officers  for  acts  in  534. 

excess  of  authority.  535. 

512.  Liability  for  abuse  of  trust.  536. 

513.  Degree  of  care  required  of  di-  537. 

rectors. 


Liability  of  officer  is  for  indi< 
vidual  acts  or  omissions. 

Supervision  of  sub-agents. 

Knowledge  of  contents  of  cor- 
porate records. 

Liahility  for  care  of  papers. 

Liability  for  mistakes. 

Liability  on  contracts. 

Liability  to  third  persons  for 
torts. 

Violation  of  charter  or  statute. 

Liability  imposed  by  statute. 

Liability  of  directors  where 
corporation  maintains  a  nui- 
sance. 

Liability  imposed  for  benefit  of 
third  persons. 

Remedy  of  the  corporation 
against  an  officer. 

Statute  of  limitations. 

No  liability  to  corporate  credi- 
tors. 

Powers  of  particular  officers. 

The  president. 

The  vice-president. 

The  secretary. 

The  treasurer. 

De  facto  officers. 

Notice  to  officers  and  agents. 

Compensation. 

Removal  from  office. 

Creditors  can  not  control  man- 
agement. 


§  494.    General  statement, — A  corporation  must  necessarily 
act  through  agents,  and  the  relation  between  directors  and 

(537) 


538  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  495 

other  officers  and  the  corporation  is  that  of  principal  and 
agent.  Such  officers  in  their  dealings  with  the  corporation 
are  governed  by  the  general  principles  of  the  law  of  agency.1 
The  charter  commonly  provides  that  the  management  of  the 
corporation  shall  be  by  certain  specified  agents,  but  this  is  im- 
plied in  the  absence  of  such  provision.2  No  formalities  are 
required  in  the  appointment  of  agents  unless  provided  for  by 
charter,3  and  a  corporation  may  be  bound  by  acquiescence  in 
the  acts  of  a  person  who  assumes  the  authority  of  an  agent, 
but  who  in  fact  was  never  authorized  to  act  for  the  corporation.4 

§  495.  Presumption  of  authority. — In  a  recent  case5  the 
following  language  of  Judge  Thompson  was  quoted  with  ap- 
proval: "  A  very  extensive  principle  in  the  law  of  corpora- 
tions, applicable  to  every  kind  of  written  contract  executed 
ostensibly  by  the  corporation,  and  to  every  kind  of  act  done 
by  its  officers  in  its  behalf,  is  that  where  the  officer  or  agent  is 
the  appropriate  officer  or  agent  to  execute  a  contract,  or  to 
do  an  act  of  a  particular  kind  in  behalf  of  the  corporation, 
the  law  presumes  a  precedent  authorization  regularly  and  right- 
fully made;  and  it  is  not  necessary  to  produce  evidence  of 
such  authority  from  the  records  of  the  corporation.  Under 
the  operation  of  this  principle  a  deed  or  mortgage  purporting 
to  have  been  executed  by  a  corporation,  which  is  signed  and 
executed  in  its  behalf  by  its  president  and  secretary,  will  be 
presumed  to  have  been  executed  by  its  authority."6  This  rule 
is  of  general  application.7 

'Wayne,    etc.,  Co.    v.    Bammona  B  Ellison  v.  Brandstrater  (Intl.),  54 

(Md.),  27   V    E.    Rep.   187;    Port  v.  N.  E.  Rep.  433. 

Russell,  36  [nd,  80.  8Thompson  Corps.,  §§  5029,  5730. 

Protection,  etc.,  Co.  v.   Foote,  79  'National  Bank  v.  Vigo  Nat.  Bank, 

[11.361;  Hurlbut  v.  Marshall,  62  Wis.  ill    [nd.  352;    National,  etc.,  Co.  v. 

Rockland  Co.,  94  Fed.  Rep.  335;  Gor- 

'  Bank    v.    Dandridge,    L2    Wheat,  der  v.  Plattsmouth,  etc.,  Co.,  36  Neb. 

rmanv.  Fitch,  98  Mass.  548;  Merchants,  etc.,  Bank  v.  Citizens, 

Roberts  v.  Doming,  etc.,  Co.,  Ill  etc.,  Co.,  159  Mass.  505;  New  England, 

■   ir.  132.  etc.,  Co.  v.   Farmington,  etc.,  Co.,  84 

'Goodwin  v.   Union,  etc.,  Co.,  84  M<    284;  Bteel  Works  v.   Bresnahan, 

N.  ii  80  Mich.  832;  City  of  Lincoln  v.  Sun, 


§  496 


OFFICERS    AND    AGENTS. 


539 


§  496.  The  general  management — Directors — Directors' 
meetings, — The  general  management  of  the  corporation  is 
vested  in  the  board  of  directors  as  a  board,  and  not  in  the  in- 
dividual members  thereof,  and  they  have  no  authority  to  act 
save  when  assembled  at  a  board  meeting.  The  separate  action, 
individually,  of  the  persons  composing  such  governing  body 
is  not  the  action  of  the  constituted  body  clothed  with  corporate 
powers.1  But  a  director  may  be  appointed  by  the  board  to  act 
as  their  agent.2  Directors  continue  to  hold  office  until  their 
successors  are  elected  and  qualified.3  The  directors  have  no 
implied  power  to  fill  vacancies  in  their  number.4  The  govern- 
ing body  of  the  corporation  can  be  compelled  by  mandamus  to 
order  an  election  to  choose  a  board  of  directors.5  Notice  of  a 
directors'  meeting  must  be  given  in  the  same  manner  as  notice 
of  a  shareholders'   meeting.6     But  when  all  the  directors  are 


etc.,  Co.,  59  Fed.  Rep.  756,  8  C.  C.  A. 
253;  Malone  v.  Trans.  Co.,  77  Cal.  38 ; 
Devlin  on  Deeds,  §  343  and  note. 
An  act  done  by  the  president  of  a  cor- 
poration pertaining  to  its  business, 
not  clearly  foreign  to  his  power,  will 
be  presumed  to  have  been  authorized. 
Anderson  v.  South,  etc.,  Co.,  173  111. 
213. 

1  Baldwin  v.  Canfleld,  26  Minn.  43 ; 
Calumet,  etc.,  Co.  v.  Haskell,  etc., 
Co.,  144  Mo.  331,  66  Am.  St.  Rep.  425; 
Titus  &  Scudder  v.  Cairo,  etc.,  R.  Co., 

37  N.  J.  L.  98;  Buttrick  v.  Railroad 
Co.,  62  N.  H.  413;  Bank  v.  Christo- 
pher, 40  N.  J.  L.  435 ;  Hillyer  v.  Min. 
Co.,  6  Nev.  51 ;  Filon  v.  Brewing  Co., 

38  N.  Y.  St.  602.  But  see  Bank  v. 
Rutland,  etc.,  R.  Co.,  30  Vt.  159; 
Longmont,  etc.,  Co.  v.  Coffman,  11 
Colo.  551.  Resolutions  of  a  corpora- 
tion passed  at  an  irregular,  unlawful 
special  meeting  of  the  directors  are 
not  admissible  in  evidence  against 
the  corporation  in  support  of  notes 
which  they  attempt  to  authorize. 
Pauly  v.  Pauly,  107  Cal.  8,  48  Am.  St. 
Rep.  98. 


2  Northampton  Bank  v.  Pepoon,  11 
Mass.  288. 

3  As  to  what  amounts  to  a  resigna- 
tion of  a  director,  see  Chemical,  etc., 
Bank  v.  Colwell,  132  N.  Y.  250;  Berry 
v.  Cross,  3  Sandf.  Ch.  (N.  Y.)  1; 
Briggs  v.  Spaulding,  141  IT.  S.  132. 

4  Moses  v.  Tompkins,  84  Ala.  613. 

5  People  v.  Cummings,  72  N.  Y.  433. 

6  §  467  supra;  Thompson  v.  Will- 
iams, 76  Cal.  153,  9  Am.  St.  Rep.  187; 
Herrington  v.  Liston,  47  Iowa  11.  As 
to  necessity  of  notice  to  a  director  to 
attend  a  special  meeting,  see  note  to 
3  Am.  St.  Rep.  69-70.  American,  etc., 
Bank  v.  First  Nat'l  Bank,  82  Fed. 
Rep.  961,  48  U.  S.  App.  633.  It  has 
been  held,  under  a  charter  which  pro- 
vided that  a  specified  number  of  di- 
rectors should  constitute  a  quorum, 
that  if  a  quorum  is  present  it  is  im- 
material that  notice  of  the  meeting 
was  not  given  the  others.  Edgerly  v. 
Emerson,  23  N.  H.  555;  Bank  v.  Flour 
Co.,  41  Ohio  St.  552;  State  v.  Smith, 
48  Vt.  266;  Chase  v.  Tuttle,  55  Conn. 
455. 


540  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  497 

present  or  participate  in  a  meeting,  the  fact  that  no  notice 
was  given  is  immaterial.1  The  time  of  regular  meetings  may 
be  fixed  by  the  charter,  by-laws  or  by  usage.2  The  ordinary 
business  of  the  board  may  be  transacted  under  a  general  notice. 
When  no  particular  purpose  or  object  is  stated  in  the  notice,  it 
is  presumed  that  the  meeting  was  called  for  the  consideration 
of  all  matters  relating  to  the  ordinary  business  of  the  corpora- 
tion that  may  come  before  it.3  In  the  absence  of  evidence  to 
the  contrary  it  will  be  presumed  that  proper  notice  of  the 
meeting  was  given  to  all  directors.'1  A  majority  of  the  whole 
number  of  directors  is  necessary  to  constitute  a  quorum  in  the 
absence  of  an  express  provision  for  a  lesser  number.  A  ma- 
jority of  the  quorum  may  bind  the  corporation.5  But,  in  order 
that  a  quorum  may  act  for  the  corporation,  it  is  necessary  that 
all  the  directors  should  have  had  notice  of  the  meeting,  unless 
the  charter  expressly  provides  that  a  designated  number  of  di- 
rectors shall  constitute  a  quorum.6  A  majority  of  the  quorum 
must  be  disinterested  in  respect  to  matters  voted  upon.7 

§  497.  Place  of  directors'  meetings. — Stockholders'  meetings 
are  generally  required  to  be  held  in  the  state  where  the  corpo- 
ration was  created,  but  the  authorities  are  now  uniform  that 
an  agent  of  a  corporation  may  exercise  its  powers  out  of  the 
state  incorporating  it  providing  there  is  nothing  in  its  charter 
or  in  the  nature  of  its  affairs  contravening  it.  If  one  agent 
may  thus  act  there  would  seem  to  be  no  sensible  reason  why  a 
board  of  directors  may  not  do  so,  and   as   directors   are  only 

1  Minneapolis,  etc.,  Co.  v.  Nimocks,  the  adoption  of  a  resolution.    Smith 

63  M in ii. :>>S\ ;  Troy,  etc., Co. v.  White,  v.  Los  Angeles,  etc.,  Assn.,  78  Cal. 

10  8.  Dak.  475.  289,  L2  Am.  St.  Rep.  63. 

'Atlantic,  etc.,  Co.  v.  Sanders,  3(5       8Edgerlyv.  Emerson,  23  N. H. 555 ; 

N.  II.  '_v»l'  269.  Chase  v.  Tuttle,  56  Conn.  455.    The 

"In  re   A.rgus  Co.,  138  N.  Y.  557.  presumption  is  in  favor  o!  tin'  regu- 

Chase  v.  Tuttle,  66  Conn.  455,  3  larity  of  the  meeting.     Heintzelman 

im.  St.  Rep.  64.  v.  Association,  88 Minn.  188;  Dispatch 

» Chase  v.  Tattle,  65  Conn.  165.  v.  Bellamy,  etc.,  Co.,  L2  N.  II.  205; 

i  □  Eyci  v.  I '<hi tin r,  etc.,  R.Co.,74  Thompson  v.  Williams,  76  Cal.  L53,  9 

Mich.  226,  16  Am.  St.  Rep.  633;  Bar-  Am.  St.  Rep.  L87. 
gent v.Webster,  13 Mete. (Mass.) 497;       'Miner  v.    tee  Co.,  93   Mich.  97; 

Leavitl  v.  Mining  Co.,  8  Dtah  266.    A  Smith  v.  Association,  78  Cal.  289. 
majority  of  the  quorum  is  essenl  lal  to 


§408 


OFFICERS    AND    AGENTS. 


541 


agents  the  principle  is  broad  enough  to  include  them.1  The 
principal  office  of  a  corporation  is  the  place  where  its  stock- 
holders and  directors  usually  meet,  and  where  it  elects  its 
officers  and  transacts  its  financial  business.2 


§  498.  Qualifications  of  directors. — A  director  is  merely  an 
agent,  and  any  person  who  has  capacity  to  contract  may  be  a 
director  of  a  corporation.  No  special  qualifications  are  neces- 
sary unless  required  by  the  charter  or  by-laws.3  A  director 
need  not  be  a  shareholder  unless  required  to  be  such  by  the 
charter,  or,  as  is  commonly  the  case,  by  statute.4  Where  a 
director  is  required  to  be  a  shareholder,  it  is  sufficient  if  the 
shares  stand  in  his  name  on  the  books  of  the  corporation.5 
But  it  has  been  held  that  when  a  director  is  required  to  be  a 
stockholder,   he  must  be  the   beneficial  owner,   and  that  the 


1  Wood,  etc.,  Co.  v.  King,  45  Ga.  34. 
See  §  465,  supra ;  Wright  v.  Lee,  2  S. 
Dak.  596,  51  N.  W.  Rep.  706;  Arms  v. 
Conant,  36  Vt.  744;  Saltmarsh  v. 
Spaulding,  147  Mass.  224;  Bellows  v. 
Todd,  39  Iowa  209;  McCall  v.  Manu- 
facturing Co.,  6  Conn.  428.  See,  as  to 
stockholders'  meetings,  Hodgson  v. 
Duluth,  etc.,   R.  Co.,   46  Minn.  454. 

2  Frick  Co.  v.  Norfolk  Bank,  86  Fed. 
Rep.  725;  57  U.  S.  App.  286.  See 
also,  Jossey  v.  Georgia  R.  Co.,  102 
Ga.  706.  It  may  be  implied  and  es- 
tablished from  the  acts  of  the  stock- 
holders and  directors.  Frick  v.  Nor- 
folk Bank,  supra;  Dade,  etc.,  Co.  v. 
Haslett,  83  Ga.  549.  The  office  of  the 
president  will  be  presumed  to  be  the 
proper  place  of  holding  meetings. 
Troy,  etc.,  Co.  v.  White,  10  S.  Dak. 
475. 

3  The  treasurer  may  be  a  director. 
Sargent  v.  Webster,  13  Met.  (Mass.) 
497,  46  Am.  Dec.  743.  An  alien  resid- 
ing in  the  state  may  be  a  director. 
Commonwealth  v.  Hemmingway,  131 
Pa.  St.  614.     A  non-resident  may  be  a 


director.  See  State  v.  Smith,  15  Ore. 
98,  and  Horton  v.  Wilder,  48  Kan. 
222.  A  corporation  may,  by  a  by-law, 
provide  that  no  one  who  is  an  attor- 
ney in  a  suit  against  the  corporation 
shall  be  eligible  as  a  director.  Cross 
v.  West  Va.,  etc.,  R.  Co.,  37  W.  Va. 
342,  18  L.  R.  A.  582. 

4  Wright  v.  Springfield,  etc.,  R.  Co., 
117  Mass.  226,  19  Am.  Rep.  412;  Peo- 
ple v.  Northern  R.  Co.,  42  N.  Y.  217. 
One  who  acts  as  a  director  will  be 
treated  as  one  in  a  controversy  be- 
tween himself  and  the  corporation, 
although  he  is  not  a  stockholder. 
Stetson  v.  Northern,  etc.,  Co.,  104 
Iowa  393.  A  member  of  an  assess- 
ment fire  insurance  company  only 
can  fill  the  office  of  director.  State 
v.  Manufacturers',  etc.,  Assn.,  50  Ohio 
St.  145,  24  L.  R.  A.  252. 

5  Re  Argus,  etc.,  Co.,  1  N.  Dak.  434, 
26  Am.  St.  Rep.  639;  State  v.  Leete, 
16  Nev.  242.  Compare  State  v.  Hunton, 
28  Vt.  594 ;  Chase  v.  Tuttle,  55  Conn. 
455,  3  Am.  St.  Rep.  64. 


542  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  499 

mere  fact  that  shares  are  registered  in  his  name  is  not  suffi- 
cient.1 A  by-law  which  provides  that  a  director  shall  cease  to 
be  such  when  he  ceases  to  be  a  proprietor  of  shares,  by  impli- 
cation, renders  one  who  is  not  the  proprietor  of  shares  ineli- 
gible to  the  office  of  director.2  A  bona  fide  owner  of  shares  is 
eligible,  although  they  have  not  been  transferred  to  him  on 
the  books.3  A  director  who  is  required  to  be  a  stockholder 
divests  himself  of  his  office  by  disposing  of  his  stock.4  A 
director's  qualification  shares  maybe  held  by  him  jointly  with 
another  person.5 

§  499.  Powers  of  directors. — The  board  of  directors  has 
implied  power  to  do  whatever  the  corporation  may  lawfully  do 
in  the  transaction  of  its  ordinary  business.  For  the  purpose  of 
dealing  with  others  it  is  the  corporation.6  But  the  authority 
"extends  merely  to  the  supervision  and  management  of  the 
company's  ordinary  and  regular  business."  The  directors 
have  no  implied  authority  to  make  a  permanent  and  material  al- 
teration of  the  business  or  constitution  of  the  corporation, 
although  the  business  as  so  altered  is  within  the  company's 
chartered  powers.7  Thus,  they  can  neither  increase  the  capital 
stock,8  nor  lease  the  entire  property  of  the  corporation,9  nor 
sell  the  property  and  wind  up  the  business  of  the  corporation.10 

»Brainbridge  v.  Smith,  L.  R.  41  Ch.  cial,  etc.,  Co.,  106  HI.  439;  Eastern  R. 

Div.462, 33  Am.  and  Eng  Corp.Cas.  172  Co.  v.   Railway  Co.,   Ill   Mass.   125; 

(  annotated), Lindley,  L.J. ,di8senting,  Leavitt  v.   Oxford,   etc.,  Co.,  3  Utah 

overruling  the  decision  of  Sir  George  266;  Bliss  v.  Kaweah,   etc.,   Co.,  65 

Jessel,  M.  R.,  in    Pulhrook   v.   Rich-  Cal.  502;  Donohoe  v.  Mariposa,  etc., 

mond.etc,  Co.,  L.  R.  9  Ch.  Div.  610.  Co.,    66    Cal.    ".17;     Heintzelman   v. 

•Dispatch    Line  v.    Bellamy,   etc.,  Druids',  etc.,    Assn.,   :;s    Minn.   138. 

Co.,  12  N.  II.  205,  ::?  Am.  Dec.  203.  The  power  to  ratify  the  unauthorized 

'State  v.  Smith,  r>  ore  ms,  ii  Pac.  acts  of  agents  is  presumed  to  he  in  the 

Rep.  814,  L5  Pac.  Rep.  137.  board    <>f  directors.      Western,  etc., 

♦Chemical    Nat.    Bank   v.  Colwell,  A.Bsn.  v.  Ready,  24  Minn.  350. 

'MorawetzPriv.Corp.  [,§512;  Rail- 

e  Glory,  etc.,  Co.,  L.  R.  (1894)  way  Co.  v   A.llerton,  18  Wall 

::  ch.  it:;.  h  Railway  Co.  v.   Ulerton,  L8  Wall. 

■  Burrill   v.   Nahani    Bank,  2   Met.  238;  Eidraan  v.  Bowman,  68  111.   ill. 

L63;   Hoyle  v.   Railway  Co.,  B  Martin  v.  Railway  Co.,  14  Phila.  10. 

:»i  n.  v.:;it;  Reichwald  v.  Commer-  "Rollins  v.  Clay,  88  Maine  132. 


§  500  OFFICERS    AND    AGENTS.  543 

But  by  the  weight  of  authority  they  may  transfer  its  property 
to  an  assignee  for  the  benefit  of  creditors  when  the  condi- 
tion of  its  affairs  is  such  as  to  reasonably  justify  such  a  course.1 
The  directors  have  no  power  to  admit  in  writing  the  inability 
of  the  corporation  to  pay  its  debts  as  the  basis  of  an  involun- 
tary petition  in  bankruptcy.  Such  an  act  is  not  binding  upon 
the  corporation.2 

§  500.  Stockholders'  control  over  directors. — The  power  of 
management  vested  in  the  board  of  directors  is  conclusive  in 
its  character.  Their  will  must  govern  in  the  absence  of  fraud 
or  breach  of  trust,  and  the  courts  will  not,  even  on  the  peti- 
tion of  the  majority  of  the  stockholders,  compel  the  directors 
to  do  an  act  contrary  to  their  judgment.3 

§  501.    Delegation   of    authority — Executive   committee. — 

The  board  of  directors  of  a  corporation  may  delegate  the  ordi- 
nary routine  business,4  such  as  the  appointment  of  an  agent 
to  execute  a  deed5  or  a  note,6  to  subordinate  agents.  Some 
authorities  hold  that  matters  involving  discretion  can  not  be 
delegated,7  but  by  the  weight  of  authority  a  board  of  directors 
may  delegate  its  powers  to  an  executive  committee,8  and  the 
majority  of  this  committee  constitutes  a  quorum  which  can 
bind  the  corporation  by  its  acts.9 

1  §  189,  Tripp  v.  N.  W.  Nat'l  Bank,  41        5  Arms  v.  Conant,  36  Vt.  744. 


Minn.  400 ;  Dana  v.  Bank  of  the  U.  S. 
5  Watts  &  S.  223;  Ardesco,  etc.,  Co 
v.  North  Am.,  etc.,  Co.,  66  Pa.  St.  375 
DeCamp  v.  Alward,  52  Ind.  468 
Chamberlain  v.  Bromberg,  83  Ala. 576 


6Leavitt  v.  Oxford,  etc.,  Co.,  3 
Utah  265. 

7  Weidenfeld  v.  Sugar,  etc.,  R.  Co., 48 
Fed.  Rep.  615;  Gillis  v.  Bailey,  21  N. 
H.  149;  Temple  v.  Dodge,  89  Texas 


Chase  v.  Tuttle,  55  Conn.  455;  Wil-  68. 

kinson  v.  Bauerle,  41  N.  J.  Eq.  635.  8  Sheridan,   etc.,   Co.   v.   Chatham, 

2  Re  Bates, etc.,  Co., 91  Fed.  Rep.  625.  etc.,  Bank,  127  N.Y.  517;  Union,  etc.,' 

3  Dodge  v.  Woolsey,  18  How  (U.  S.)  R.  Co.  v.  Chicago,  etc.,  R.  Co.,  163 
331 ;  Hunter  v.  Roberts,  etc.,  Co.,  83  U.  S.  564,  597;  Union,  etc.,  R.  Co.  v. 
Mich.  63,  47  N.  W.  Rep.  131;  Sims  Chicago,  etc.,  R.  Co.,  51  Fed.  Rep. 
v.  St.  R.  Co.,  37  Ohio  St.  556;  Moses  309;  Black  River,  etc.,  Co.  v.  Hol- 
v.  Thompkins,   84   Ala.  613;  Pratt  v.  way,  85  Wis.  344. 

Pratt,  head  &  Co.,  33  Conn.  446.  9 Burleigh  v.  Ford,  61  N.  H.  360.  As 

4  Manchester,  etc.,  R.  Co.  v.  Fisk,  to  powers  of  an  auditing  committee, 
33  N.  H.  297. 


544 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  502 


§  502.    Relation  of  officers  and  directors  to  the  corporation. 

— The  officers  and  directors  of  a  corporation  are  variously  re- 
ferred to  as  agents,  trustees  or  mandatories.1  Judge  Shars- 
wood  sa)7s: 2  "  It  is  by  no  means  a  well  settled  point  what  is 
the  precise  relation  which  directors  sustain  to  stockholders. 
They  are  undoubtedly  said  in  some  authorities  to  be  trustees  ; 
but  that,  as  I  apprehend,  is  only  in  a  general  sense,  as  we  term 
an  agent  or  any  other  bailee  intrusted  with  the  care  and  man- 
agement of  the  property  of  another.  It  is  certain  that  they 
are  not  technically  trustees.  They  can  only  be  regarded  as 
mandatories,  persons  who  have  gratuitously  undertaken  to  per- 
form certain  duties,  and  who  are,  therefore,  bound  to  apply 
ordinary  care  and  diligence  and  no  more."  The  directors  are 
not  technically  trustees,3  but  they  are  agents  who  bear  a  rela- 
tion of  trust  and  confidence  to  their  principal.  They  stand  in 
a  fiduciary  relation  to  the  corporation  and  are  held  to  the  ut- 
most good  faith  in  their  dealings  with  it.*     They  must  manage 

see   Skinner  v.  Walter,  etc.,  Co.,  140  vane  v.  O'Brien,  58  Kan.  463,  it  was 

N.  Y.  217,  executive  committee,   see  said  that  the  directors  and  managing 

Tracy  v.  Guthrie,  etc.,  Soc,  47  Iowa  officers  are  quasi  or  sub  modo  trustees 
27. 


^pering's  App.,  71  Pa.  St.  11,10 
Am.  Rep.  684;  Robinson  v.  Smith,  3 
Paige  (N.  Y.),  222,  24  Am.  Dec.  216. 
In  re  Cameron's,  etc.,  R.Co.,  18Beav. 
339  :  Overseers  v.  Gibbs,  L.  R.  5  H.  L. 
480. 

BSpering's  App.,  71  Pa.  St.  11. 

3  North  Hudson,  etc.,  Assn.  v. 
Childs,  82  Wis.  460,  52  X.  W.  Rep. 
800;  Wayne,  etc.,  Co.  v.  H amnions, 
129  End.  368,  '-'7  N.  E.  Rep.  487.  In 
Briggstf.  Bpaulding,  I  n  U.  B.  L32,  the 
court  said:    "The   relation    between 


for  the  corporation  with  respect  to 
corporate  property,  and  for  the  stock- 
holders with  respect  to  their  shares. 

'Hoyle  v.  Plattsburgh,  etc.,  R.  Co., 
54  N.  Y.  314;  Cumberland,  etc.,  Co. 
v.  Sherman,  30  Barb.  553;  Wardell  v. 
Union  Pac.  R.  Co.,  103  U.  S.  651; 
Koehler  v.  Black  River  Falls,  etc., 
Co.,  2  Black  (U.  S.)  715.  In  Twin 
hick,  etc.,  Co.  v.  Marbury,  91  lT.  S. 
587,  Mr.  Justice  Miller  said:  "That 
a  director  ol  a  corporation  occupies 
one  of  the  fiduciary  relations  where 
his  dealings  with  the  subject-matter 


the  corporation  and  the  directors  is    of  the  trustor  agency,  and   with  the 


rather  thai   ol  principal   and  agent, 

certainly  bo  tar  as  creditors  ar n- 

cei  ii'-'l.  bel  ween  whom  and  the  corpo- 
ration the  relation  is  that  ol  contract, 
and  not  ol  trust.  But,  undoubtedly, 
under   circumstances    they    may    be 


beneficiary  or  party  whose  interest  is 
Confided  to  his  care,  is  viewed  w  ith 
jealousy  by  the  COUrtS,  and  may  he  set 

aside  on  very  Blighl  grounds,  is  a  doc- 
trine founded  on  (he  soundest  mor- 
ality,   and     which    has     received     the 


treat  tion  ol    clearest  recognition  in  this  court  and 

trust  lut  '/in  tru$t."    in  Mul-    In  others." 


§  502  OFFICERS  AND  AGENTS.  545 

its  business  with  a  view  to  promoting  the  common  interests, 
and  can  not  directly  or  indirectly  derive  personal  profit  or 
advantage  from  their  position  which  is  not  shared  by  all  the 
stockholders.  By  assuming  the  office  they  undertake  to  give 
their  best  judgment  to  the  interests  of  the  corporation  in  all 
matters  in  which  they  act  for  it,  untrammeled  by  any  conflict- 
ing personal  interests.  This  obligation,  that  he  will  in  no 
way  use  his  position  to  advance  his  personal  interest  to  the 
detriment  of  the  corporation,  is  inherent  in  the  office  of  di- 
rector. All  secret  profits  received  by  a  director  in  any  trans- 
action in  connection  with  corporate  affairs  must  be  accounted 
for  to  the  corporation,  although  the  transaction  may  also  be  of 
advantage  to  the  corporation.1  "  The  entire  duty  of  the  direct- 
ors, growing  out  of  their  agency,  is  owed  to  the  bank,  which, 
under  the  charter,  is  the  sole  representative  of  the  stockholders, 
and  the  legal  defender  of  their  properties.2  A  director  who 
loans  the  money  of  the  bank  at  a  stipulated  rate  of  interest,  with 
a  secret  understanding  that  he  shall  have  an  interest  in  the 
profits  on  lands  to  be  purchased  with  the  money  must  account 
to  the  bank  for  such  profits."3  Where  the  directors  of  a  corpora- 
tion bought  a  steamboat  in  their  individual  capacity,  and  then, 
as  directors  of  the  corporation,  purchased  for  the  corporation 
a  one-half  interest  in  the  boat  at  a  greatly  increased  price,  the 
corporation  was  held  entitled  to  the  profits  arising  from  the 
transaction.* 

The  relations  of  a  director  and  stockholder  to  the  corpora- 
tion are  radically  different.  The  latter  may  deal  with  the 
corporation  to  his  personal  benefit  and  profit,5  while  the  former 

1  Bird,  etc.,  Co.  v.  Humes,  157  Pa.  theory  that  when  a  corporation  be- 
st. 278.  See  also  Parker  v.  Nickerson,  comes  insolvent  its  property  becomes 
112  Mass.  195;  Perry  v.  Cotton  Seed  a  trust  fund  for  the  benefit  of  its  cred- 
Oil,  etc.,  Co.,  93  Ala.  364;  Eutland,  itors,  that  thereafter  the  directors  are 
etc.,  Co.  v.  Bates,  68  Vt.  579.            *  trustees  for  the  benefit  of  the  cred- 

2  Allen  v.  Curtis,  26  Conn.  456.  itors.     See  Ingwersen  v.  Edgecombe 
3Koehlerv.  Iron  Co.,  2  Black  (U.  S.)     (Neb.),  60  N.  W.  Rep.  1032. 

715.  5  Rogers  v.  Nashville,  etc.,  R.  Co., 

4  Parker   v.   Nickerson,    112  Mass.     91  Fed.  Rep.  299. 
195.     In  some  cases  it  is  held,  on  the 
35 — Private  Corp. 


546  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  503 

may  not.  It  is  sometimes  said  that  the  directors  are  trustees  for 
the  shareholders  ;  but  this  means  no  more  than  that  they  are 
bound  to  act  for  the  benefit  of  all  the  shareholders  alike,  and 
not  for  the  benefit  of  themselves  or  any  particular  stockholder. 
"There  is,"  said  Chief  Justice  Shaw,1  "no  legal  privity, 
relation  or  immediate  connection  between  the  holders  of 
shares  in  a  bank  in  their  individual  capacity  on  the  one  side 
and  the  directors  of  the  bank  on  the  other.  The  directors  are 
not  the  bailees,  factors,  agents  or  trustees  of  such  individual 
stockholders." 

§  503.    Contracts  between  a  corporation  and  its  officers. — 

An  officer  of  a  corporation  has  no  power  when  acting  for 
the  corporation  to  bind  the  coporation  by  a  contract  with 
himself,  or  to  represent  it  in  any  transaction  with  third  per- 
sons in  which  lie  has  a  personal  interest.2  As  said  by  the  su- 
preme court  of  Wisconsin:3  "The  idea  that  the  same  persons 
constitute  different  identities  of  themselves  by  being  called 
directors  or  officers  of  a  corporation,  so  that  as  directors  or 
officers  they  can  convey  or  mortgage  to  or  contract  with 
themselves    as    private    persons,    is    a    violation    of    common 

1  Smith  v.  Hurd,  12  Met.  (Mass.)  other  than  that  of  the  corporation." 
371;  Lexington,  etc.,  Co.  v.  Page  &  Memphis,  etc.,  R.  Co.  v.  Woods,  88 
Richardson,  17  B.  Mon.  <Ky.)  412.  Ala.  630,  16  Am.  St.  Rep.  81.     Where 

2  Mri  tourkey  v.  Toledo,  etc.,  R.  Co.,  the  director  is  not  at  the  same  time 
1  in  U.  S.  536;  Wardell  v.  Union  Pac.  representing  his  own  interest  and 
R.  Co.,10:;  Q.  8.651  ;  Rhodes  v.  Webb,  thai  of  the  corporation  he  may  con- 
24  Minn.  292;  Jones  v.  Morrison,  31  tract  with  it,  buy  or  sell  property, 
.Minn.  lio.  Directors  are  not  trustees  borrow  its  money  and  give  his  note 
for  the  corporation  in  the  technical  therefor,  or  loan  the  money  and  take 
sense  of  the  word;  bul  they  are  pro-  in  consideration  therefor  its  notes  and 
hibited  from  dealing  with  the  cestui  que  enforce  their  payment  incaseofde- 

.-  and  if  they  disregard  the  duties  fault.     Ward   v.   Polk,   70   Iml.  309; 

and  proprieties  of  the  position  by  un-  Beach  v.  Miller,  28  III.  A.pp.  151  ;  <  rar- 

dertaking  to  represent   theirown  in-  retl  v.  Burlington,  etc.,  Co.,  70  Iowa 

-  and  those  of  the  corporation  at  697,  59  Am.  Rep.  461  ;  Ten  Eyck  v .  P. 

the  same  time,  they  "  will  not  be  en-  <>..  etc.,  R.  Co.,  71  Mich.  226,  16  Am. 

cou raged  in  thus  walking  in  the  path  St.  Rep.  633. 

ol   temptation,  nor   be   permitted  to  'Haywood  v.  Lumber  Co.,  64  Wis. 

retain  the   fruits  gathered    while   in  639,  26   N.    W.    Rep.    184;   People  v. 

pursuit   of    their  own   advancement,  Board,   11    Mich.   222;    Miner  v.   [ce 

while  they  should  have  pursued  none  Co.,  98  Mich.  B7. 


§  503  OFFICERS    AND    AGENTS.  547 

sense."  It  is  held  that  a  director  has  no  authority  to  repre- 
sent his  corporation  in  a  transaction  with  another  corporation  in 
which  he  is  a  stockholder.1  But  the  interest  which  will  dis- 
qualify him  from  acting  must  be  a  real  and  substantial  one, 
such  as  would  be  likely  to  induce  the  agent  to  sacrifice  the  in- 
terest of  his  principal.2  Such  cases  are,  of  course,  governed 
by  the  general  rule  that  officers  or  directors  may  not  gain 
advantage  to  themselves  through  their  control  of  the  corpo- 
ration, as  "they  hold  a  place  of  trust,  and  by  accepting  the 
trust  are  obligated  to  execute  it  with  fidelity,  not  for  their  own 
benefit,  but  for  the  benefit  of  the  corporation."3  The  rule  is 
not  changed  by  the  fact  that  other  parties  who  stand  in  no 
trust  relation  to  the  corporation  are  interested  in  the  transac- 
tion.4 It  applies  when  the  transaction  is  with  a  firm  of  which 
the  director  is  a  member,5  or  another  corporation  in  which  he 
is  a  stockholder6  or  director.7  But  by  the  great  weight  of  au- 
thority, contracts  between  directors  and  their  corporations  are 
voidable  and  not  void.8  "The  duty  which  disqualifies  direct- 
ors from  binding  the  corporation  in  a  transaction  in  which 
they  have  an  adverse  interest  is  one  owing  to  the  corporation 
which  they  represent  and  to  the  stockholders  thereof.  A  prin- 
cipal may  consent  to  be  bound  by  a  contract  made  for  it 
by  an  agent  who  at  the  same  time  represents  an  interest  ad- 
verse to  that  of  the  principal.  A  cestui  que  trust  may  elect  to 
affirm  a  contract  which  he  could  have  repudiated  on  the 
ground  that  the  trustee  had  an  interest  in  the  matter  incon- 
sistent with  his  trust  relation.  In  like  manner,  dealings  be- 
tween a  corporation  represented  by  some  person  as  director  may 
be  accepted  as  binding  by  the  corporation  or  the  stockholders 

1  Construction     company,    Gilman,  6  Parker  v.  Nickerson,  112  Mags.  195. 
etc.,  R.  Co.  v.  Kelly,  77  111.  426.  7 United  States,  etc.,  Co.  v.  Atlantic, 

2  Bank  v.  Flour  Co.,  41  Ohio  St.  552 ;  etc.,  R.  Co.,  34  Ohio  St.  450. 
Bristol  v.  Scranton,  63  Fed.  Rep.  218.  8  Little  Rock,  etc.,  R.  Co.  v.  Page,  35 

8Koehler  v.  Black  River  Falls  Co.,  Ark.  304;  Kelley  v.  Newburyport,  etc., 

2  Black  (U.  S.  )  715.  Co.,    141    Mass.   496;    Manufacturers' 

4Munson  v.  Railway  Co.,  103  N.  Y.  etc.,  Bank  v.  Big  Muddy,  etc.,  Co.,  97 

58.  Mo.  38 ;  United  States,  etc.,  Co.  v.  At- 

5  Aberdeen    R,    Co.    v.    Blaikie,    1  lantic,  etc.,Co.,340hioSt.  450,  32  Am. 

Macq.  H.  L.  461.  Rep.  380. 


548  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  504 

thereof.  The  general  rule  is  that  such  dealings  are  not  abso- 
lutely void,  but  are  voidable  at  the  election  of  the  corporation 
or  the  stockholders  thereof.  They  become  binding  if  acqui- 
esced in  by  the  corporation.  *  *  *  The  directors  of  a  cor- 
poration, in  the  transaction  of  its  business  and  the  disposition 
of  its  property,  do  not  sustain  any  such  relation  to  the  general 
creditors  of  the  corporation  as  they  occupy  to  the  corporation 
and  its  stockholders.  They  are  not  the  agents  of  such  cred- 
itors, nor  can  they  generally  be  regarded  as  trustees,  acting  in 
their  behalf.  The  creditors  are  not  entitled  to  disaffirm  the 
transfer  of  the  property  of  the  corporation  made  by  its  director 
or  other  agent,  merely  because  the  corporation  itself  or  its 
stockholders  could  have  clone  so.  The  right  of  the  creditors 
to  impeach  the  transaction  depends  upon  its  fraudulent  char- 
acter."1 

§  504.  When  an  officer  may  deal  with  his  corporation.2 — 
Notwithstanding  the  general  language  used  in  many  decisions, 
there  is  no  rule  of  law  which  absolutely  prohibits  an  officer  or 
director  of  a  corporation  from  contracting  with  the  corporation. 
The  contract  is  merely  voidable,  and  may  therefore  be  accepted 
by  the  corporation.  If  it  is  represented  by  another  agent  in 
the  transaction  the  reason  for  the  general  rule  fails.  The  su- 
preme court  of  the  United  States  says:3     "  It  can  not  be  main- 

1  See,  generally,  notes  to  17  Am.  St.  not  properly  be  counted,  however,  if 

Rep.  300,  etse'j;   L6  Am.  St.   Rep.  639.  it  is  necessary  to  constitute  a  major- 

1  O'Connor,  etc.,  Co.  v.  Coosa,  etc.,  ity,  if  the  question  is  one  in  which  he 

Co.,  95  Ala.  61  1,  36  Am.  St.  Rep,  251.  is  personally  interested,  and  if,  witli- 

A    director   acting  in    n    r/ws/degisla-  out  his  vote,  the  resolution  could  not 

tive  capacity  as  a  member  of  the  board  have  been  carried  by  the  requisite 

ie   incompetenl  to  ad   in   matters  in  number  of  votes.    In  other  words,  it 

which  his  interest  is  adverse  to  thai  of  is  not  adopted  at  all ;  and  he  can  not 

the  corporation.     The   interested    di-  enforce  any  claim  or  right   which  is 

,  ,,,;,;,-  be  counted  asoneof  the  baaed  Bolely  upon  it.     Bennett  v.  St. 

persons  necessary  to  constitute  a  quo-  Louis,  etc.,  Co.,   19  Mo.   App.  340; 

mm,  andifthe  resolution  could  have  Chamberlain  v.  Pacific,  etc.,  Co.,  54 

been  adopted  with  him  voting  againsl  Cal.   108;  Copeland  v.  Johnson,  etc., 

it,  the  mere  fact  that  his  presence  was  Co.,  47  Hun  285;  Smith  v.   Los   An- 

necessary  to  constitute  a  quorum  will  geles,  etc.,  Assn.,  78  Cal.  289, 12  Am. 

not  deprive  the  resolution  of  itsvalid-  St.  Rep.  58. 

Ity.  Buellv. Buckingham ACo.,16 Iowa        'Twin   lack,  etc.,  Co.  v.  Marbury, 

284,85  Am.  Dec.  516.     His  vote  can  '.M  U.  S.  587. 


§  504  OFFICERS  AND  AGENTS,  549 

tained  that  any  rule  forbids  one  director  among  several  from 
lending  money  to  the  corporation  when  the  money  is  needed, 
and  the  transaction  is  open  and  free  from  blame.  No  ad- 
judged case  has  gone  so  far  as  this.  Such  a  doctrine,  while  it 
would  afford  little  protection  to  the  corporation  against  actual 
fraud  or  oppression,  would  deprive  it  of  the  aid  of  those  most 
interested  in  giving  aid  judiciously,  and  best  qualified  to  judge 
of  the  necessity  of  that  aid,  and  of  the  extent  to  which  it  may 
safely  be  given."  The  true  rule  is  that  a  director  or  officer  of  a 
solvent  corporation  may  deal  with  it,  loan  it  money  and  take 
security  therefor,  if  the  transaction  is  fair  and  no  advantage  is 
taken  of  his  position.1  The  transaction  will  be  carefully  scrutin- 
ized, but  if  it  appears  that  it  was  in  good  faith  and  beneficial 
to  the  corporation,  and  the  stockholders  with  full  knowledge 
received  the  benefits,  it  will  be  upheld  in  a  court  of  equity.2 
Hence,  an  officer  or  agent  may  purchase  property  and  after- 
ward sell  it  to  the  corporation  if  he  was  not  guilty  of  a  breach 
of  duty  in  the  purchase.  The  same  principle  will  permit  him 
to  purchase  a  claim  at  a  discount  and   afterward   enforce   it 

1  St.  Joe,  etc.,  Co.  v.  Bank,  10  Colo,  him  to  hojld  the  property  for  its  bene- 

App.339,  50  Pac.  Eep.  1055;  Twin  Lick,  fit,  or  to  disaffirm  the  sale  and  have 

etc.,  Co.  v.  Marbury,  91  U.   S.  587;  the  property  resold.     Hoyle  v.  Platts- 

Harts  v.  Brown,  77  111.226;  Mullan-  burg,   etc.,  R.  Co.,  54  N.  Y.  314,  13 

phy  Bank  v.  Schott,  34  111.  App.  500,  Am.  Rep.  595;  McAllen  v.  Woodcock, 

affirmed  in  26  N.  E.  Rep.  640;  Beach  60  Mo.  174;  Raleigh  v.  Fitzpatrick,  43 

v.Miller,  130  111.   162;  Roseboom  v.  N.  J.  Eq.  501. 

Whittaker,  132111.81;  Louisville,  etc.,  2  Keystone,    etc.,  Co.   v.  Bate,    187 

R.  Co.  v.  Carson  (111.),  38  N.  E.  Rep.  Pa.     St.    460;     Barr    v.    Pittsburgh, 

140.     If  the  circumstances   are  such  etc.,  Co.,  57  Fed.  Rep.  86;  Gorder  v. 

that  a  director  may  contract  with  a  Plattsmouth,  etc.,  Co.  (Neb.  1893),  41 

corporation,   he  may,  of  course,  en-  Am.  &  Eng.  Corp.  Cas.  87;  Keeney  v. 

force  his  claim.     Holt  v.  Bennett,  146  Converse  (Mich.  1894),  58  N.  W.  Rep. 

Mass.  437;  Hallam  v.  Indianola,  etc.,  325;  Twin  Lick,  etc.,  Co.  v.  Marbury, 

Co.,  56  Iowa  178.     A  director  may  be-  91  U.  S.  587 ;  Leavenworth  v.  Chicago, 

come  the  purchaser  at  a  mortgage  fore-  etc.,  Co.,  134  U.   S.  688;  Battelle  v. 

closure  sale  of  the  property  of  the  cor-  Northwestern,  etc.,  Co.,  37  Minn.  89; 

poration.   Saltmarsh  v.  Spaulding,  147  Garrett  v.   Plow  Co.,   70  Iowa  697; 

Mass.  224.  Also  at  an  execution  or  ju-  Welch  v.  Bank,  122  N.  Y.  177;  Holt  v. 

dicial  sale,  although  it  is  probable  that  Bennett,  146  Mass.  437 ;  Saltmarsh  v. 

the  corporation  might  elect  to  compel  Spaulding,  147  Mass.  224. 


550 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§504 


in  full  against  the  corporation.1  But  a  purchase  of  land  by  a 
director  from  the  corporation  at  a  greatly  inadequate  price 
raises  a  presumption  of  fraud  and  throws  upon  the  officer  the 
burden  of  showing  the  good  faith  of  the  transaction.2 

If  it  is  apparent  that  a  contract  or  other  business  trans- 
action between  a  director  and  the  corporation  was  not  at- 
tended   by    collusion    between   him    and     his     fellow-direct- 


1  Morawetz  Priv.  Corp.  I,  §  521,  ap- 
proved in  St.  Louis,  etc.,  R.  Co.  v. 
Chenault,  36  Kan.  51. 

1  Woodruff  v.  Howes,  88  Cal.  184. 
In  Miner  v.  Belle  Isle,  etc.,  Co.,  93 
Mich.  97,  McGrath,  J.,  said:  "The 
authorities  upon  the  question  of  the 
validity  of  contracts  made  by  directors 
with  c<>ri>( nations  are  by  no  means 
harmonious.  It  is  laid  down  in  many 
of  the  text-books  that  such  contracts 
are  voidable  at  the  instance  of  the  cor- 
poration. 1  Beach  Corp.,  §§  241,242; 
Morawetz  Corp..  §§  243  245;  Taylor 
Corp.,  §§  629,630;  2  Field  Briefs,  193. 
Again  it  has  been  held  that  a  director 
may  deal  witli  the  company  in  like 
manner  as  with  an  individual,  if  he 
deals  honorably,  and  without  endeav- 
oring to  influence  or  control  it.  hi 
Am.  Law  Rev.  917;  Harts  v.  Brown, 
77  111.  226;  United  States,  etc.,  Co.  v. 
Atlantic,  etc.,  R.  Co.,  34  Ohio  St.  450; 
Mayor  v.  In  man,  etc.,  Co.,  57  Ga.  370. 
dm  own  courts,  in  People  v. <  >veryssel, 
II  Mich.  222,  and  in  Railway  Co.  v. 
Dewey,  1  1    Mich.    177,    have   held   that 

such  contracts  were  not  only  voida- 
ble hnt  absolutely  void.  *  *  *  All 
tin-  author i r i ■  •  -  agree  that  it  is  essential 
thai  the  majority  of  the  quorum  ot'  a 
board  of  directors  shall  he  disinter- 
i  in  reaped  to  the  matter  voted 
iihon."    i  Beach  <  !orp.,  276 ;  Smith  v. 

0  ■iation,7S('al.  289,    W'herea  loan 

board  of  three  are  ant borized  to  make 

a  vrr:i n t  to  a  railroad,  and  two  of  them, 

on.-  being  director  of   the  raili 


make  the  grant,  the  court  will  set  it 
aside.  San  Diego  v.  Railroad  Co.,  44 
Cal.  106;  Bill  v.  Telegraph  Co.,  16 
Fed.  Rep.  14.  A  salary  voted  to  the 
president  by  a  quorum  of  directors, 
two  being  absent,  and  the  president 
being  one  of  the  three,  is  not  enforc- 
ible.  Copeland  v.  Manufacturing  Co., 
47  Hun  235.  Where  the  chief  stock- 
holder, who  is  president,  induces  the 
directors,  his  dummies,  to  vote  a  large 
salary  to  him,  the  corporation  may 
defeat  the  officers'  action  at  law  to  re- 
cover it.  Davis  v.  Railroad  Co.,  22 
Fed.  Rep.  883.  Where  the  majority  of 
stock  of  a  corporation  was  held  by  one 
family,  who  voted  away  the  corporate 
profits  for  salaries,  the  minority  may 
call  upon  a  court  of  equity  to  remedy 
the  fraud.  Sellers  v.  Iron  Co.,  13  Fed. 
Kep.  20.  A  stockholder  may  compel 
the  contractors  to  disgorge  when 
they  obtain  a  contract  through  their 
associates  or  hirelings  being  made 
directors.  Currier  v.  Railroad  Co.,  85 
linn  |  N.Y.  )  355.  When  two  contract- 
ors cause  a  railroad  corporation  to  be 
tunnel,  in    w  Inch   one   contractor   he 

comes  a  director,  ami  the  other  direct- 
ors are  clerks  of  the  second  contract- 
or, and  the  construction  control  is 
made    with    these    two    by    means    of 

dummy  Intermediaries,  at  an  improv- 
ident price,  one  of  the  contractors  can 

qoI  compel  the  other  to  divide  the 
profits,    .lacks. hi  v.  McLean,  ."'i  Fed. 
Rep.  213.    See  rlirsche  v.  Sims  (H.  L. 
.  L.  R.  <  L894),  A..0.  654. 


§  504  OFFICERS  AND  AGENTS,  551 

ors  ;  that  they  represented  the  corporation  according  to  their 
best  judgment ;  that  the  contract  was  open,  fair  and  without 
concealment  on  the  part  of  the  contracting  director,  and 
without  taking  advantage  of  any  information  which  he  may 
have  had  to  the  exclusion  of  his  fellow-directors,  it  is  en- 
forcible  both  at  law  and  in  equity,  whether  the  corporation 
acquiesces  in  or  resists  such  enforcement.1  The  Iowa  Supreme 
Court  declined  to  consent  to  the  proposition  "  that  a  director  of 
an  insolvent  corporation  can  not  take  from  it  security  by  mort- 
gage or  other  conveyance,  securing  a  lien  upon  its  property, 
even  though  acting  in  good  faith  and  without  fraud  in  the 
transaction.  A  creditor  may  accept  payment  or  security  from 
an  insolvent  debtor  free  from  the  claim  of  other  creditors.  A 
corporation  may  make  payment  of  its  debts,  or  give  its  prop- 
erty in  security  thereof ,  just  as  any  person  may  do.  If,  there- 
fore, the  director  holds  the  indebtedness  of  an  insolvent  cor- 
poration he  may  take  payment  or  security,  if  an  honest  trans- 
action. No  reason  can  be  given  why  a  director  who  holds  a 
valid  debt  against  his  corporation  can  not,  though  it  be  insolv- 
ent, in  a  fair  and  honest  way  take  its  property  in  security.  If 
the  property,  money  or  other  consideration  for  the  debt  was 
fairly  used  for  the  benefit  of  the  corporation,  was  added  to  its 
assets  and  used  in  its  business,  it  would  be  unreasonable  to 
hold  that  the  director  is  deprived  of  the  remedy  held  b}7  other 
creditors."2  Therefore,  a  contract  between  a  corporation  and 
one  of  its  directors,  which  is  open,  fair  and  free  from  fraud,  and 
sanctioned  by  a  majority  of  the  board  of  directors,  not  includ- 
ing himself,  is  binding  upon  the  corporation.3     Such  transac- 

1  Beach    v.  Miller,  130  111.  162,  17  would  have  been  the  same  if  he  had 

Am.  St.  Rep.  291;  Watts'  App.,  78  Pa.  not  voted.     Clark  v.  American,  etc., 

St.  370;   Garrett  v.  Burlington,   etc.,  Co.,  86  Iowa  436,  17  L.  R.  A.  557. 

Co.,  70  Iowa  697,  59  Am.  Rep.  461.  3T\vin-Lick,   etc.,  Co.  v.    Marbury, 

2Garrett  v.  Burlington,  etc.,  Co.,  70  91  U.  S.  587;  Barr  v.  Plate  Glass  Co., 

Iowa  697,  59  Am.  Rep.  461.     See  also  57  Fed.   Rep.  86,  17  U.   S.  App.  124; 

Stetson   v.  Northern,    etc.,    Co.,    104  Roseboom  v.  Whittaker,  132  111.  81,  23 

Iowa    393.     A     director's     note    for  N.  E.   Rep.   339;  Louisville,   etc.,   R. 

his  own   salary  will   not   render  the  Co.  v.  Carson,  151  Hi.  444;  Hallam  v. 

proceedings   void    when    the    result  Hotel  Co.,  56  Iowa  178,  9  N.  W.  Rep. 


552 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  505 


tions  will,  however,  be  carefully  scrutinized  by  the  courts,1  and 
the  burden  is  on  the  officer  to  show  that  it  is  free  from  fraud 
and  fair  to  the  corporation.2  Where  a  disinterested  majority 
of  the  board  of  directors  assent,  the  binding  force  of  the  con- 
tract is  made  to  turn  upon  the  fairness  or  unfairness  of  the 
contract  to  the  corporation.  But  there  are  some  jurisdictions 
in  which  the  corporation  is  permitted  to  repudiate  the  contract 
upon  showing  the  mere  fact  of  the  relation.3 

§  505.    Right  of  corporation  to  repudiate  such  contract. — A 

corporation  may  repudiate  or  ratify  any  transaction  entered 
into  by  its  agents  or  officers  without  authority,  if  it  is  of  a 
character  which  it  might  have  originally  authorized.4  The 
right  to  repudiate  is,  however,  subject  to  the  provision  that  the 
corporation  must  return  the  property  or  money  which  it  re- 
ceived from  the  agent  under  the  contract.5  As  already  stated, 
a  corporation  can  not  repudiate  a  contract  between  it  and  one 
of  its  officers  or  directors,  which  is  fair  and  honest,  and  in  the 


111 ;  Garrett  v.  Plow  Co.,  70  Iowa  697; 
Buell  v.  Buckingham  &  Co.,  1G  Iowa 
284;  Parker  v.  Nickerson,  137  Mass. 
487 ;  Holt  v.  Bennett,  146  Mass.  437 ; 
Salt  marsh  v.  Spaulding,  147  Mass. 
224;  Ten  Eyck  v.  Railroad  Co.,  74 
Midi  226.  See  Miner  v.  Belle  Isle, 
etc.,  Co.,  93  Mich.  'J7. 

1  Thomas  v.  Railroad  Co.,  109  U.  S. 
522. 

Clones  v.  Morrison,  31  Minn.  1 10; 
Wilkinson  v.  Hauerle,  41  IS.  J.  Eq. 
635. 

3 Sc<-    Muiison   v.  Railroad   Co.,  103 

N.  V.  58;  Barr  v.  New  York,  etc,  R. 

!•_'.-.  N.  V.  263;  Boyle  v.  Railroad 

,i    N.  V.    ;i  i ;  Pearson  v.  Rail- 

lorp.,  62  N.  II.  537. 

1  Hoffman,  etc.,  Co.  v.  Cumberland, 
etc.,  Co.,  L6  Md.  156,77  Am.  Dec. 311 ; 
Hob  1  Co.  v.  Wade,  '.'7  r.  s.  L8; 
,.,ri  v.  Lehigh  Valley  R.  Co.,  38 
\.  .i.  i.  505;  Meeker  v.  [ron  Co.,  17 
Fed.  Rep.  Is;  Thomas  v.  Railwaj  I  to., 
109  l'.  8.  522.     Dealings  between  cor- 


porations represented  by  the  same  of- 
ficers and  directors  may  be  accepted 
as  binding  by  each  corporation  and 
the  stockholders  thereof,  as  such  deal- 
ings are  not  absolutely  void  but 
merely  voidable  at  the  election  of  the 
directors  or  the  stockholders;  and  they 
become  binding  if  acquiesced  in  by 
the  corporation  and  the  stockholders. 
O'Conner,  etc.,  Co.  v.  Coosa,  etc.,  Co., 
95  Ala.  iil  1, 36 Am.  si.  Rep.251  ;  Buell 
v.  Buckingham&Co  ,  Hi  Eowa284  ;  Ash- 
hurst's  App.,  (it)  Pa.  Si.  290.  See  also 
note  to  Beach  v.  Miller,  17  Am  St. 
Rep. 298.  It  stands  on  practically  the 
same  ground  as  a  transaction  between 
a  t  rustee  ami  a  cestui  que  trust  in  that  it 
may  he  avoided  by  the  cestui  que  trust, 
if  he  repudiates  it  within  a  reasonable 
time  after  it  comes  to  his  knowledge. 
Buell  v.  Buckingham  &  <'".,  16  iowa 
284j  Ashlmrst's  App.,  60  I'a.  St.  290. 
'•iardner  v.  Butler,  87  N.  .1.  Eq 
702. 


§  506  OFFICERS    AND    AGENTS  553 

making  of  which  the  corporation  is  represented  by  other  dis- 
interested agents.  All  contracts  made  by  a  corporate  officer 
with  a  corporation  are,  at  the  most,  merely  voidable  at  the 
election  of  the  corporation,  and  therefore  binding  upon  the 
corporation  until  repudiated.1  This  must  be  done  within  a 
reasonable  time  after  knowledge  of  the  facts.2  Such  a  contract 
can  not  be  avoided  when  all  those  who  are  interested  in  the 
corporation  consented  that  it  might  be  made,  and  the  property 
received  under  the  contract  is  retained  by  the  corporation.3 

§  506.  Contracts  between  corporations  having  common  of- 
ficers or  directors. — It  has  been  held  in  a  few  cases  that  a  con- 
tract between  corporations  having  common  officers  or  directors 
is  presumably  fraudulent,  and  may  be  avoided  irrespective 
of  its  merits,  although  there  was  a  majority  in  favor  of  mak- 
ing the  contract  without  counting  the  common  directors.  In 
some  of  these  decisions  it  is  said  that  the  contract  is  void  ;  in 
others  that  there  is  a  conclusive  presumption  of  fraud,  while 
others  merely  say  that  there  is  a  presumption  of  fraud,  and 
that  when  this  is  overcome  by  evidence  which  discloses  a  fair 
and  honest  contract,  it  will  be  sustained.4  Under  such  cir- 
cumstances, that  is,  where  a  director  is  incapable  of  making  a 
contract,  it  may,  nevertheless,  become  binding  by  the  acqui- 
escence of  the  shareholders.5 

§  507.  The  prevailing  rule. — The  weight  of  authority  is 
against  the  strict  rule  which  renders  all  contracts  be- 
tween corporations  having  common  officers  or  directors  void. 

JTwin  Lick,  etc.,  Co.  v.  Marbury,  91  Neb.  463;  Currier  v.  New  York,  etc., 

U.  S.  587;  Barr  v.  New  York,  etc  ,  R.  R.  Co.,  35  Hun    (N.  Y.)  355;   Sweeny 

Co.,  125  N.  Y.  263.  v.  Wheeling,  etc.,  Co.,  30  W.  Ya.  443. 

3  See  Twin  Lick,  etc.,  Co.  v.  Mar-  Under  the  Engish  statute,  7  and  Vict., 
bury,  91  U.  S.  587.  ch.  10,   section  29,  which  prohibits  a 

3Battelle  v.  Pavement  Co.,  37  Minn,  director  from  voting  on  a  contract  in 

89.     See  Barr  v.  Glass  Co.,   57  Fed.  which  he  is  interested,  it  is  held  that 

Rep.  89.  a  contract,  in  the  making  of  which  this 

4  Metropolitan,  etc.,  R.  v.  Manhat-  provision  is   violated,   is   void.      See 
tan,  etc.,  Co.,  14  Abbott  N.  Cas.  103,  Ernest  v.  Nicholls,  6  H.  L.  Cas.  401. 
272-294,  11  Daly  373;  O'Conner,  etc.,  5  O'Conner,  etc.,  Co.  v.  Coosa,  etc., 
Co.  v.  Coosa,  etc..  Co.,  95   Ala.  614;  Co.,  95  Ala.  614. 

Fitzgerald  v.  Fitzgerald,  etc.,   Co.,  44 


554  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  507 

Where  two  corporations,  through  their  boards  of  directors, 
make  a  contract  with  each  other,  the  common  directors  are 
not  within  the  rigid  rule  of  the  cases  which  hold  that  one  who 
acts  in  a  fiduciary  capacity  can  not  deal  with  himself  in  his 
individual  capacity,  and  that  any  contract  thus  made  will  be 
declared  void,  without  reference  to  its  fairness  or  the  benefits 
derived  from  it  by  the  cestui  que  trust.  Two  corporations  have 
the  right,  within  the  scope  of  their  chartered  powers,  to  deal 
with  each  other  ;  and  this  right  is  not  destroyed  or  paralyzed 
by  the  fact  that  some  of  the  directors  are  common  to  both. 
Of  course,  if  such  directors  should  wrongfully  and  willfully 
use  their  powers  to  the  prejudice  of  one  of  the  corporations, 
their  action,  if  not  acquiesced  in  and  if  not  contested  at  the 
proper  time,  can  be  avoided  as  in  any  other  case  of  actual 
fraud.  But  such  common  directors  owe  the  same  fidelity  to 
both  corporations,  and  there  is  no  presumption  that  they  will 
deal  unfairly  with  either.  While  their  acts  may  be  voidable 
they  certainly  are  not  void.1  It  is  proper  that  a  contract  of 
this  character  should  be  subjected  to  close  scrutiny,2  and  if 
it  appears  that  there  was  actual  fraud  or  any  advantage  was 
of  either  corporation,  it  should  be  set  aside.8     The  same  rule 

lSan    IHego,    etc.,   Co.    v.    Pacific  they  represent  being  adverse,  the  con- 

etc,   Co.   (Cal.),  33    L.    R.   A.   788;  tracts  may   be  set  aside   at  the  in- 

Pauly  v.  Pauly,  107  Cal.  8,  48  Am.  St.  stance  of  any  person   having  an  in- 

Rep.  98;  Adams,  etc.,  Co.  v.  Senter,  terest  which   may   have  been   sacri- 

26  Mich. 73;  Leavenworth  Co.  Com.  ficed.    Such  contracts    may   be  sus- 

v.  Chicago,  etc., R.  Co.,  134  U.  8. 688;  tained  by  proving  that  the  directors, 

Coe  v.  East,  etc.,  R.  Co., 52  Fed.  Rep.  although  they  represented  conflicting 

631;  Bill  v.   W.  U.  Tel.  Co.,  16  Fed.  interests,  acted  in  good  faith.     IVar- 

Rep.  14;  Flagg  v.  Manhattan,  etc.,  R.  son  v.  Concord,  etc.,  R.  Co.,  62  N.  II. 

Co.,  10  Fed    Rep.   H3;  Jesup  v.  I  Hi-  537,  L3  Am.  St.  Rep.  690;  Goodin  v. 

tral  R.  Co.,  13  Fed.  Rep.  183;  Cincinnati,  etc.,  Co.,  L8  Ohio  St.  L69, 

b v. Robinson, 65 Md. 419; United  98  Am.    Dec.  95;  Memphis,  etc.,  R. 

v.  Atlantic,  etc.,  Co.,  Co.  v.  Woods,  88  Ala.  630,  16  Am.  St. 

do  St.    160,  32   Am.    Rep.  380;  Rep.  81. 

Washington  Nat'l  Bank,  n  •Roy,  etc., Co.  v.  Scott,  etc.,  Co.,  11 

li.  560.     When  contracts  are  en-  WaBh.399;  Langan  v.  Francklyn,  29 

tered  into  between  two  corporations,  AbbottN.Cas.  102 ;  Davidson  v.  Mexi- 

a  majority  <<\  the  board  •  ol  directors  can,  etc.,  R,  Co.,  58  Fed.  Rep.  <'»•">•'{. 

,,f    the  two  corporations    being    the  B U«ion  Pac.  R.  Co.  v.  Mobilier,  186 

and  Hi"  interests  \\  bich  .Mass.  :\U7. 


§  508  OFFICERS    AND    AGENTS.  555 

applies  to  contracts  between  corporations  having  the  same 
executive  officers  as  well  as  directors.  Thus,  a  valid  contract 
may  be  made  between  two  corportions  which  have  the  same 
president.1  Contracts  which  might  have  been  avoided  by  the 
corporation  may  become  binding  by  ratification.2  The  unan- 
imous consent  of  all  the  stockholders  is  not  necessary  to  the 
ratification  of  a  voidable  or  unauthorized  contract,  as  acts 
which  might  have  been  authorized  by  the  majority  may  be 
ratified  by  the  majority.  "The  corporation  may,  however, 
ratify  an  unauthorized  transaction  of  its  agents ;  and  this  may 
be  done  by  the  unanimous  acquiescence  of  the  shareholders,  or 
by  vote  of  the  majority,  if  the  transaction  was  of  such  a 
character  that  the  majority  might  have  authorized  it  at  the 
outset."3 

§  508.    Liability  of  a  corporation  for  torts  of  its  agents*1 — 

The  general  question  of  the  liability  of  corporations  for  torts 
has  already  been  considered.5  Their  liability  for  the  torts  of 
their  agents  is  governed  by  the  general  law  of  agency.  As  a 
general  proposition  a  corporation  is  liable  for  the  torts  of  its 
officers  and  agents  when  committed  in  the  course  of  their  actual 
or  apparent  employment.  If  the  act  is  expressly  authorized, 
or  is  ratified  by  proper  authority,  there  is,  of  course,  no  question 
as  to  the  liability  of  the  corporation  for  the  resulting  damages. 
If  the  corporation  confers  upon  an  agent  the  apparent  author- 
ity to  do  an  act,  it  can  not  escape  responsibility  for  the  wrong- 
ful manner  in  which  the  act  is  done  by  the  person  whom  it 

1McComb  v.  Barcelona,  etc.,  Assn.,  E.  Rep.  1097.     Before  such  a  contract 

134  N.  Y.  598;  Mayor  v.  Inman,  etc.,  can  be  avoided  it  is  necessary  that 

Co.,  57  Ga.  370.  what  has  been  received  under  it  be 

8  San  Diego,  etc.,  R.  Co.  v.  Pacific,  returned.  Thomas  v.  Brownville,  etc., 

etc., Co.  112Cal.53,33L.R.  A.  788.  For  R.  Co.,  109  U.  S.  522. 

illustrations  of  what  constitutes  rati-  3  Morawetz  Priv.  Corp.,  §525,  quoted 

fication,  see  Roberts  v.  National  Bank,  in  San  Diego,  etc.,  R.  Co.  v.  Pacific, 

11  Wash.  550;  United  States,  etc.,  Co.  etc.,  Co.,  112  Cal.  53. 

v.  Atlantic,  etc.,  Co.,  34  Ohio  St.  450,  4  See  Wilgus'  Cases,  Liability  of  Cor- 

32  Am.  Rep.  380;  Kitchen,  etc.,  Co.  v.  porations  for  Torts. 

St.  Louis,  etc.,  Co. ,  69  Mo.  224 ;  Evans-  s  See  ch.  10,  supra. 
ville,  etc.,  Co.  v.  Bank  (Ind.),  42  N. 


556  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  508 

thus  holds  out  to  the  world  as  authorized  to  represent  it  in 
such  matters.  But  if  the  wrongful  act  is  not  done  under  actual 
or  apparent  authority,  the  responsibility  for  it  can  not  be 
transferred  from  the  agent  to  the  corporation.  A  corporation 
is  liable  for  the  tortious  acts  of  its  agent  when  a  natural  per- 
son would  be  liable  for  the  act  under  the  same  circumstances.1 
Hence  the  statement  of  the  rule  as  to  natural  persons  by  Story2 
is  equally  applicable  to  corporations:  "A  principal  is  to  be 
held  liable  to  third  persons  in  a  civil  suit  for  the  frauds,  de- 
ceits, concealments,  misrepresentations,  negligences  and  other 
malfeasances  and  misfeasances  and  omissions  of  duty  of  his 
agent  in  the  course  of  his  employment,  although  the  principal 
did  not  authorize  or  justify  or  participate  in,  or  indeed,  know 
of  such  misconduct,  or  even  if  he  forbade  the  acts  or  disapproved 
of  them.  In  all  such  cases  the  rule  applies  respondeat  superior, 
and  is  founded  upon  public  policy  and  convenience,  for  in  no 
other  way  could  there  be  any  safety  to  third  persons  in  their 
dealings  directly  with  the  principal  or  indirectly  with  him 
through  the  instrumentality  of  agents.  In  every  such  case  the 
principal  holds  out  his  agent  as  competent  and  fit  to  be  trusted, 
and  thereby  in  effect  warrants  his  fidelity  and  good  conduct  in 
all  matters  within  the  scope  of  his  agency." 

If  the  act  was  done  in  the  course  of  the  agent's  employment, 
the  corporation  can  not  escape  liability  on  the  ground  that  it 
was  unauthorized,  or  that  it  was  expressly  forbidden,  nor  does 
the  fact  that  the  agent  acted  willfully  or  maliciously  affect  the 
question.3  Thus,  a  railroad  company  is  liable  in  damages  for 
an  assaull  by  its  conductor  upon  :i  passenger.1  But  the  agent 
represents  the  corporation  only  when  acting  tor  it  within  the 
actual  or  apparent  scope  of  his  authority,  and  it  has  been 
therefore  held  that  a  street  railway  company  is  not  liable  for 
malicious   prosecution  and    false  arrest  by  its  president  and 

'Denver,  etc.,  R.  Co.  v.  Harris,  122       "Wheeler,  etc,  Co.  v.    Boyce,  3G 

Fifth  Avenue,  etc.,  Bank  v.     Kan.  850. 

Forty-second  St.,  etc.,  Co.,  137  N.  Y.       'North    Chicago,  etc.,    R.    (V    v. 

L.:;i  '  Gastka,  128  ill.  618;  Dwinelle, etc.,  R 

•Agency,  $  452.  Co.  v.  Railway  Co.,  120    N.  V.    117; 

Cracker  v.  Railway  ('<>..  86  Wis.  657, 


§  509  OFFICERS    AND    AGENTS.  557 

superintendent  on  a  charge  of  passing  counterfeit  money  by 
dropping  a  lead  coin  in  the  fare  box.1  Nor  is  a  corporation 
liable  for  the  fraud  of  its  president,  who  in  negotiating  a  loan 
to  himself  falsely  represents  that  certain  certificates  of  stock  in 
the  corporation,  which  he  offers  as  collateral  for  the  loan,  are 
genuine.2  A  corporation  is  not  liable  for  the  act  of  its  manager, 
who  received  certain  certificates  of  stock  with  directions  to 
cancel  them,  but  who  fraudulently  reissued  them  for  his  own 
benefit.3  In  these  cases  the  act  was  not  within  the  actual  or 
apparent  authority  conferred  by  the  corporation  upon  the 
agent;  and  in  order  to  hold  the  corporation  it  would  be  neces- 
sary to  show  that  the  specific  act  was  either  expressly  author- 
ized or  ratified.4 

§  509.  Ratification. — A  corporation  may  become  liable  for 
the  unauthorized  torts  of  its  agent  by  ratification,  either  ex- 
pressly, or  through  the  acceptance  of  the  benefits  arising 
therefrom  with  knowledge  of  the  facts  and  circumstances. 
Thus,  where  the  agents  of  a  corporation  organized  for  educa- 
tional purposes,  wrongfully  engaged  in  the  business  of  convey- 
ing passengers  from  the  railway  station  to  the  grounds  of  its 
school  buildings,  it  was  held  liable  for  personal  injuries  occa- 
sioned by  the  negligence  of  such  agents,  where  it  appeared 
that  the  managing  officers  knew  that  the  business  was  being 
carried  on,  and  received  and  retained  the  income  resulting 
therefrom.5 

1  In  Central,  etc.,  Co.  v.  Brewer,  78  delivering  their  testimony,  did  not 
Md.  394,  27  L.  R.  A.  63,  it  was  held  support  the  theory  of  adoption  or  rat- 
that  the    superintendent  of  a  street  ification. 

railway  company  has  no  implied  au-  2  Manhattan,   etc.,    Co.     v.    Forty- 

thority  to  cause  the  arrest  of  a  pas-  second  St.,  etc.,  Co.,   139  N.  Y.  146. 

senger  for  putting  counterfeit  coin  in  See  Moores-  v.  Bank,  111  U.  S.  156. 

a  fare  box ;  and    the    fact    that  the  3  Knox   v.  Eden  Musee,   etc.,  Co., 

president,  superintendent  and  driver  148  N.  Y.  441. 

testified  before  the  court  afforded  no  4  See    Central   R.   Co.    v.    Brewer, 

legally  sufficient  evidence  of  ratifica-  supra. 

tion  or  adoption.     If  they  were  with-  5  Nims  v.  Mt.  Hermon,  etc.,  School, 

out  authority  in   causing  the  arrest,  160    Mass.    177,    22    L.    R.    A.    364, 

the  subsequent  testimony  given  for  Wilgus' Cases;    Eastern,  etc.,  R.  Co. 

the  state  by  them,  or  the  manner  in  v.    Broom,    6     Exch.     314,    Wilgus' 

which  they  demeaned  themselves  in  Cases. 


558  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  510 

§  510.  Liability  for  torts  in  ultra  vires  transactions. — When 
it  is  sought  to  hold  a  corporation  liable  for  the  torts  of  its 
agents,  the  only  question  properly  for  consideration  is  the  au- 
thority of  the  agent.  In  some  cases,  however,  the  courts  have 
said  that  the  employment  of  the  agent  must  have  been  in  a  trans- 
action in  which  it  was  within  the  power  of  the  corporation  to  en- 
gage. If  the  act  was  ultra  vires,  it  was  said  that  the  corporation 
could  not  authorize  it  to  be  done  by  its  agent,  and  that  there- 
fore there  was  no  liability  of  the  corporation  for  the  tortious 
acts  of  the  agent  committed  in  the  course  of  the  ultra  vires 
transaction.1  Thus,  in  Maryland,  where  it  was  sought  to  hold 
a  national  bank  liable  for  false  representations  made  by  its 
teller,  in  the  sale  of  certain  bonds,  the  court  said:  "We  are 
clearly  of  the  opinion  that  the  business  of  selling  bonds  on 
commission  is  not  within  the  scope  of  the  powers  of  the  corpo- 
ration, and  the  bank  could  not,  under  any  circumstances, 
carry  it  on  ;  and  being  thus  beyond  the  corporate  powers,  the 
defense  of  ultra  vires  is  open  to  the  appellee.  And  it  follows 
from  this  that  the  bank  is  not  responsible  for  any  false  repre- 
-  ntations  made  by  its  teller  to  the  appellant,  by  which  she 
was  induced  to  purchase  the  bonds  in  question."  So,  in 
Georgia,  an  action  against  a  railroad  corporation  and  an  indi- 
vidual as  partners  failed  because  it  was  held  that  the  corpora- 
tion had  no  power  to  become  a  member  of  a  partnership.3  But 
the  rule  now  established  is  that,  if  a  corporation  engages  in  an 
ultra  vires  transaction,  it  is  liable  for  the  torts  of  its  agents, 
committed  under  apparent  authority  in  the  course  of  the 
transaction.  This  rule  is  strongly  stated  in  the  well  known 
Bissell  case,1  where  the  distinction  between  the  power  and  ca- 
pacity, as  distinguished  from  the  right  to  do  an  act,  was  noted, 
and  certain  railroad  corporations  operating  their  roads  jointly 
miller  an   ultra  vires  act  were  held  liable  for  personal  injuries 

1  Bathe  v.  Society,  7::  [owa  11.  New  York,  <■!<■.,  R.  Co.  v.  Raring,  17 

•Wecklerv.  Bank,  12  Md.  581.  N.J.  !..  L37;  Hutchinson  v.  Railway 

lunn  v.  Railway  Co.,  74  Ga.  509.  Co.,  6  Heisk.  (Tenn.    634;    Nims  v. 

•22  N.  Y.  26  ilso  Buffettv.  Mi.  Hermon   School,  160   Mass.  177, 

Railway  •  ''>..   i<>  V   Y.   168;  Central,  39    \m.  St.  I:     W7,  22  L.   i;     \.  364, 

i;    etc.,   ("    v.   Smith,  76  Ala.  •'»:•_';  Wilgus'  Cases. 


§  511  OFFICERS    AND    AGENTS.  559 

caused  to  a  passenger  through  the  negligence  of  their  agents. 
Where  a  street  railway  corporation  attempted  to  avoid  lia- 
bility for  a  personal  injury,  on  the  ground  that  it  was  en- 
gaged in  an  ultra  vires  transaction,  not  having  been  granted 
the  necessary  franchise,  the  court  said:1  "But  the  doctrine 
of  ultra  vires  does  not  apply  to  torts  of  this  nature.  It  would 
indeed  be  an  anomalous  result  in  legal  science  if  a  corporation 
should  be  permitted  to  set  up  that,  inasmuch  as  a  branch  of 
the  business  prosecuted  by  it  was  wrongful,  therefore  all  the 
special  wrongs  done  to  individuals  in  the  course  of  it  were 
remediless.  But  in  such  situations  corporations,  like  individ- 
uals, can  not  take  advantage  of  their  own  wrong  by  way  of  de- 
fense. If  corporations  are  not  to  be  held  responsible  for  inju- 
ries done  to  persons  in  the  transaction  of  a  series  of  wrongful 
acts,  such  an  immunity  would  have  wide  scope.  All  wrongs 
done  by  such  bodies  are  in  a  sense  ultra  vires,  and  if  the  want 
of  a  franchise  to  do  a  tortious  act  be  a  defense,  then  corpora- 
tions have  a  dispensation  from  liability  for  these  acts  peculiar 
to  themselves." 

§  511.    Liability  of  officers  for  acts  in  excess  of  authority. — 

Directors  and  other  officers  who  exceed  their  authority  may  be 
liable  not  only  to  the  corporation  for  any  damages  occasioned 
thereby  to  it,  but  also  personally  to  the  parties  with  whom 
they  have  dealt.2  "  There  can  be  no  doubt  that  if  the  direct- 
ors or  officers  of  the  company  do  acts  clearly  beyond  their 
power  whereby  loss  ensues  to  the  company,  or  dispose  of  its 
property,  or  pay  away  its  money  without  authority  they  will 
be  required  to  make  good  the  loss  out  of  their  private  estate." 
This  is  the  rule  whether  the  disposition  made  of  the  money  or 
property  of  the  corporation  is  one  either  not  within  the  lawful 
power  of  the  corporation,  or  if  within  the  power  of  the  corpo- 

1  New  York,  etc.,  R.  Co.  v.  Haring,  and   Mechanics'   Bank  v.   Colby,   64 

47   N.  J.  L.  137.  Cal.  352. 

2 Solomon  v.  Penoyar,  89  Mich.  11 ;  'Thompson    Liability    of    Officers, 

Citizens',  etc.,    Assn.    v.  Coriell,   34  §375;  Discount  Co.  v.   Brown,  L.  R. 

N.  J.  Eq.  383;    Nelligan  v.  Campbell,  8  Eq.  381 ;  Flitcrof. t's  case,  L.  R.  21  Ch. 

20  N.  Y.  Supp.  234.   But  see  Farmers'  Div.  519;   Insurance  Co.  v.  Jenkins 

3  Wend.  130. 


560  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  512 

ration,  is  not  within  the  power  or  authority  of  the   particular 
officer  or  officers.1 

This  liability  for  unauthorized  acts,  although  prohibited  by 
statute  or  by-law,  rests  in  fact  upon  the  common-law  rule 
which  renders  every  agent  liable,  who  exceeds  his  authority  or 
neglects  his  duty.2  But  the  officer  is  not  liable  to  the  corpo- 
ration for  ultra  vires  acts  which  were  authorized  by  the  stock- 
holders, either  expressly  or  by  acquiescence.3  The  fact  that 
the  board  of  directors  in  violation  of  their  own  duty  attempted 
to  authorize  an  officer  to  do  an  act  in  violation  of  his  duty,  is 
no  defense  to  an  action  on  the  officer's  official  bond.4 

§  512.  Liability  for  abuse  of  trust. — The  directors  of  a  pri- 
vate corporation  who  willfully  abuse  their  trust  or  misapply 
the  funds  of  the  company  by  which  a  loss  is  sustained,  are 
personally  liable  to  make  good  the  loss,  and  they  are  equally 
liable  if  they  suffer  the  corporate  funds  or  property  to  be 
wasted  by  gross  neglect  and  inattention  to  the  duties  of  their 
position.5  So,  if  there  is  neglectful  abandonment  of  his  official 
duty  by  a  director,  or  if  he  leaves  the  entire  control  of  the 
company's  business  to  other  agents  and  fails  to  exercise  proper 
supervision,  he  is  liable  for  losses  which  due  attention  and 
diligence  on  his  part  might  have  prevented.  If  there  is  cul- 
pable negligence  of  this  character  on  the  part  of  a  director,  an 
action  at  law  may  be  maintained  against  him  by  his  principal, 
as  in  other  cases  of  agency,  without  joining  his  associates.6 
An  officer  who  has  misappropriated  the  funds  of  a  corporation 

1  North     Hudson,     etc.,    Assn.    v.       •Minor  v.  Bank,  1  Pet.  (TJ.  S.)  46. 
Childs,  82  Wis.  460,  52  N.  W.  Rep.        sDoe  v.  N.  \V.  &  Co.,  78  Fed.  Rep. 

800.  62;  Robinson  v.  Smith,  :i  Paige  221,  24 

*  Briggs  v.  Bpaulding,  141  U.  S.  K52;  Am.  Dec.   212;  Brinckerhoff  v.  Host- 

North    Hudson,  etc.,  Assn.   v.   Childs  wick,   88   N.   Y.    52;   Delano  v.  Case, 

(Wis.),  52  N.   W.   Rep.  600;  Throop  121  111.247;  Perry  v.  Oil  Mill  Co.,  93 

Liability  of  Officers,  §  357.  Aatowhal  Ala.  364;  Wilkinson  v.  Bauerle,41N. 

acta  are  sufficient  to  charge  the  offi-  .1.  Eq.  635;  Marshall  v.  Bank,85Va. 

i'c  I'crry  v.  Tuscaloosa,  etc.,  Co.  676,  L7  Am.  St.  Rep.  84. 
(Ala.),  9  So.  Rep.  217;  Wayne,  etc.,        "Horn,  He,  C<>.  v.  Ryan,  12  Minn, 

Co.   ■.     Hammone    find.),  27   N.    E.  L96;  Hun  v.  Cary,  82  N.  Y.65,87  Am. 

Rep.   187;  Ellis  v.  Ward,  187  111.  580,  Rep.  646;  Empire,  etc.,  Bank  v.  Beard, 

E.  Rep.   i  80  N.  V.  Sup.  756. 

s  Holmes  v.  Willard,  L25  N.  V.  7:>. 


§  513  OFFICERS    AND    AGENTS.  561 

can  not  cure  the  breach   of  duty  and  entitle  himself  to  the  fur- 
ther custody  of  the  assets  by  simply  restoring  the  money.1 

§  513.  Degree  of  care  required  of  directors.2 — Officers  and 
directors  of  a  corporation,  when  they  act  in  good  faith  within 
their  authority  and  the  limits  of  the  power  conferred  upon 
them  by  the  charter,  are  not  responsible  to  the  corporation  for 
losses  resulting  from  mere  mistakes  of  judgment.  Their  lia- 
bility, if  any,  must  result  from  a  failure  to  exercise  the  ordi- 
nary care  and  diligence  which  is  required  from  them  under 
the  circumstances.  This  degree  of  care  is  that  which  a  pru- 
dent man  exercises  in  his  own  affairs.3  In  a  recent  case4  it  was 
said:  "In  respect  to  directors,  or  those  acting  ex  officio  as 
such,  the  rule  of  liability  has  been  the  subject  of  much  discus- 
sion. In  the  recent  case  of  Briggs  v.  Spaulding,5  in  which, 
although  there  was  a  strong  dissent,  the  rule  may  be  regarded 
as  settled,  in  the  federal  courts  at  least,  and  in  the  courts  of 
several  of  the  states  as  there  laid  down,  and  to  the  effect  that 
directors,  although  often  called  trustees,  are  not  such  in  any 
technical  sense,  but  that  they  are  mandataries,  the  relation 
between  them  and  the  corporation  being  rather  that  of  princi- 
pal and  agent;  but,  under  circumstances,  they  may  be  treated 
as  occupying,  in  consequence  of  the  powers  conferred  on  them, 
the  position  of  trustees  to  cestuis  que  trustent;  that  the  degree 
of  care  required  of  them  depends  upon  the  subject  to  which  it 
is  to  be  applied,  and  each  case  is  to  be  determined  upon  its 
own  circumstances;  that,  as  they  render  their  services  gratuit- 
ously, they  are  not  to  be  held  to  the  degree  of  responsibility  of 

1  Fougeray  v.  Cord  (N.  J.  Eq.),  24  trim,  123  Ind.  24,  23  N.  E.  Rep.  858. 
Atl.  Rep.  499.  As  to  suspicious  circumstances  which 

2  See  Wilgus'  Cases.  should  cause  a  director  to  make  in- 

3  Wallace  v.  Lincoln  Sav.  Bank,  89  quiry,  see  Gibbons  v.  Anderson,  80 
Tenn.  630,  24  Am.  St.  Rep.  625;  Sper-  Fed.  Rep.  345;  Robinson  v.  Hall,  63 
ing's  App.,  71  Pa.  St.  11;  10  Am.  Fed.  Rep.  222,  25  U.  S.  App.  48,  12  C. 
Rep.  684;  Hun  v.  Cary,  82  N.  Y.  65,  C.  A.  674.  Note  to  48  Am.  St.  Rep.  921.' 
37  Am.  Rep.  546;  Watts'  App.,  78  *  North  Hudson,  etc.,  Assn.  v. 
Pa.  St.  370;  Horn  v.  Silver,  etc.,  Co.,  Childs  (Wis.),  52  N.  W.  Rep.  600. 

42  Minn.  196;  Williams  v.  McDonald,        5 141  U.  S.  132.     See,  also,  Warner 
37  N.   J.   Eq.   409;  Mowbray  v.  An-    v.  Penoyer,  82  Fed.  Rep.  181. 
36— Private  Corp. 


562  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  514 

bailees  for  hire,1  or  expected  to  devote  their  whole  time  and  at- 
tention to  their  duties;  that  they  are  not,  in  the  absence  of  any 
element  of  positive  misfeasance,  and  solely  on  the  grounds  of 
passive  negligence,  to  be  held  liable,  unless  their  negligence  is 
gross,  or  they  are  fairly  subject  to  the  imputation  of  a  want  of 
good  faith.  *  *  *  The  degree  of  care  they  are  bound  to  exer- 
cise is  that  which  ordinary  prudent  and  diligent  men  would 
exercise  under  similar  circumstances  in  respect  to  a  like  gratu- 
itous employment,  regard  being  had  to  the  usages  of  business 
and  the  circumstances  of  each  particular  case ;  that  they  are 
not  liable,  in  the  absence  of  fraud  or  intentional  breach  of 
trust,  for  negligence,  mistakes  of  judgment  and  bad  manage- 
ment in  making  investments  on  doubtful  or  insufficient  secur- 
ity. Where  they  have  not  profited  personally  by  their  bad 
management,  or  appropriated  any  of  the  property  of  the  cor- 
poration to  their  own  use,  courts  of  equity  treat  them  with  in- 
dulgence. Were  a  more  rigid  rule  to  be  applied,  it  would  be 
difficult  to  get  men  of  character  and  pecuniary  responsibility 
to  fill  such  positions."  2 

§  514.    Liability  of  officer  is  for  individual  acts  or  omissions. 

— It  is  for  their  own  acts  and  negligence  only  that  officers 
and  directors  of  a  corporation  are  liable  to  the  corporation. 
Hence,  the  corporation  can  not  hold  a  director  merely  because 
he  is  a  director  personally  liable  for  damages  occasioned  by 
the  wrongful  acts  or  negligence  of  other  directors.  "Upon  a 
close  examination  of  all  the  reported  cases,"  said  Mr.  Justice 
Sharswood,'  "although  there  are  many  dicta  not. easily  recon- 
cilable, yet,  I  have  found  no  judgment  or  decree  which  has 
held  directors  to  account,  e.\<-o|>t  when  they  have  themselves 
been  guilty  of  some  fraud  on  the  corporation  or  have  known 
or  connived  at  some  fraud  in  others,  or  where  such  fraud 
liii^ht  have  been  prevented  had  (hey  given  ordinary  attention 

1  linn  v.  Cary,  82  N.  Y.  65;  Horn,  150;   Ackerman   v.  Halsey,  37  N\  J. 

etc.,  Co.  v.  Ryan,  12  Minn.  196.  Eq.  356;   In  re  Denham  &  Co.,  25  L. 

Lpp.,71  Pa. St.  ll;Swent-  R.  Ch.  Div.  752 ;  Watts'   \.pp.,  78  Pa, 

ssei                          23  Ml.  Rep  K)5;   In  St.  870;   Hun  v.  Cary,  82  V  Y.  65, 

ra  i                   Co.,  I-.  R.  L0  Ch.  Div.  ■  Spering's  App.,  71  Pa.  St.  LI. 


§  515  OFFICERS    AND    AGENTC  563 

to  their  duty.  I  do  not  mean  to  say  by  any  means  that  their 
responsibility  is  limited  to  these  cases,  and  that  there  might 
not  exist  such  a  case  of  negligence  or  of  acts  clearly  ultra  vires 
as  would  make  perfectly  honest  directors  liable.  But  it  is 
evident  that  gentlemen  selected  by  the  stockholders  from  their 
own  body  ought  not  to  be  judged  by  the  same  strict  standard 
as  the  agent  or  trustee  of  a  private  estate.  Were  such  a  rule 
applied,  no  gentleman  of  character  and  responsibility  would  be 
willing  to  accept  such  places."1  The  corporation  has  a  remedy 
against  the  directors  and  officers  for  negligence,  fraud,  breach 
of  trust,  or  for  acts  done  in  excess  of  their  authority,  but  the 
case  against  each  is  distinct,  depending  upon  the  evidence 
against  him,  unless  two  or  more  have  joined  or  participated 
in  the  wrongful  act,  in  which  case  all  participants  may  be 
joined  as  defendants.2  The  liability  for  acts  of  sub-agents  is 
based  upon  the  want  of  care  in  selecting  or  supervising  such 
agents.  Thus,  the  directors  are  not  insurers  of  the  fidelity  of 
the  agents  whom  they  have  appointed,  who  are  not  their 
agents,  but  the  agents  of  the  corporation,  and  they  can  not  be 
held  responsible  for  losses  resulting  from  the  wrongful  acts  or 
omissions  of  other  directors  or  agents,  unless  the  loss  is  a  con- 
sequence of  their  own  neglect  of  duty,  either  in  failing  to 
supervise  the  business  with  attention  or  in  neglecting  to  use 
proper  care  in  the  appointment  of  agents.3  It  is  no  ground 
of  liability  or  even  of  censure,  that  directors  knowing  of  the 
bank's  embarrassment,  conceal  the  fact  from  creditors;  for 
such  is  their  duty,  unless  the  embarrassment  is  such  as  to  im- 
peratively demand  suspension.4 

§  515.    Supervision  of  sub-agents. — With  reference  to  the 
claim  that  the  directors  of  a  corporation  should  have  exercised 

1  Association  v.  Coriell,  34  N.  J.  Eq.  Fed.  Eep.  781  ;  Savings    Bank  v.  Ca- 

383;  Land,  etc.,  Co.  v.  Lord  Fermoy,  perton,    87     Ky.    306;     Stapleton    v. 

L.  R.  5  Ch  763.  Odell,  47  N.  Y.  Supp.  13;  New  York, 

2North     Hudson,     etc.,     Assn.    v.  etc.,  Co. v.  Higgins,  29  N.Y.  Supp.  416; 

Childs,  86  Wis.  292,  52  N.W.  Rep.  600;  Higgins  v.  Hayden  (Neb.),  73  N.  W. 

Briggs  v.   Spaulding,  141  IT.  S.  132;  Rep.  280;  Isham  v.  Post  (N.  Y.),  35  N. 

Warner  v.  Penoyer,  82  Fed.  Rep.  181.  E.  Rep.  1084. 

3  Briggs  v.  Spaulding,  141  U.  S.  132.  4  Robinson  v.  Hall,  59  Fed.   Rep. 

See  also  Wheeler  v.  Aiken  Bank,  75  648. 


564  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  516 

greater  care  in  checking  up  the  books  of  a  bank,  and  examin- 
ing into  the  conduct  of  a  managing  officer,  the  supreme  court 
of  the  United  States  said: 1  "Certainly  it  can  not  be  laid  down 
as  a  rule  that  there  is  an  invariable  presumption  of  rascality 
as  to  one's  agents  in  business  transactions,  and  that  the  degree 
of  watchfulness  must  be  proportioned  to  that  presumption. 
'  I  know  of  no  law,'  said  Vice-Chancellor  McCoun,2  'which  re- 
quires the  president  or  directors  of  any  moneyed  institution  to 
adopt  a  system  of  espionage  in  relation  to  their  secretary  or 
cashier  or  any  subordinate  agent,  or  to  set  a  watch  upon  all 
their  actions.  While  engaged  in  the  performance  of  the  gen- 
eral duties  of  their  station  they  must  be  supposed  to  act  hon- 
estly, until  the  contrary  appears;  and  the  law  does  not  require 
their  employer  to  entertain  jealousies  and  suspicions  without 
some  apparent  reason.  Should  any  suspicious  circumstance- 
transpire  to  awaken  a  just  suspicion  of  their  want  of  in- 
tegrity, and  it  be  suffered  to  pass  unheeded,  a  different  rule 
would  prevail,  if  a  loss  ensued.  But  without  some  fault  on 
the  part  of  the  directors  amounting  either  to  negligence  or 
fraud,  they  can  not  be  liable.'  "  It  was  therefore  held  that 
the  failure  of  directors  to  cause  a  thorough  examination  of  the 
books  of  the  bank  to  be  made  within  ninety  days  after  their 
election  was  not  negligence,  when  the  bank  was  generally 
regarded  as  in  good  condition  and  the  managing  officer  was 
a  man  of  good  reputation  in  the  community. 

§  516.  Knowledge  of  contents  of  corporate  records. — A  di- 
rector or  stockholder  is  not  chargeable  with  actual  knowledge 
of  the  business  transactions  of  the  corporation  merely  because 
he  is  such  director  or  stockholder.3     The  directors  of  a  corpo- 

1  Brigge  v.  Spaulding,  I II  U.  S.  132.  had  he  given  proper  attention  to  the 

h,  -in  Pedro,  etc.,  Co.  v.  Reynolds,  business.    Bee  Cameron  v.  Kenyon- 

Il'I  Oal.  74,  the  manager  ol  a  corpo-  Connell,  etc,  ('<>.   (Mont.),  44  L.  R. 

ration  whose  duties  were  to  Btiperin-  A..  608. 

tend,  ovei  lee,  and  direel  the  business  2  Scott  v.  DePeyBter,  l  Ed.  Ch.  518. 

of  the  corporation,  was  held  liable  for  3  Rudd  v.  Robinson,  126  N.  Y.  113, 

thefts  by  a  bookkeeper, on  tin'  ground  'Si  Am.  Bt.  Rep.  816.    Bee  Houston  v. 

thai   they   wouldhave  been  avoided  Thornton,  122  N.  C.  :{<;:.,  i;f)  Am.  St. 


§  516  OFFICERS    AND    AGENTS.  565 

ration  can  not  as  a  matter  of  law  be  charged  with  knowledge 
of  what  is  disclosed  by  the  books  and  records  of  the  corpora- 
tion. Thus,  in  an  action  in  which  it  was  sought  to  hold  the 
directors  liable  for  negligence  the  supreme  court  said  that 
knowledge  of  what  the  books  and  papers  would  have  shown 
can  not  be  imputed  to  the  directors.1  Chief  Justice  Fuller 
quoted  with  approval  the  following  language  of  Judge  Earl:2 
"He  was  simply  a  director  and  as  such  attended  some  of  the 
meetings  of  the  board  of  directors.  As  he  was  a  director, 
must  we  impute  to  him  for  the  purpose  of  charging  him  with 
fraud  a  knowledge  of  all  the  affairs  of  the  company?  If  the 
law  requires  this  then  the  position  of  a  director  in  any  large 
corporation  like  a  railroad  or  banking  or  insurance  company, 
is  one  of  constant  peril.  The  affairs  of  such  a  company  are 
generally  of  necessity  largely  intrusted  to  managing  officers. 
The  directors  generally  can  not  know  and  have  not  the  ability 
or  knowledge  requisite  to  learn  by  their  own  efforts  the  true 
condition  of  the  affairs  of  the  company.  They  select  agents  in 
whom  they  have  confidence  and  largely  trust  to  them.  They 
publish  their  statements  and  reports  relying  upon  the  facts  and 
figures  furnished  by  their  agents;  and  if  the  directors,  when 
actually  cognizant  of  no  fraud,  are  to  be  held  liable  in  an  ac- 
tion of  fraud  for  an  error  or  misstatement  in  such  statements 
and  reports,  then  we  have  a  rule  by  which  every  director  is 
made  liable  for  any  fraud  that  may  be  committed  upon  the 
company  in  the  abstraction  of  its  assets  and  diminution  of  its 
capital  by  any  of  its  agents,  and  he  becomes  substantially  an 
insurer  of  their  fidelity.  It  has  not  been  generally  understood 
that  such  a  responsibility  rested  upon  the  directors  of  a  corpo- 
ration and  I  know  of  no  principle  of  law  or  rule  of  public  pol- 
icy which  requires  that  it  should." 

On  the  same  question  Sir  George  Jessel  said: 3     "  It  is  con- 
tended that  Hallmark,  being  a  director  must  be  taken  to  have 

Rep.  699,  annotated,  21  Am.  St.  Rep.  'Briggs  v.  Spaulding,  141  U.  g.  132, 
662.    As  to  when  knowledge  of  pro-     162. 

ceedings  are  to  be  imputed  to  officers  2  Wakeman  v.  Dalley,  51  N.  Y.  27, 
and  shareholders,  see  note  to  22  Am.     32.  * 

St.  Rep.  821.  3  Hallmark's  Case,  L.  R.  9  Ch.  Div. 

329. 


5G6  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  517 

known  the  contents  of  all  the  books  and  documents  of  the 
company,  and  so  to  have  known  that  his  name  was  on  the 
register  of  shares  for  fifty  shares.  But  he  swears  that  in  fact 
he  did  not  know  that  any  shares  had  been  allotted  to  him.  Is 
knowledge  to  be  imputed  to  him  under  any  rule  of  law?  As 
a  matter  of  fact  no  one  can  suppose  that  a  director  of  a  com- 
pany knows  everything  which  is  entered  in  the  books  ;  and  I 
see  no  reason  why  knowledge  should  be  imputed  to  him  which 
he  does  not  possess  in  fact.  Why  should  it  be  his  duty  to 
look  into  the  list  of  shareholders?  I  know  no  case  except  Ex 
parte  Brown,1  which  shows  that  it  is  the  duty  of  a  director  to 
look  at  any  of  the  entries  in  the  books  ;  and  it  would  be  ex- 
tending the  doctrine  of  constructive  notice  far  beyond  that  or 
any  other  case  to  impute  to  this  director  the  knowledge  which 
it  is  sought  to  impute  to  him  in  this  case." 

A  principal   stockholder  in  a  corporation  who  knew  that  a. 
person  was  employed  by  it  as  its  president  was  held  bound  by 
the  contents  of  its  corporate  books   in   respect  of  his   salary 
when  they  were   open   to   her   examination  and  she  failed   to 
make  an  examination  within  a  reasonable  time.2 

§  517.  Liability  for  care  of  papers. — The  liability  of  the 
officers  of  a  corporation  for  corporate  funds  and  papers  intrusted 
to  their  care  is  that  of  an  ordinary  trustee  or  bailee  for  hire.8 

§  518.  Liability  for  mistakes. — Directors  are  not  liable  for 
mistakes  of  fact  if  they  exercise  due  diligence  and  care.  Thus 
they  are  not  personally  liable  for  erroneously  paying  a  divi- 
dend out  of  capital  if  they  made  a  careful  investigation  and 
honestly  believed  that  there  were  profits  out  of  which  to  pay 
the  dividend.4  So  where  the  directors  act  in  good  faith  and 
with  proper  diligence,  they  arc  not  responsible  for  mistakes  of 
law.5     They  are    not,  bound   to  consult  counsel,1'  and    the   fact 

1  in  Beav.  97.  'Hodges  v.  New  England,  etc., Co., 

•Church  i   Cementico  Co.  (Minn.),  I   R.   I.  812,  58  Am.    Dec.  624;  Wil- 

77  N.  W.  Rep.  548.  I'mms  v.  McDonald,  37  N.  .1.  Eq.  409; 

■Mowbray  v.  Antrin  (Ind.),  23  N.  Spering's  Appeal,  71  Pa.  St.  11, 10  Am, 

i:    I:   ;.  Rep.  684. 

■Excelsior,  etc.,  Co.  v.  Lacey,  68  'Vance  v.  Phoenix,  etc.,  Co.,  4  Lea 

N.  V.   IL'L'.  (Trim.)  385. 


§  519  OFFICERS    AND    AGENTS.  567 

of  having  consulted  counsel,  while  evidence  of  care,  will  not 
necessarily  exempt  them  from  liability  if  they  do  not  act  in 
good  faith.1 

§  519.  Liability  on  contracts.2 — The  liability  of  the  officer  or 
agent  of  a  corporation  on  a  contract  made  by  him  on  behalf  of 
the  corporation  is  governed  by  the  general  principles  of  the 
law  of  agency,  and  not  by  any  principles  peculiar  to  the  law 
of  corporations.  If  the  agent  exceeds  his  authority,  he  is 
himself  liable  upon  the  contract.3  It  has  been  held  that  the 
agent  is  liable  in  contract  when  he  acts  in  good  faith,  and  in 
tort  when  he  acts  in  bad  faith ;  that  he  is  liable  on  an  implied 
warranty  of  authority;4  and  that  the  liability  is  in  all  cases  in 
tort.5  A  person  who 'acts  as  the  agent  of  a  foreign  corporation 
which  is  not  authorized  to  do  business  in  the  state,  knowing 
such  to  be  the  fact,  is  personally  liable  on  the  contract.6 

§  520.  Liability  to  third  persons  for  torts. — An  officer  of  a 
corporation  who,  in  the  course  of  his  employment,  is  guilty  of 
a  tort,  is  personally  liable  to  the  person  injured  for  the  dam- 
ages caused  thereby,  notwithstanding  the  fact  that  the  corpo- 
ration may  also  be  liable.7  But  it  must  appear  that  the  act 
was  committed  by  such  officer,  or  that  it  was  his  duty  to  at- 
tempt to  prevent  it,  and  that  he  failed  to  do  so.8  Thus,  the 
manager  of  a  corporation  in  charge  of  its  works  is  personally 
liable   for  damages  because  of  his  negligent  failure  to  erect  a 

1See  Caulkins  v.  Gas  Light  Co.,  85  6  Lasher  v.  Stimpson,  145  Pa.  St.  30. 

Tenn.  683,  4  Am.  St.  Rep.  786.  "As  to  liability  for  misrepresenta- 

2  See  Wilgus'  Cases,  Relation  of  Of-  tion  as  to  solvency  of  the  corporation, 
ficers  to  Dealers  and  Non-Dealers.  see  Houston  v.  Thornton,  122  N.  C. 

3  See  note  to  53  Am.  Dec.  649;  365,  65  Am.  St.  Rep.  699  and  note,  p. 
Kroeger  v.  Pitcairn,  101  Pa.  St.  311,  707.  See,  also,  notes  to  8  Am.  St. 
47  Am.  Rep.  718;  Feeter  v.  Heath,  11  Rep.  604  and  48  Am.  St.  Rep.  921,  7 
Wend.   (N.  Y.)  478;  Keener  v.  Har-  Am.  Dec.  255. 

rod,  2  Md.  63.  8Nunnelly  v.  Southern,    etc.,  Co., 

4  Farmers',  etc.,  Co. v.  Floyd,  47  Ohio  94  Tenn.  397,  28  L.  R.  A.  421,  anno- 
St.  525;  Nelligan  v.  Campbell,  20  N.  tated ;  Cameron  v.  Kenyon-Connell, 
Y.  Supp.  234;  Lasher  v.  Stimpson,  145  etc.,  Co.  (Mont.),  44  L.  R.  A.  508; 
Pa.  St.  30;  Lewis  v.  Tilton,  64  Iowa  People  v.  England,  27  Hun  (N.  Y.) 
220,  19  N.  W.  Rep.  911.  139. 

6  Jefts  v.  York,  10  Cush.  (Mass.)  392. 


568  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  521 

scaffold  which  is  necessary  for  the  protection  of  persons  pass- 
ing near  the  building.1  So,  an  officer  and  general  manager 
of  a  lumber  company  is  personally  liable  for  setting  an  inex- 
perienced and  ignorant  employe  at  work  upon  dangerous  ma- 
chinery without  giving  him  proper  instructions.2  The  officers 
of  a  mining  company  are  personally  liable  for  damages  caused 
to  a  riparian  proprietor  by  the  long-continued  discharge  of 
muddy  water  into  a  stream  with  their  knowledge  and  con- 
sent.3 The  directors  are  liable  to  a  person  who,  by  fraudulent 
representation  made  by  the  directors,  are  induced  to  contract 
with  a  corporation  to  their  injury.  Such  an  act  is  founded 
upon  the  personal  tort  of  the  directors.1  A  purchaser  of  mort- 
gage bonds  issued  by  a  corporation  who  relies  upon  a  state- 
ment on  their  face  that  they  are  first  mortgage  bonds,  may  re- 
cover the  damages  sustained  thereby  from  the  corporate  offi- 
cers who  issued  the  bonds  with  the  intention  that  the  state- 
ment should  be  acted  on  as  true  by  the  purchaser.5  Officers 
and  directors  who  knowingly  issue  or  cause  to  be  issued  a 
prospectus  containing  false  statements  of  material  facts,  which 
have  a  natural  tendency  to  mislead,  are  liable  personally  to 
persons  who  purchase  the  corporate  stock  in  reliance  thereon.6 
Such  a  case  must,  of  course,  come  within  the  general  rules 
governing  other  actions  for  false  representation.7 

§  521.  Yiolation  of  charter  or  statute. — The  liability  of  an 
officer  for  neglect  of  the  duty  which  he  owes  to  the  corpo- 
ration does  not  rest  upon  the  fact  that  the  act  is  prohibited  by 
statute,  but  upon  the  violation  of  a  common  law  duty.  Thus 
Morawetz  says:8     The  liability  of  directors  for  damages  caused 

1  Mayer  v.  Thompson,  etc.,  Co.,  104  BMorgan   v.  Skid.lv,  (12  X.  Y.  319. 

Ala.  'ill,  28  L.  !:.  A.  133.  See  §370. 

enbergv.  Wnitcomb,  etc.,  Co.,  7Cole  v.  Cassidy,  138  Mass.  137. 

90  Wis.  225,  28  L.  R.  A.  439.  'Morawetz    Priv.     Corp.,    §    556, 

"Nunnelly  v.  Southern,  etc.,  Co.,  94  quoted   with    approval   in    Brigga  v. 

Tenn.  397,  28  L.  R.   i.  421.  Spaulding,  in    Q.   S.    132.    See  also' 

4  Salmon  v.  Richardson,  ■':'>  Conn,  North  Hudson,  etc.,  Assn.  v.  Childs, 

360  86  Wis.  292. 

ni;  oi  Atchison  Oo.  v.  Byere,  L89 
Mo.  627. 


§  522  OFFICERS    AND    AGENTS.  569 

by  acts  expressly  prohibited  by  the  company's  charter  or  act 
of  incorporation  is  not  created  by  force  of  the  statutory  prohi- 
bition. The  performance  of  acts  which  are  illegal  or  pro- 
hibited by  law  may  subject  the  corporation  to  a  forfeiture  of 
its  franchises  and  the  directors  to  criminal  liability;  but  this 
would  not  render  them  civilly  liable  for  damages.1  The  lia- 
bility of  directors  to  the  corporation  for  damages  caused  by 
unauthorized  acts  rests  upon  the  common  law  rule  which  ren- 
ders every  agent  liable,  who  violates  his  authority  to  the  dam- 
age of  his  principal.  A  statutory  prohibition  is  material  under 
these  circumstances,  merely  as  indicating  an  express  restric- 
tion placed  upon  the  powers  delegated  to  the  directors  when 
the  corporation  was  formed. 

§  522.  Liability  imposed  by  statute. — The  officers  and  di- 
rectors of  a  corporation  are,  by  statute,  in  some  states  made 
liable  for  the  debts  of  the  corporation.  The  liability  is  some- 
times absolute  to  a  certain  amount,2  or  for  an  amount  in  ex- 
cess of  a  designated  indebtedness,3  but  more  commonly  it  is 
penal  for  a  breach  or  neglect  of  duty,4  as  a  failure  to  make  a 
report,5  or  the  making  of  a  false  report,6  or  violating  any  of 
the  provisions  of  the  act  under  which  the  corporation  is  incor- 
porated whereby  it  becomes  insolvent.7  Such  statutes  are 
strictly  construed,  and  under  them  a  clear  case  must  be  made 
out  in  order  to  render  the  officer  liable.8 

*But     see     Baxter     v.     Coughlan  95;  Matthews  v.  Patterson,  16  Colo. 

(Minn.),  72  N.  W.  Rep.  797.  215.     Paying  a  dividend  out  of  capi- 

2  State  Bank  v.  Andrews,  18  N.  Y.  tal.     Eorke  v.  Thomas,  56  N.  Y.  559. 

Supp.  167.  'Patterson  v.  Minnesota,  etc.,  Co.; 

'Thatcher  v.  King,  156  Mass.  490;  41  Minn.  84;  Clow  v.  Brown,  150  Ind. 

Tradesman's,  etc.,  Co.  v.  Knoxville,  185. 

etc.,  Co.,95Tenn.634,  31  L.  R.  A. 593.  8Garrison  v.  Howe,  17  N.  Y.  458; 

4  Patterson  v.  Minnesota,  etc.,  Co.,  Bruce  v.  Piatt,  80  N.  Y.  379.  The  stat- 
41  Minn.  84.  ute  of  limitation  governing  penalties 

5  Gold  v.  Clyne,  134  N.  Y.  262,  31  N.  applies.  Merchants'  Bank  v.  Bliss,  35 
E.  Rep.  980,  17  L.  R.  A.  767;  Bank  v.  N.  Y.  412.  In  Jones  v.  Barlow,  62  X. 
Pierson,  112  Mich.  410.  Y.  202,  it  was  held  that  the  statute  be- 

6Torbett  v.   Godwin,  62  Hun  407;  gins  to  run  from  the  time  when  the 

Ferguson  v.  Gill,  19  N.  Y.  Supp.  149;  cause  of  action  accrues  to  the  creditor, 

Chittenden  v.  Thannhauser,  47  Fed.  and  not  from  the  time  of  the  default 

Rep.  410;  Pier  v.  Hanmore,  86  N.  Y.  in  making  the  report. 


570  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  522 

The  failure  by  the  directors  of  a  corporation  to  file  an  annual 
report  of  its  assets  and  liabilities,  as  required  by  the  statute, 
will  not  render  them  personally  liable  for  a  contingent  liabil- 
ity of  the  corporation  under  an  executory  contract,  which  does 
not  become  an  existing  debt  until  the  corporation  has  expired 
bv  the  terms  of  its  articles  of  incorporation.1  It  is  essential 
to  the  liability  of  directors  for  default  in  filing  a  report  that 
their  occupancy  of  that  relation,  that  such  default,  and  that  the 
debt  of  the  corporation ,  have  existence  at  the  same  point  of  time.2 
The  liability  of  the  directors  dependent  on  default  in  filing  a 
report  is  measured  by  the  obligation  of  the  company  and  the 
remedy  against  it  and  them  is  concurrent.3  The  report  need 
not  be  made  after  the  corporation  has  ceased  to  have  a  legal  ex- 
istence. After  the  death  of  the  company,  it  could  make  no  re- 
port, and  the  directors  are  not  chargeable  with  liability  founded 
upon  such  omission.  It  has  been  held  that  even  after  a  de  facto 
dissolution  no  report  is  necessary  for  the  protection  of  the 
directors.1  But  the  mere  fact  that  the  corporation  lias  ceased 
to  do  business  does  not  excuse  the  failure  to  file  the  report.5 
A  creditor  who  seeks  to  hold  a  director  liable  for  the  failure  to 
file  a  report  must  show  that  he  is  a  creditor,  and  the  fact  that 
he  lias  obtained  judgment  is  prima  facie  evidence  that  he  is  a 
creditor.6  A  director  will  not  be  permitted  to  profit  by  his 
own  wrong,  and,  hence,  neither  a  director  who  is  a  creditor 
nor  his  assignee  can  maintain  an  action  against  the  other 
directors  for  a  breach  of  duty  of  which  he  is  also  guilty.7  No 
vested  right  can  be  acquired  in  a  penalty,  and,  therefore,  stat- 
ute- of  Hi  is  character  which    impose  liability  upon  the  direct- 

1  Gold  v.  Clyne,  134  N.Y.  262,17  L.  corporation  to  forfeiture  of  its  char- 

i;    \.  707.  ter,  sec  People  v.   Buffalo,  etc.,  Co., 

-!,:,!.•  r.  etc.,  Co.  v.  Bliss,  27  N.  Y.  L3J  N.  Y.  I  10,  L5  I..  R.  A.  '-'lit. 

297;  Duckworth  v.  Roach,  81  N.  Y.  I'.i.  "Sanborn  v.  Lefferts,  .r,s  x.  v.  L79. 

v.    Barlow,  62   N.  Y.   202;  Sec  International  Bank  v.  Faber,  86 

Trinity  Church  v.  Vanderbilt,  98  N.  Fed.  Rep.  448,  67  CT.  S.   \|>i>.  153. 

V.  [70.  fi  Miller  v.  White,  60  N.  Y.  L37. 

•Huguenot  Bank  v.  Stud  well,  74  N.  "Knox   v.    Baldwin,  80  N.  Y.  610. 

¥.621;   Bonnell  v.  Griewold,  80  N.Y.  The   liability   may  b»  enforced  by  a 

Gold  v.  Clyne,  L34  N.  Y.  262,  17  creditor  stockholder.  Banborn  v.  Lef- 

l.    i;    .\.  767.     Foi  it"-  effect  of  b  fail-  ferta,  68  N.  Y.  L79. 
ore  to  file  b  report,  as  subjecting  the 


§523  OFFICERS    AND    AGENTS,  571 

ors  may  be  repealed  and  the  right  of  action  taken  away  at  any 
time  before  judgment  is  entered.1  Where  a  statute  makes 
the  directors  personally  liable  when  they  consent  to  the  crea- 
tion of  indebtedness  in  excess  of  the  assets  of  the  corporation, 
it  must  be  shown  that  the  consent  was  given  in  the  capacity  of 
a  director.  The  term  indebtedness,  in  such  connection,  in- 
cludes bonded  indebtedness.  The  liability  is  for  the  benefit 
of  creditors  whose  debts  were  thus  illegally  contracted,  and 
must  be  enforced  by  a  bill  filed  for  the  benefit  of  all  creditors 
similarly  situated.2 

§  523.  Liability  of  directors  where  corporation  maintains  a 
nuisance. — It  is  the  duty  of  the  directors  of  a  corporation  to 
avoid  the  creation  of  nuisances  by  their  corporation  through 
its  employes  acting  within  the  line  of  their  duty.  The  non- 
performance of  this  duty,  which  results  in  the  creation  and 
maintenance  of  a  continuing  nuisance  by  the  corporation 
which  causes  the  death  of  a  third  person,  amounts  to  a  misfea- 
sance on  their  part,  or  of  malfeasance,  if  they  have  actual 
knowledge  of  and  authorized  the  nuisance.  Where  the  tort 
has  been  committed  through  the  directors,  they  can  not  escape 
liability  by  showing  that  they  acted  in  a  vicarious  character.3 
In  an  action  against  the  directors  of  a  corporation  to  recover 
damages  for  personal  injury  occasioned  by  the  explosion  of 
giant  powder  kept  by  the  corporation  within  the  city  limits  in 
violation  of  law,  the  court  said:4     "The  corporation  therefore, 

JKnox   v.   Baldwin,  80  N.  Y.  610;  strangers  to  so  use  his  own  property 

Gregory  v.  Bank,  3  Colo.  332.  or  that  under  his  control  as  not  to  in- 

8Tradesman's,  etc., Co. v.  Knoxville,  jure  another.     Baird  v.  Shipman,  132 

etc.,Co.,95Tenn.634,31L.  R.  A. 593.  111.  16,  7  L.   R.  A.  128;  note  to  Nun- 

3  The  liability  of  a  director  in  tort  is  nelly  v.  Southern,  etc.,  Co.,  28  L.  R. 

not  to  be  avoided  by  his  "vicarious  A.  421;  Jenne  v.  Sutton,  43  N.  J.  L. 

character"  where  the  tort  of  a  corpora-  257,   39    Am.    Rep.    578;    Mayer    v. 

tion  has  been  committed  through  the  Thompson,  etc.,  Co.,  104  Ala.  611,  28 

director.    Nunnelly  v.  Southern,  etc.,  L.  R.  A.  433. 

Co.,  94  Tenn.  397,  28  L.   R.   A.  421;  4 Cameron  v.  Kenyon-Connell,  etc., 

Bank  v.  Byers,  139  Mo.  627;  Delaney  Co.   (Mont.),  56  Pac.  Rep.  358,  44  L. 

v.  Rochereau&  Co.,  34  La.  An.  1123, 44  R.  A.  508,  and  extensive  note  on  lia- 

Am.  Rep.  456.     The  relation  of  con-  bility  of  the  officers  of  a  corporation 

tract  to  a  corporation  neither  adds  to  for  the  torts  or  negligence  of  the  cor- 

nor  subtracts  from   a  man's  duty  to  poration. 


572  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  523 

by  maintaining  this  nuisance  became  subject  to  indictment  for 
misdemeanor  as  well  as  liable  in  a  civil  action  for  injury  to  per- 
sons or  property  caused  by  the  nuisance.1  *  *  *  As  said  before, 
the  trustees  manage  the  stock,  property  and  concerns  of  the  cor- 
poration; wherefore  it  is  difficult  to  see  how  all  responsibility  in 
this  management  can  be  avoided  as  long  as  the  trustees  hold 
their  offices.  Certainly  the  ministerial  work  in  a  corporation 
can  be  delegated  to  subordinate  agents,  and  often  must  be. 
The  details  of  a  corporation's  business  necessitates  this;  and  if 
directors  act  in  good  faith  and  with  reasonable  care  and  dili- 
gence in  appointing  and  supervising  such  inferior  agents  they 
are  not  personally  responsible  for  damages  occasioned  by  the 
agents'  negligence  or  even  crime.  But  a  director  can  not 
wholly  escape  his  duty  of  supervision  or  transfer  his  authority 
to  represent  his  principal  at  least  without  the  principal's  con- 
sent. Otherwise  he  could  evade  every  responsibility  imposed 
by  law  upon  him  by  simply  absenting  himself  from  meetings, 
or  by  avoiding  information  of  the  acts  of  the  other  directors  in 
expressing  the  will  of  the  corporation  or  by  delegating  an  em- 
ploye to  act  as  trustee  for  him.2     *     *     * 

Third  persons  may  hold  directors  liable  in  positive  tort,  upon 
the  principal  that  a  positive  wrong  done  by  a  servant  or  ordi- 
nary agent  must  be  applied  to  the  misfeasance  of  directors  also.3 
It  is  therefore  the  duty  of  the  trustees  of  a  corporation 
dealing  in  explosives  to  exercise  such  reasonable  supervision 
over  the  management  of  their  company's  business  as  will  re- 
sult in  the  observance  of  the  utmost   care  on  the  part  of  the 
subordinates  who  directly  handle  the  explosives.     This  rule 
grows  out   of    the  great   principle   of   social  duty  thai   every 
man  in  the  management  of  his  own  affairs,  whether  by  him- 
ot  by   his  agents   or  servants,  shall  so  conduct  them  as 
ii"i  to  injure  .-mother;  and  if  he  does  not,  and  another  thereby 
ains  damage,  he  Bhall  answer  for  it.4     It  is  likewise  their 
duty  to  avoid   the  creation   of  nuisances  by  their  corporation 

lHeeg  v.   Licht,  80  N.  Y.  579,  36       BSalmon  v.  Richardson,  30  Conn. 
Am.  Rep.  854.  360,  79  Am.  Dec.  255. 

Morawetz  Priv.  Corp.,  |586.  *Farwel]  v.  Huston,  etc.,  Corp.,  4 

Mete.  (Mas-     19,  38  Am.  Dec.  839. 


§  524  OFFICERS    AND    AGENTS.  573 

through  its  employes  acting  within  the  line  of  their  duties.  Nor 
will  inaction  of  itself  overthrow  the  force  of  this  obligation 
upon  trustees  to  so  control  their  corporation's  business  as  to 
not  negligently  injure  third  persons.  Along  with  the  assump- 
tion of  the  duties  of  trusteeship  go  the  duties  of  exercising  rea- 
sonable care  in  the  manner  of  performing  those  duties.  This 
reasonable  care  appears  not  to  have  been  exercised  in  this  case 
where  the  corporation  by  its  trustees  permitted  a  public  nui- 
sance to  be  created,  and  to  continue,  whereby,  as  a  consequence 
of  the  act  of  permitting  it,  a  third  person  not  in  fault  has  been 
killed.  Because  directors  are  themselves  agents,  it  is  none 
the  less  true  that  they  owe  a  common  law  duty  to  third  per- 
sons. If  they  violate  that  duty  they  are  responsible,  whether 
the  violation  is  the  result  of  a  wrongful  omission  or  commis- 
sion."1 

§  524.    Liability  imposed  for  benefit  of  third  persons. — In 

some  states  there  are  statutes  which  impose  upon  the  directors 
and  managing  officers  of  corporations  a  liability  for  the  benefit 
of  third  persons  who  are  injured  by  some  forbidden  act  or  neg- 
ligence of  the  officer.2  Where  a  statute  prohibits  the  doing  of 
an  act  or  imposes  a  duty  upon  one  for  the  protection  and  ben- 
efit of  individuals,  if  he  disobeys  the  prohibition  or  neglects  to 
perform  the  duty,  he  is  liable  to  those  for  whose  protection  the 
statute  was  enacted  for  any  damages  resulting  proximately 
from  such  disobedience  or  neglect.  Where  a  statute  made  it 
a  criminal  offense  for  an  officer  or  director  of  any  bank  to  ac- 
cept deposits  of  money  when  he  knows  or  has  good  reason  to 
know  that  the  bank  is  unsafe  or  insolvent,  the  court  said:3 
"The  purpose  of  this  statute  is  to  protect  depositors  in  a  bank 
by  punishing  its  officers  for  receiving  deposits  when  the  bank 
is  insolvent.  By  necessary  implication  it  makes  it  the  duty  of 
the  directors  or  other  officers  of  the  bank  to  refrain  from  ac- 
cepting or  receiving  deposits  when  they  know  the  bank  to  be 
insolvent.     The  solvency  or  insolvency  of  a  bank  is  a  matter 

1  Mechem  Agency,  §  572.  N.  W.  Rep.  797.  See  Bishop  Non-Con- 

2  See  Bruce  v.  Piatt,  80  N.  Y.  379;     tract  Law,  §  132;  Cooley  Torts,  p.  780; 
Pier  v.  Hanrnore,  86  N.  Y.  95.  Bott  v.  Pratt,  33  Minn.  323;  Osborn 

"Baxter   v.    Coughlin    (Minn.),    72    v.  McMasters,  40  Minn.  103. 


574  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  525 

peculiarly  within  the  knowledge  of  its  directors.  On  the  other 
hand,  depositors  have  no  means  of  accurately  informing  them- 
selves on  the  subject.  They  must  act  on  the  presumption  that 
directors  are  not  violating  the  law  by  keeping  their  bank  open 
to  receive  deposits  when  it  is  insolvent.  This  case  falls  then 
within  the  rule  that  where  the  statute  prohibits  the  doing  of 
an  act,  or  imposes  a  duty  on  one  for  the  benefit  and  protection 
of  individuals,  if  he  disobeys  the  prohibition  or  neglects  to  per- 
form the  duty,  he  is  liable  to  those  for  whose  protection  the 
statute  was  enacted  for  any  damages  resulting  proximately 
from  such  disobedience  or  neglect." 

§  525.  Keniedy  of  the  corporation  against  an  officer. — Where 
a  corporation  has  been  damaged  by  the  fraud  or  negligence  of 
one  of  its  officers  or  agents,  it  may  proceed  against  him  in  an 
action  for  damages,  or  for  an  accounting  in  equity.1  Ordin- 
arily the  action  must  be  brought  in  the  name  of  the  corpora- 
tion, although,  as  has  been  explained  elsewhere,  an  action  of 
this  character  may  be  maintained  by  an  individual  stockholder 
under  certain  circumstances. 

§  526.  Statute  of  limitations. — The  statute  of  limitations  does 
not  run  against  the  claim  of  a  corporation  against  an  officer 
for  misappropriation  of  corporate  funds,  as  the  relation  is  one 
of  trust.2 

§  527.  No  liability  to  corporate  creditors. — The  liability  of 
;in  officer  for  mismanagement,  fraud  or  negligence,  which 
caus< is  loss  to  the  corporation,  is  to  the  corporation  and  not  to 
its  creditors,  but  the  claim  against  the  officer  forms  a  part  of 
the  assets  of  the  corporation  and  may  be  reached  by  the  cred- 
itors in  a  proper  proceeding.  The  right  is  sometimes  based 
upon  the  trust-fund  theory,  and  sometimes  upon  the  general 
rule   thai    the  creditors  have   the  right  to  reach  the  equitable 

'Horn,  etc., Co.  v.  Ryan,  42  Minn.  Bon  Corps.,  §  4128.     Contra,  Williams 

196;   Robinson  v.  Smith,  3  Paige  I  N.  v.   Halliard,  38  V  J.   Eq.  373.     Bee 

•22,24   Am.  Dec.  212;  Hodges  v.  Wallace   v.   Lincoln,   etc.,    Bank,   89 

...   c,,.,  i    R.I.  312,  63   Am.  Dec.  Tenn.  630,  24  Am.  St.  Rep.  625.    See, 

...    in   re   Lands,  etc.,  Co.,  L.   R. 

2Kllis  v.  Ward,  L37   III.  I 26  N.  (1894)   l  Ch.  616;  7  Eng.  R.  Cas.  614, 

I..  Rep.  530.      Approved  in  SThomp-  with  English  and  American  notes. 


§  528  OFFICERS  AND  AGENTS.  575 

assets  of  the  corporation,  and  to  have  them  applied  to  the  sat- 
isfaction of  their  claim.1  An  action  at  law  can  not  be  main- 
tained by  a  creditor  against  an  officer  whose  wrongful  con- 
duct has  resulted  in  injury  to  the  corporation.2  But  after  the 
corporation  has  become  insolvent  the  creditor  who  has  recov- 
ered judgment  against  the  corporation  may  proceed  against  the 
officer.3     The  proper  proceeding  is  by  way  of  a  creditor's  bill.* 

§  528.  Powers  of  particular  officers.5 — The  powers  of  corpo- 
rate officers  are  such  as  are  conferred  upon  them  by  the  terms 
of  their  agency.  It  may  be  expressly  conferred  by  charter, 
by-laws,  or  a  resolution,  or  implied  from  the  nature  of  the 
office,  and  the  duties  ordinarily  devolving  upon  such  officers, 
or  agents.  The  duties  and  powers  commonly  granted  to  such 
officers  as  president,  secretary  and  treasurer  are  well  under- 
stood, and  within  the  scope  of  this  apparent  authority  the  offi- 
cer acts  for  the  corporation  and  can  bind  it  by  contracts  made 
in  its  name.  Within  the  line  of  his  ordinary  duties,  such  an 
officer  requires  no  express  authority.6  After  citing  many  de- 
cisions in  support  of  the  general  propositions,  Mr.  Cook  says:7 
"These  decisions  show  that  a  corporation  is  bound  by  its 
agents'  acts  only  when  a  partnership  would  be  bound  under 
similar  circumstances,  and  in  general  a  corporation  may  ratify 
and  adopt  the  unauthorized  acts  of  its  agents.  There  are  no 
arbitrary  rules  as  to  the  mode  of  making  a  corporate  contract. 
A  contract  may  be  inferred  from  corporate  acts  and  customs 
without  a  vote  or  formal  act.     It   is   not  necessary  that   such 

1  Morawetz  Priv.  Corp.  2,  §  795.  by  contract.     Limer  v.  Traders  Co., 

2Zinn  v.  Mendel,   9    W.  Va.    580;  44W.Va.  175;  Allemong  v.  Simmons, 

Smith  v.  Poor,  40  Me.  415.  122  Ind.    199.    See  Woodbury,   etc., 

8Gratz  v.  Redd,  4  B.  Mon.   (Ky.)  Co.  v.  Mulliken  &  Gibson,  66  Vt.  465, 

178;  Ellis  v.  Ward,  137  111.  509;  Wil-  and  Gaynor  v.  Williamsport,  etc.,  R. 

kinson  v.  Bauearle,  41  N.  J.  Eq.  635.  Co.,  189  Pa.  St.  5,  41  Atl.  Rep.  978. 

4  Schley  v.  Dixon,  24  Ga.  273.  Parties  contracting  with  officers  of  a 

5  See  Wilgus'  Cases,  Louisville,  etc.,  corporation  must  ascertain  the  scope 
R.  Co.  v.  McNay,  98  Ind.  391.  of  their  authority.     Des  Moines,  etc., 

6 See,  generally,  Jones  v.  Williams,  Co.  v.  Tilford,  etc.,  Co.  (Iowa),  70  N. 

139  Mo.  1,  61  Am.  St.  Rep.  437,  anno-  *W.  Rep.  839. 

tated.  Bank  v.Dunn,  6 Pet. (U.S.)  51.  7Cook    Priv.    Corp.,   §    720,  citing 

A  director  of  a  corporation  is  not  an  many  cases, 
agent  in  the  sense  that  he  can  bind  it 


576  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  529 

assent  and  acceptance  should  be  under  seal  and  in  writing  or 
be  spread  upon  the  records.  The  acceptance  of  the  consideration 
of  an  unauthorized  contract  by  the  corporation,  however,  with- 
out knowledge  of  the  terms  of  the  contract  or  of  the  account  upon 
which  it  is  paid  is  not  in  itself  a  ratification  of  the  contract." 

§  529.  The  president. — The  president  of  a  corporation  de- 
rives his  authority  from  the  power  which  elects  him.  This  is 
ordinarily  the  board  of  directors.  He  has  no  authority  by 
virtue  of  his  office  to  control  or  dispose  of  the  property  of  the 
corporation.  He  can  not  act  or  contract  for  the  corporation, 
without  express  authority,  to  any  greater  extent  than  any  other 
director.  By  the  great  weight  of  authority,  "a  president  has 
no  inherent  power  to  represent  or  contract  for  the  corporation. 
His  duties  are  confined  to  presiding  and  voting  as  a  director. 
The  fact,  however,  that  he  is  almost  always  the  corporate  offi- 
cer who  is  directed  to  sign  the  corporate  contracts  that  have 
been  authorized  by  the  board  of  directors  has  led  to  the  en- 
largement of  his  importance  as  a  corporate  officer.  Hence  the 
rule  has  arisen  in  New  York  that  a  contract  which  is  appar- 
ently a  corporate  contract,  being  duly  signed  by  the  president, 
is  presumed  to  be  a  corporate  contract  until  the  want  of  author- 
ity is  shown  by  the  corporation."  l  Authority  to  do  a  particu- 
lar act  may  be  shown  by  the  fact  that  the  same  or  similar  acts 
have  frequently  been  done  by  the  officer  with  the  knowledge 
of  the  corporation.2     The  president  may  of  course  bind  the 

'Cook  Priv.  Corp.,  §716;    Potts  v.  powers    of    a  general    manager,   see 

Wallace,  L46  r.  s.  r.s'.i;   Crush,  etc.,  Helena  Nat.  Hank  v.  Rocky,  etc.,  Co., 

Co     v.    Montgomery    (Ala.),    21    So.  20  Mont.  379, 63   Am.  St.   Rep.  628; 

Rep.  960.     in  Titue  v.  Cairo,  etc.,  R.  Thayer  v.  Nehalem,  etc.,  Co.,  81  Ore. 

Co.,  37   N.  .1.  L.  98,  the  court   said:  437,51  Pac.  Rep.202;  Butte,  etc.,  Co. 

"  In  the  absence  of  anything  In  the  v.   Montana,    etc.,  Co.    (Mont.),    55 

act  of  incorporation  bestowing  special  Pac.  Rep.  L12.    Sec,  generally,  notes 

power  apon   the    president,   he    lias  to  ll    L.  R.  A..  356,  til  Am.  St.  Rep. 

from  his  official  station  no  more  con-  459. 

trol  over  the  corporate  property  and  'Swasey  v.  Emerson,  168  Mass.  lis. 
funds  than  any  other  director."  Bee,  Thai  long  usage  may  confer  authority, 
also,  as  to  powers  of  president,  Pa-  Bee  Estes  v.  German  Nat'l  Hank,  62 
cific  Bank  v.  Stone,  121  Cal.  202;  Ark.  7;  Missouri,  etc.,  R.  Co.  v.  Sid- 
White  v.  Taylor,  118  Mich. 543;  Main  ell,  67  Fed.  Rep.  164. 
v.  ( iasserly,  »;T  Cal.  127.     A.e  to  I  he 


§  529 


OFFICERS    AND    AGENTS. 


77 


corporation  by  contracts  when  authorized  to  do  so  by  the  board 
of  directors,1  and  the  authority  to  do  so  may  be  implied  from 
a  long  course  of  acquiescence  on  the  part  of  the  directors,2  as 
where,  with  the  knowledge  and  consent  of  the  directors,  the 
president  has  for  a  long  period  practically  conducted  the  entire 
business  of  the  corporation.3  The  president  of  a  corporation 
has  no  implied  power  to  direct  the  treasurer  to  refuse  payment 
of  a  subscription,4  to  employ  an  architect,5  to  execute  a  mort- 
gage in  the  name  of  the  corporation,6  even  when  he  has  been 
given  power  to  pledge  notes  and  contracts/ to  execute  notes  in 
the  name  of  the  corporation,8  to  confess  judgment  for  the  cor- 
poration,9 to  assign  a  patent-right  in  payment  of  a  corporate 
debt,10  to  sell  treasury  stock,"  to  negotiate  a  loan  for  the  corpora- 
tion and  pay  a  large  brokerage  commission,12  to  make  a  contract 
increasing  the  price  of  construction  work,13  to  agree  that  sureties 
on  a  note  shall  not  be  bound,14  to  borrow  money  for  the  corpo- 
ration,15 to  release  a  claim  in  favor  of  the  corporation,16  to  sell 


1  Castle  v.  Belfast,  etc.,  Co.,  72  Me. 
167  ;  Baker  v.  Cotter,  45  Me.  236. 

2  Fitzgerald,  etc.,  Co.  v.  Fitzgerald, 
137  U.  S.  98;  Martin  v.  Niagara  Falls, 
etc.,  Co.,  122  N.  Y.  165. 

3G.  V.  B.  Mining  Co.  v.  Nat.  Bank 
(C.  C.  App.) ,  95  Fed.  Rep.  23 ;  Senour, 
etc.,  Co.  v.  Clarke,  96  Wis.  469; 
McComb  v.  Barcelona,  etc.,  Assn., 
134  N.  Y.  598;  Fifth  Nat'l  Bank  v. 
Navassa,  etc.,  Co.,  119  N.  Y.  256; 
Sherman,  etc.,  Co.  v.  Morris,  43  Kan. 
282.  The  management  of  the  busi- 
ness may  be  entrusted  to  the  presi- 
dent, either  by  an  express  resolution 
of  the  board  of  directors,  or  by  their 
acquiescence  in  a  course  of  dealing. 
Jones  v.  AVilliams,  139  Mo.  1,  37  L.  R. 
A.  682. 

4  Potts  v.  Wallace,  146  TJ.  S.  689. 

5  Wait  v.  Nashua,  etc.,  Assn.(N.  H.), 
23  Atl.  Rep.  77;  Mathias  v.  White, 
etc.,  Assn.  (Mont.),  48  Pac.  Rep.  624. 

6Alta,  etc.,  Co.  v.  Alta,  etc.,  Co.,  78 
Cal.629;  National  State  Bank  v.  Vigo, 
37 — Private  Corp. 


etc.,  Bank,  141  Ind.  352;  England  v. 
Dearborn,  141  Mass.  590. 

7  Currie  v.  Bowman,  25  Ore.  364. 

8Estes  v.  German,  etc.,  Bank,  62 
Ark.  7;  Edwards  v.  Carson,  etc.,  Co., 
21  Nev.  469. 

9Raub  v.  Balirtown,  etc.,  Assn.,  56 
N.J.  L.  262;  Ford  v.  Hill,  92  Wis. 
188. 

"Kansas,  etc.,  Co.v.  DeVol,  72  Fed. 
Rep.  717. 

"In  re  Utica,  etc.,  Co.,  154  N.  Y. 
268,  48  N.  E.  Rep.  521. 

12Tobin  v.  Roaring,  etc.,  R.  Co.,  86 
Fed.  Rep.  1020. 

"Grant  v.  Duluth,  etc.,  R.  Co.,  66 
Minn.  349,  69  N.  W.  Rep.  23. 

"Bank  v.  Bennett,  33  Mich.  520; 
Bank  v.  Tisdale,  84  N.  Y.  655. 

15 Life,  etc.,  Co.  v.  Mech.,  etc.,  Co., 
7  Wend.  (N.  Y.)  31;  Western  Nat'l 
Bank  v.  Armstrong,  152  U.  S.  346. 

,601ney  v.  Chadsey,  7  R.  I.  224; 
Rhodes  v.  Webb,  24  Minn.  292.  See 
Indianapolis,  etc.,  Co.  v.  St.  Louis, 
etc.,  R.  Co.,  120  U.  S.  256. 


57S  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  529 

and  assign  notes  held  by  the  corporation  bank,1  to  bind  a 
national  bank  by  a  purchase  of  bonds  and  stock  for  it,2  to  let 
a  railroad  construction  contract,3  to  sell  property  belonging  to 
the  corporation,  unless  he  has  made  similar  contracts  before, 
without  objection,4  to  issue  drafts  in  the  name  of  the  corpora- 
tion,5 to  execute  accommodation  paper,6  to  agree  on  its  behalf 
with  a  person  who  sells  it  property  to  be  paid  for  in  stock,  to 
repurchase  the  stock  if  he  becomes  dissatisfied  with  it.7  The 
president  may  employ  an  attorney  for  the  corporation;8  but 
may  not  commence  an  action.9  But  it  has  been  held  that  he 
has  no  power  to  employ  an  attorney,10  although  the  general  offi- 
cers and  manager  may  employ  an  attorney  to  represent  the  bank 
in  all  matters  growing  out  of  the  general  business  of  the  cor- 
poration.11 A  corporation  may  of  course  ratify  the  acts  of  the 
officer  by  accepting  and  retaining  the  benefits  of  his  act.12  The 
powers  of  the  president  of  a  corporation  have  been  somewhat 
extended  by  the  Illinois  courts,  where  it  is  held  that  he  has 
power  to  agree  that  an  absolute  subscription  may  be  changed 
to  a  conditional  subscription  in  such  a  way  as  to  estop  himself, 
and  creditors  and  stockholders,  with  knowledge  of  the  facts  mi- 

1  llollowell,  etc.,  Bank  v.  Hamlin, 14  9  Ashuelot,    etc.,   Co.  v.  Marsh,  55 
Mass.  178.  Mass.  507.    Contra,  Lucky,  etc.,  Co.  v. 

2  First  Nat'l  Bank  v.  Hoch,  89  Pa.  Abraham,    26    Ore.   282.      That    the 
St.  324.  president  may  bring  a  writ  of  entry 

•Templin  v.  Chicago,  etc.,  R.  Co.,  to  foreclose  a  mortgage,  see  Trustees, 

73  Iowa  548;  Griffith  v.  Chicago,  etc.,  etc.,  v.  Connolly,  157  Mass.  272.    The 

I;,  (v..,  71  Iowa  85.  president,  in  the  exercise  of  his  in- 

4  Pittsburg,  etc.,Co.  v.  Reese,  118  Pa.  herent  power  to  take  charge  of  the 

St.  ;;-,.-,  litigation  of  the  bank,  may  assign  a 

8Dabney  v.  Stevens,  40  How.  Pr.  judgment  to  a  trustee  in  order  that  an 

(S.  Y.)  34]  action  may  be  brought  for  its  collec- 

'McLellan   v.  Detroit,  etc.,  Works,  tion.    Guernsey  v.  Black,  etc.,  Co.,  99 

56  Mich.  679.  Iowa  471. 

'Olds    v.    Phillipsburg,    etc.,    Co.  "Pacific   Bank  v.  Stone  (CaL),  63 

(Tenn.),  48  B.  W.  Rep.  285.  Pac.  Rep.  684. 

i American,  etc.,  Co.  v.  Oakley,  9  "Lewis  v.  Publishing  Co.,  77  Mo. 

Paige    \.  Y.  |  496;  Mumford  v.  Haw-  A.pp.  484. 

5Denio856;  Davis  v.  Memphis,  ,2\\Y!Ih  v.  St.  Paul,  etc.,  Co.,  63 

■t.-.,  R.  Co.,  22  Fed.  Rep.  888;  Dallas,  Minn.  870;  Scott  v.  Middleton,  etc., 

rtc.,  Co,  v.  Crawford  'Tex.),  1 1  S.  \v.  R.Co.,86  N.  Y.200;  Omaha, etc., Co. 

I;,.,,  v.  Burns,  49  Neb.  229. 


§  530  OFFICERS    AND    AGENTS.  579 

der  certain  conditions,1  to  execute  a  note  for  the  corpora- 
tion,2 to  sign  a  chattel  mortgage  in  the  name  of  the  corpora- 
tion,3 or  to  contract  for  transportation  of  railroad  iron.4  The 
president  and  general  manager  of  an  insurance  company  may 
bind  it  by  a  contract  that  its  mortgagor  may  have  a  certain 
time  within  which  to  redeem  from  a  foreclosure  sale.5 

§  530.  The  vice-president, — The  rules  which  govern  the 
powers  and  conduct  of  the  president  of  a  corporation  apply 
also  to  the  vice-president.6  Unless  otherwise  provided  by  stat- 
ute, the  charter  or  by-laws  of  the  corporation,  the  deed  of  the 
corporation  may  be  executed  as  well  by  the  vice-president  as 
by  the  president.  And  when  so  executed  with  the  necessary 
formalities,  it  will  be  presumed  that  the  vice-president  had 
authority  to  act  on  behalf  of  the  corporation.7 

§  531.  The  secretary. — The  secretary  ordinarily  represents 
the  corporation  in  the  conduct  of  its  routine  business,  but  his 
authority,  like  that  of  all  other  officers,  is  derived  from  the 
terms  of  his  employment.  He  has  no  inherent  power  by  vir- 
tue of  his  office  to  make  contracts  for  the  corporation.8     He  is 

1  Morgan  Co.  v.  Thomas,  76  111.  120.  of  president,  see  Sparks  v.  Dispatch 

•Matson    v.    Alley,    141    111.    284;  Transfer  Co..  104  Mo.  531,  24  Am.  St. 

Snyder  Bros.  v.  Bailey  (111.),  46  N.  E.  Rep.  351,  and  note  24  Am.  St.  Rep.  137. 

Rep.  452.  6See,  generally,  as  to  the  powers  of 

3  Anderson  v.  South  Chicago,  etc.,  a  vice-president,    Missouri,  etc.,  Co. 
Co.  (111.),  50  N.  E.  Rep.  655.  v.    Faulkner,    88    Tex.   649;    Cox   v. 

4  Chicago,  etc.,  R.  Co.  v.  Coleman,  Robinson,  82  Fed.  Rep.  277;  Smith  v. 
18  111.  297.  Smith,  62  111.  493;  Huse  v.  Ames,  104 

fiUnion,  etc.,  Co.  v.  White,  106  111.  Mo.  91  ;  Dallas  v.  Columbia,  etc.,  Co., 

67.     The  president  and  business  man-  158  Pa.  St.  444;  Streeten  v.  Robinson, 

ager  of  a  corporation  has  no  implied  102  Cal.  542. 

power    to    create     an     indebtedness  7 Ellison  v.  Brandstrator  (Ind.),  54 

against  it   by  assuming  for  it  liability  N.  E.  Rep.  433.  Citing  Smith  v.  Smith, 

for  an   individual   debt  of  his   own,  62111.493;   Colman  v.  Land  Co.,  25  W. 

without  a  just   consideration   to   the  Va.  148  ;  Bowers  v. Hechtman, 45  Minn, 

corporation.     Barnhardt  v.  Star  Mills  238;  Shaffer  v.  Hahn,  111  N.  C.  1. 

(N.  C),  31  S.  E.  Rep.  719.     In  Larason  8  Wolf  Gaines  v.  Davenport,  etc.,  R. 

v.  Beard  (C.  C.  App.),  94  Fed.  30,  it  Co.,  93  Iowa  218;  Read  v.  Buff  urn,  79 

was  held  that  when  the  president  of  a  Cal.  77,  12  Am.  St.  Rep.  131.     In  the 

bank  draws  drafts  upon  the  funds  of  discharge  of  his  ordinary  duties  the 

the   bank  to  pay  his  personal  debts,  secretary  represents  the  corporation, 

the  drawee  is  put  upon  inquiry  as  to  Hastings  v.  Brooklyn,  etc.,  Co.,  138  N. 

his  authority.  As  to  implied  authority  Y.  473. 


580  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  532 

the  proper  custodian  of  the  corporate  seal,  and  when  he  affixes 
it  to  a  deed  or  other  instrument,  the  presumption  is  that  he 
did  it  by  the  direction  of  the  corporation,  and  it  devolves  upon 
those  who  dispute  the  validity  of  the  instrument  to  prove  that 
he  acted  without  authority.1 

§  532.  The  treasurer. — The  treasurer  is  the  general  fiscal 
agent  of  the  corporation  and  is  commonly  given  powers  in 
the  management  of  its  financial  matters.  But  he  has  no  power 
by  virtue  of  his  office  alone  to  borrow  money  and  give  the  cor- 
porate notes  therefor.2  The  authority  to  sign  notes  on  behalf 
of  the  corporation  need  not  appear  in  the  by-lawrs,nor  need  it  have 
been  expressly  given  by  a  vote  of  the  directors  or  stockholders. 
It  may  be  inferred  from  usage,  and  will  be  implied  when  he 
has  been  accustomed  to  act  as  the  managing  agent  of  the  cor- 
poration.3 But  if  the  corporation  permits  the  treasurer  to  act 
as  its  general  fiscal  agent,  and  holds  him  out  to  the  public  as 
having  the  general  authority  implied  from  his  official  name 
and  character  and  by  its  silence  and  acquiescence  allows  him  to 
draw  and  accept  drafts  and  sign  and  endorse  notes,  it  is  bound 
by  his  acts  when  done  within  the  scope  of  such  apparent  au- 
thority.4 The  question  is  also  affected  by  the  character  of  the 
business  transacted  by  the  corporation.  Thus,  in  a  recent  case 
it  was  held  that  the  treasurer  of  a  gas  light  company  had  au- 

1  Ellison  v.  Brandstrator  (Ind.),  54  69  Fed.  Rep.  912,  32  U.  S.  App.  654; 

N.  E.  Rep.   433.    The  secretary  can  Grommes  v.   Sullivan,  81   Fed.  Rep. 

not  bind  the  corporation  for  the  price  45,  53  TJ.  S.  App.  359.     As  to  power  to 

of  goods  ordered  by  him  from  another  endorse  paper  for  discount  and  sale, 

corporation    with    which    he    is  con-  see    Blake    v.    Domestic,    etc.,    Co. 

nected.     Stillwell,  etc.,  Co.  v.  Niles,  (N.  J.),  38  Atl.  Rep.  241. 

etc.,  Co.  (Mich.),  72  N.  W.  Rep.  1107.  "Chicago,  etc.,  Co.  v.  Chicago  Nat'l 

"Craft    v.   South     Boston,    R.   Co.,  Bank,  176  111.  224. 

150  Mass.  207,  5  L.  R.  A. 641 ;  22  N.  E.  4  Merchants  Nat'l  Bank  v.  Citizens, 

Rep  920;  Appeal  ol  Philler,  Hil  Pa.  etc.,  Co.,  159  Mass.  505;    McNeil  v. 

St.  L67;   In  re  Millward-Cliff, etc.,  Co.  Boston  Chamber  of  Com.,  154  Muss. 

\il.  Rep.   L072;  Fifth  Ward  277;  Mining  Co.  v.  Anglo-Cal.  Bank, 

Bav.  Bank  v.  First  Nat'l  Bank,  48  N.  104  U.  S.   192;  Credit  Co.   v.  Howe, 

.1.    |,.  513;    Chemical,  etc.,   Bank  v.  etc., R.  Co.,  54  Conn. 357;  Page  v.  Fall 

Wagner, 93 Ky. 525, 20 8. W. Rep. 535 ;  River,   etc.,  Co.,  31   Fed.   Rep.  257; 

Page  v.  Fall  River,  etc.,  R.  Co.,  31  Fed.  Blake  v.  Domestic,  etc.,  Co.  (N.  J.), 

Rep.  257;  Lester  v.  Webb,  1  Allen  34.  88  Atl.  Rep.  241;  Case  Mfg.   Co.  v. 

;!-,,  Glidden,  etc.,  Co.  v.  Bank,  Boxman,  138 V.  s.  431. 


§  533  OFFICERS    AND    AGENTS.  581 

thority  by  virtue  of  his  office  to  sign  a  promissory  note  which 
would  bind  the  corporation.  The  court  said:  "Upon  consid- 
eration of  the  decisions  cited,  we  think  it  fair  to  say  that  the 
making  and  endorsing  of  negotiable  paper  is  to  be  presumed  to 
be  within  the  power  of  the  treasurer  of  a  manufacturing  and 
trading  corporation,  whenever,  from  the  nature  of  its  ordinary 
business  as  usually  conducted,  the  corporation  is  naturally  to 
be  expected  to  use  its  credit  in  carrying  on  its  commercial 
transactions.  Such  paper  is  the  usual  and  ordinary  instru- 
ment of  utilizing  credit  in  commercial  dealings,  and  it  is  for  the 
interest  of  the  corporation  and  of  the  community  that  the  best 
instrument  should  be  employed.  It  is  no  less  for  the  interest 
of  all  that,  if  negotiable  paper  is  to  be  employed,  its  validity 
should  not  be  open  to  objections  which  would  impair  its  use- 
fulness by  requiring  at  every  step  an  inquiry  into  the  authority 
by  which  it  is  issued."1 

§  533.  De  facto  officers, — The  injustice  which  would  result 
from  requiring  those  who  are  obliged  to  deal  with  corporations 
to  investigate  and  decide  who  are  rightfully  exercising  the 
functions  of  a  corporate  office,  and  the  great  inconvenience  of 
litigating  the  title  to  such  offices  in  collateral  proceedings,  has 
led  to  the  adoption  of  the  rule  that  he  who  publicly  exer- 
cises the  functions  of  such  an  office,  not  in  a  single  instance 
only  but  continuously,  will  be  treated  as  a  de  facto  officer  and 
his  acts  upheld  as  against  third  persons  and  the  corporation.2 

1  Merchants  Nat'l  Bank  v.  Citizens,  271;  Adams  v.  Mills,  60  N.  Y.  533; 
etc.,  Co.,  159  Mass.  505;  Matson  v.  Odd  Fellows  v.  Bank,  42  Mich.  461; 
Alley,  141  111.  284.  The  treasurer  of  a  Stevens  v.  Carp  River,  etc.,  Co.,  57 
water-works  company  has  no  implied  Mich.  427;  Kalamazoo,  etc.,  Co.  v. 
power  to  borrow  money.  First  Nat'l  McAlister,  36  Mich.  327;  Tripp  v. 
Bank  v.  Council  Bluffs,  etc.,  Co.,  9  New,  etc.,  Co.,  137  Mass.  499. 
N.  Y.  Supp.  859.  As  to  powers  of  2  Hamm  v.  Drew,  83  Tex.  77;  Ca- 
treasurer  in  other  respects  see  Jack-  hill  v.  Kalamazoo,  etc.,  Co.,  2  Dong, 
son  v.  Campbell,  5  Wend.  571;  Ded-  (Mich.),  124,  43  Am.  Dec.  457.  Note 
ham  Inst.  v.  Slack,  6  Cush.  408;  in  19  Am.  and  Eng.  Corp.  Cas.  160. 
Brown  v.  Winnisimmet,  93  Mass.  326;  As  to  the  application  of  the  same 
Perkins,  etc., Co., v.  Bradley,  24  Vt.  66 ;  principle  to  officers  of  public  corpora- 
State  v.  Felton  (N.  J.),  19  Atl.  Rep.  tion,  see  Elliott  Pub.  Corps.,  §  265, 
123  ;  Alexander  v.  Cauldwell,  83  N.  Y.  and  cases  there  cited.  See,  also,  note 
480;  Phillips  v.  Campbell,  43  N.   Y.  to  L.  R.  A.  418. 


582  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  534 

It  is  only  necessary  for  a  person,  who  deals  with  a  corporation, 
"to  inquire  what  power  directors  of  the  corporation  have  and 
what  acts  the  corporation  has  authorized  them  to  do.  They 
are  not  required  to  investigate  the  qualifications  which  the 
corporation  has  prescribed  to  itself,  as  the  condition  upon 
which  any  one  should  be  elected  a  director  or  permitted  to 
act  as  such.  The  corporation  and  not  the  general  public  have 
the  means  of  knowing  whether  a  director,  whom  they  have 
elected  as  such,  is  qualified  to  act  as  a  director,  according  to 
their  by-laws.  If  he  is  not  qualified  at  the  time  of  his  elec- 
tion, it  is  within  their  power  to  require  him  either  to  possess 
himself  of  the  requisite  qualifications,  or  else  to  proceed  to 
another  election.  If,  instead  of  doing  this,  they  leave  his 
election  as  a  director  upon  record,  as  though  he  were  at  law 
eligible,  and  thus  hold  him  out  and  permit  him  to  hold  him- 
self out  as  a  director,  and  he  acts  as  such,  they  are  bound  by 
his  acts  as  fully  as  though  he  were  properly  qualified."1  A 
person  exercising  the  functions  of  a  director,  but  who  was 
elected  at  a  meeting  held  in  another  state,  is  a  de  facto  director.2 
A  contract  made  by  de  facto  officers  binds  the  corporation.3 

§  534.  Notice  to  officers  and  agents.4 — An  officer  or  agent 
of  a  corporation  represents  the  corporation  when  he  is  acting 
within  the  scope  of  his  duties,  and  his  knowledge  acquired 
while  so  engaged  with  reference  to  matters  pertaining  to  that 
branch  of  the  business  of  the  corporation  is  the  knowledge  of 
the  corporation.5  Facts  coming  to  the  knowledge  of  an  agent 
while  engaged  about  the  business  of  his  agency,  are,  in  law, 

IThompson's  Corps.,  §3893;    Dia-  5  Cragie  v.  Hartley,  99  N.  Y.  131; 

patch     Line   v.    Bellamy,    etc.,    Co.,  Smith  v.   Board,  etc.,  38  Conn.  208; 

L2  N.  B.  205,  37  Am.   Dec.  203;  Dela-  Atlantic,  etc.,   Mills  v.  Indian,  etc., 

ware,  etc.,  Co.  v.  Pennsylvania,  etc.,  Mill  (Mass.),  17  N.  E.  Rep.  496;  Lor- 

Co.,  21  Pa.  St.  131.  ingv.  Brodie,  134  Mass.  453;  Johnson 

'Ohio,  etc.,  I:.  Co.  vr.  McPherson,35  v.Shortridge  (Mo.,  L887),6S.  W.  Rep. 

Mo.  13,  86  Am.  Dec.  128.  64;    Huron,  etc.,  Co.  v.  Kittleson  (S. 

•Wilson  v.  Kings,  etc.,  R.  Co.,  ill  Dak.),  57  N.  W.  Rep.  233;  Merchants 

N.  Y.  487,  27  N.  Y.  St.   Rep.  81.     \\<-  Nat'l    Bank   v.   Lovitt,    114    Mo.  519; 

pointment  of  an  officer.    Ellisv.North  Casco  Nat'l  Bank  v.  Clark,  L39  N.  Y. 

Oaroli                         l  .  123.  307, 314;  Johnson  v. Firsl  Nat'lBank, 

I  79  Wis.  IK',  24  Am.  St.  Rep.  722. 


§  534  OFFICERS    AND    AGENTS.  583 

presumed  to  be  known  to  the  principal.1  This  applies  to  all 
agents  of  corporations  of  whatever  degree  as  notice  to  an 
"agent  of  a  corporation  with  respect  to  a  matter  covered  by 
his  agency  must  be  as  efficacious  as  to  its  directors  or  its  presi- 
dent, since  these  are  only  agents,  with  larger  powers  and 
duties,  it  is  true,  but  not  more  fully  charged  with  respect  to 
the  particular  thing  than  he  whose  authority  is  confined  to 
that  one  thing."2  Where  the  treasurer  of  a  bank  stole 
money  from  another  person  and  placed  it  with  the  funds  of 
the  bank  in  order  to  cover  a  defalcation  which  was  not  known 
by  the  other  officers,  the  bank  acquired  no  title  to  the  money 
as  against  the  true  owner,  as  it  was  charged  with  knowledge 
of  the  facts.3  Notice  to  a  director  is  not  notice  to  the  corpora- 
tion except  "in  the  business  to  which  the  knowledge  is  mate- 
rial through  the  agency  of  such  director  acting  either  alone  or 
as  one  of  the  board."4  The  question  always  is,  was  the  knowl- 
edge obtained  while  engaged  in  the  business  of  the  corpora- 
tion?5 The  knowledge  of  an  agent  acquired  in  the  course  of 
the  corporate  business  is  notice  to  the  corporation.6  Knowl- 
edge, obtained  by  an  agent  of  a  corporation  while  engaged  in 

Consolidated,  etc.,  Co.  v.  Kansas,  edge  as  such,  and  who  upon  the  or- 

etc,  Co.,  45  Fed.  Rep.  7;  Slattery  v.  ganization  of  the  corporation  became 

Schwannecke,  118  N.  Y.  543.  its    president  and    manager,    is  the 

2  Saint  v.  Wheeler,  etc.,  Co.,  95  Ala.  knowledge  of  the  corporation.  Huron, 
362,  10  So.  Rep.  539.  etc.,  Co.  v.  Kittleson  (S.  Dak.,  1894), 

3  Atlantic  Cotton  Mills  v.  Indian  57  N.  W.  Rep.  233.  Where  the  secre- 
Orchard  Mills,  147  Mass.  268 ;  Huron,  tary  and  manager  owned  or  controlled 
etc.,  Co.  v.  Kittleson,  4  S.  Dak.  520,  a  large  part  of  the  capital  stock,  and 
57  N.  W.  Rep.  233.  managed  the  business  as  he  pleased 

4Buttrick  v.  Nashua,  etc.,   R.  Co.,  for  the  purpose  of  advancing  his  own 

62  N.  H.  413;  Nat'l  Security  Bank  v.  interests,  his  knowledge  was  held  to 

Cushman,  121  Mass.  490;  Davis,  etc.,  be  the  knowledge  of  the  corporation. 

Co.  v.  Davis,  etc.,  Co.,  20  Fed.  Rep.  Anderson  v.  Kinley  (Iowa,   1894),  58 

699.  N.  W.  Rep.  909.  Where  a  corporation 

5  Bank  v.  Clark,  139  N.  Y.  307,  36  takes  title  to  real  estate  through  the 

Am.  St.  Rep.  705.     A  corporation  has  incorporators,  all  of  whom  had  knowl- 

knowledge  of  facts  which  are  known  edge  of  a  defect   in   the   title,  it    is 

to   all   its  officers   and   stockholders,  charged  with  notice  of  such   defect. 

Holly  Mfg.  Co.  v.  New  Chester,  etc.,  Simmons,  etc.,  Co.  v.  Doran,  142  U. 

Co.,  48  Fed.   Rep.  879.     The  knowl-  S.  417. 

edge   of  the  principal  promoter  of  a  6  Willard  v.  Denise,50  N.  J.  Eq.482, 

corporation,  who  acquired  his  knowl-  26  Atl.  Rep.  29. 


584 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  535 


another  transaction  is  not  the  knowledge  of  the  corporation.1 
A  corporation  is  not  chargeable  with  the  knowledge  of  one  of  its 
officers  acquired  in  a  matter  in  which  the  officer  acts  on  his 
own  behalf  and  in  his  own  interest  and  does  not  represent  the 
corporation.2 

Where  a  defective  deed  purported  to  convey  certain  lands, 
one  of  the  directors  of  a  corporation,  while  not  acting  for 
the  corporation,  saw  the  record,  but  did  not  inform  any  of 
the  agents  of  the  corporation,  and  it  was  held  that  the  corpora- 
tion was  not  charged  with  knowledge  of  the  facts.3 

§  535.  Compensation. — Neither  the  directors  nor  other  offi- 
cers are  entitled  to  compensation  for  ordinary  official  serv- 
ices unless  it  is  provided  for  by  the  charter  or  by-laws  adopted 
by  the  stockholders.4  But  if  the  director  is  employed  to  per- 
form extraordinary  services  which  do  not  pertain  to  his  office  of 
director,  he  is  entitled  to  the  reasonable  or  agreed  value  of  such 
services.5     Directors  and  other  officers  can  not  fix  their  own 


Fairfield,  etc.,  Bank  v.  Chase,  72 
Maine  226;  Constant  v.  University, 
111  N.  Y.  604. 

2  Buffalo  Co.  Nat'l  Bank  v.  Sharpe 
(Neb.,  1894),  58  N.  W.  Rep.  734; 
Koehlerv.  Dodge,  31  Neb.  328;  Barnes 
v.  Gas,  etc.,  Co.,  27  N.  J.  Eq.  33; 
Bank  v.  Christopher,  40  N.  J.  Law 
435 ;  Wickersham  v.  Zinc  Co.,  18  Kan. 
481 ;  Merchants' Bank  v.  Lovitt,  114 
Mo.  519;  Farmers',  etc.,  Bank  v. 
Payne,  25  Conn.  444;  Frenkel  v. 
Hudson,  82  Ala.  158;  Innerarity  v. 
!.,  139  Mass.  332;  Casco  Nat'l 
Hank  v.  Clark,  139  N.  Y.  307. 

■  Tamil  Foundry  Co.  v.  Dart.,  26 
Conn.  376. 

'Crumlisb  v.  Central,  etc.,  Co.,  38 
W.  Va.  390,  23  L.  I;.  A.  L20;  Mar- 
tindale  v..  Wii  ion  Case  Co.,  134  Pa. 
348,  19  Am.  st.  Rep.  706;  A.meri- 
Central  R.  Co.  v.  Miles,  52  in. 
171;  Holder  v.  Railway  <'<•.,  71  III. 
L06;  Jones  v.  Morrison,  31  Minn.  1  10; 
Citizens'  Nat'l  Bank  v.  Elliott,  55  Low b 


104,  39  Am.  Rep.  167;  Manx,  etc.,  Co. 
v.  Branegan,  40  Ind.  361 ;  New  York, 
etc.,  R.  Co.  v.  Ketclmni,  27  Conn. 
170.  See  note  in  16  Am.  St.  Rep.  on 
compensation  of  directors.  A  vote 
of  the  directors  of  a  corporation  au- 
thorizing the  president  to  draw  one 
hundred  dollars  per  month  in  addi- 
tion to  his  salary  to  be  used  "for 
all  special  purposes "  in  connection 
with  its  business  will  not  be  assumed 
to  be  for  an  unlawful  purpose. 
Clark  v.  American,  etc.,  Co.,  86  Iowa 
436,  17  L.  R.  A.  557.  See  In  re  Anglo- 
Austrian,  etc.,  Co.,  61  L.  J.  Ch.481, 
7  Eng.  Rul.  Cas.  600,  with  English 
and  American  notes.  See,  also,  Tew 
v.  First  Nat'l  Bank,  130  Mass.  391, 
and  Fitzgerald, etc., Co.  v.  Fitzgerald, 
137  CT.  S.  98. 

"Corinne,  etc.,  Co.  v.  Joponce,  l-r»2 
I'.s.  105;  SantaClara,etc.,Co.v.  Mer- 
edith, 49  Md.  389,  33  Am.  Rep.  264; 
Citizens  Nat'l  bank  v.  Elliott, 55  Iowa 
104,  39  Am.  Rep.  L67;  Rogers  v.  I  last- 


§  535  OFFICERS  AND  AGENTS.  585 

compensation.  Unless  otherwise  provided  by  charter  the  di- 
rectors may  fix  the  compensation  of  other  officers,  but  they 
have  no  authority  to  appropriate  the  funds  in  paying  claims 
which  the  corporation  is  under  no  legal  or  moral  obligation  to 
pay,  as  for  past  services  which  have  been  rendered  and  paid 
for  at  a  fixed  salary  previously  agreed  upon,  or  under  a  previ- 
ous agreement  that  there  should  be  no  compensation.1  An 
officer  who  is  also  a  director  can  not  vote  on  a  proposition  to 
fix  his  own  salary.2 

In  a  recent  case  in  the  United  States  Circuit  Court  of  Ap- 
peals, Judge  Sanborn  said:3  "Ordinarily  the  employment  of 
a  servant  by  a  corporation  raises  the  implication  of  a  contract 
to  pay  fair  wages  or  a  reasonable  salary  for  the  services  ren- 
dered, because  it  is  the  custom  to  pay  such  compensation  and 
men  rarely  sacrifice  their  time  and  expend  their  labor  or  their 
money  in  the  service  of  others  without  reward.  Directors  of 
corporations,  however,  usually  serve  without  wages  or  salary. 
They  are  generally  financially  interested  in  the  success  of  the 
corporation  they  represent,  and  their  service  as  directors  se- 
cures its  reward  in  the  benefit  which  it  confers  upon  the  stock 
which  they  own.  In  other  words,  the  custom  is  to  pay  the 
ordinary  employes  of  corporations  for  the  services  they  render, 
but  it  is  the  custom  of  directors  of  corporations  to  serve  gratui- 
tously, without  compensation  or  the  expectation  of  it.  The 
presumption  of  law  follows  the  custom.  From  the  employ- 
ment of  an  ordinary  servant,  the  law  implies  a  contract  to 
pay  him.  From  the  service  of  a  director  the  implication  is 
that  he  serves  gratuitously.  The  latter  presumption  prevails, 
in  the  absence  of  an  understanding  or  an  agreement  to  the  con- 
trary, when  directors  are  discharging  the  duties  of  other 
officers  of  the  corporation  to  which  they  are  chosen  by  the  direc- 
tory, such  as  those  of  president,  secretary  and  treasurer.    More- 

ings,  etc.,R.,22Minn.25;TenEyckv.        1  Jones  v.  Morrison,  31  Minn.  140. 
Pontiac,etc.,R.Co.,74Mich.226;Illi-        2  Jones  v.  Morrison,  31  Minn.  140; 

nois,  etc.,  Co.  v.  Hough,  91  111.  63.   A  Miner  v.  Ice  Co.,  93  Mich.  97. 
director  may  recover  for  services  as  su-        3  National,   etc.,   Co.    v.    Rockland 

perintendent.     Harris    v.    Lemming,  Co.  (C.  C.  A.),  94  Fed.  Rep.  335. 
etc.,  Co.  (Tenn.),  43  S.  W.  Rep.  869. 


586  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  535 

over,  as  the  members  of  boards  of  directors  act  in  a  fiduciary  ca- 
pacity, they  are  without  the  power  or  authority  to  dispose  of  the 
property  of  the  corporation  without  consideration.  Conse- 
quently they  may  not  lawfully  vote  back  pay  to  an  officer  who  has 
been  serving  a  corporation  voluntarily  without  any  agreement 
that  he  shall  receive  any  reward  for  the  discharge  of  his  duties. 
It  is  beyond  their  powers  to  create  a  debt  of  the  corporation  by 
their  mere  vote  or  resolution.  *  *  *  Some  authorities  have 
gone  so  far  as  to  hold  that  officers  of  a  corporation,  who  are  also 
its  directors,  can  not  recover  for  the  discharge  of  their  duties 
unless  their  compensation  is  fixed  by  a  by-law  or  a  resolution 
of  the  board  before  their  services  are  rendered.1  The  fact  is, 
however,  that  in  the  active,  and  actual  business  transactions 
of  the  world,  many  officers  of  corporations,  who  are  also  mem- 
bers of  their  boards  of  directors,  spend  their  time  and  their  en- 
ergies for  years  in  the  interest  of  their  corporations,  and 
greatly  benefit  the  owner  of  the  stock,  under  agreements  that 
they  shall  have  just,  but  indefinite,  compensation  for  their 
services.  We  are  unwilling  to  hold  that  such  officers  should 
be  deprived  of  all  compensation  because  the  amounts  of  their 
salaries  were  not  definitely  fixed  before  they  entered  upon  the 
discharge  of  their  duties.  A  thoughtful  and  deliberate  con- 
sideration of  this  entire  question,  and  an  extended  considera- 
tion of  the  authorities  upon  it,  has  led  to  the  conclusion 
that  this  is  the  true  rule:  Officers  of  a  corporation  who  are  also 
directors,  and  who  without  any  agreement,  express  or  implied, 
with  the  corporation  or  its  owners,  or  their  representatives, 
have  voluntarily  rendered  their  services,  can  recover  no  back 
pay  or  compensation  tberefor;  and  it  is  beyond  the  power  of 
the  board  of  directors,  after  such  services  are  rendered,  to  pay 
for  them  out  of  the  funds  of  the  corporation,  or  to  create  a 
debt  of  the  corporation  on  account  of  them.2    But  such  officers 

lGridleyv.  Railroad  Co., 71  111.200;  Transportation  Co.,  78  Fed.  Rep.  62; 

Kilpatricl             dge  Oo.,  *9  Pa.  St.  Association  v.  Stonemetz,  29  Pa.  St. 

U*  V£i  ,   Wood  v.  Manufacturing  Co.,  634;  RailroadOo.v.  Ketchum,  27  Conn. 

23,  170;    Road  Co.  v.  Branegan,  40  Ind. 

Jones  v.  Morrison,  31    Minn.  I  10;  861. 

Blue  v.   Bank,  1 15  End.  518;  Doe  v. 


§  536  OFFICERS    AND    AGENTS.  587 

who  have  rendered  their  services  under  an  agreement,  either 
express  or  implied,  with  the  corporation,  its  owners  or  repre- 
sentatives, that  they  shall  receive  reasonable  but  indefinite 
compensation  therefor,  may  recover  as  much  as  their  services 
are  worth;  and  it  is  not  beyond  the  power  of  the  board  of 
directors  to  fix  and  pay  reasonable  salaries  to  them  after  they 
have  discharged  the  duties  of  their  offices."1  It  was  therefore 
held  that  when,  after  the  organization  of  the  corporation,  it 
was  agreed  and  understood  at  an  informal  meeting  of  all  the 
stockholders  that  the  officers  should  be  paid  a  reasonable  com- 
pensation for  their  services,  and  by  a  by-law  the  board  of 
directors  was  given  power  to  fix  the  compensation  of  officers, 
,  their  subsequent  act  in  voting  the  president  reasonable  salary 
\  for  past  services  was  legal  and  that  a  note  executed  therefor  by 
the  corporation  was  binding  on  the  corporation. 

The  officers  may  be  compelled  to  account  for  all  sums  with- 
drawn for  salaries,  where  they  have  voted  and  paid  the  salaries 
largely  for  the  purpose  of  depriving  the  stockholders  of  the 
results  of  a  successful  issue  of  pending  litigation,  although 
a  part  was  paid  for  actual  services  rendered.2 

§  536.  Removal  from  office. — There  appears  to  be  no  well  de- 
fined power  to  remove  corporate  officers  from  office.  Officers 
and  agents  who  do  not  hold  under  a  contract  for  a  fixed 
period  may,  of  course,  be  removed  without  cause  at  any  time. 
Those  who  hold  for  a  definite  time  may  be  removed  by  the 
body  which  elected  or  appointed  them  for  cause,  or  without 
cause,  being  liable  for  damages  for  breach  of  contract.5 
An  officer  who  is  elected  to  fill  an  office,  the  tenure  of  which  is 
fixed  by  the  charter,  can  not  be  removed  until  the  expiration 

1  Missouri,  etc.,  Co.  v.  Richards,  8  3  In  re  Griffing,  etc.,  Co.  (N.  J.),  41 
Kan.  101;  Rogers  v.  Railway  Co.,  Atl.  Rep.  931 ;  Thomp.  Corp.,  §§  802, 
22  Minn.  25-27;  Railroad  Co.  v.  Tier-  805;  Hunter  v.  Sun,  etc.,  Co.,  26  La. 
nan  (Kan.),  15  Pac.  Rep.  544,  Wilgus'  An.  13;  Rex  v.  Richardson,  1  Bur- 
Cases;  Stewart  v.  Railroad  Co.,  41  row's  Repts.  517,  Wilgus' Cases.  See 
Fed.  Rep.  736;  Rosborough  v.  Canal  also  Imperial,  etc.,  Hotel  Co.  v. 
Co.,  22  Cal.  556.  Hampson,  L.  R.  23,  Ch.  Div.  1. 

2  Eaton  v.  Robinson,  19  R.  1. 146,  29 
L.  R.  A.  100. 


588  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  537 

of  the  term.  One  who  accepts  a  corporate  office  is  bound  by 
notice  of  a  by-law  which  provides  a  method  of  removal  from 
the  office.1  The  right  to  an  office  can  be  determined  only  by 
a  quo  warranto.2  Directors  have  no  power  to  remove  one  of 
their  number,  or  other  officer  elected  by  the  stockholders, 
even  for  cause,3  and  the  rule  seems  to  be  that  even  the  share- 
holders have  no  inherent  power  to  remove  a  director  who  has 
been  elected  for  a  definite  time,  as  his  election  is  a  contract 
between  him  and  the  members  of  the  company.4  But  where 
the  removal  of  a  director  is  absolutely  necessary  to  the  protec- 
tion of  a  corporation  a  member  may  apply  to  a  court  of  equity 
which  will  grant  such  relief  as  justice  requires.8 

§  537.  Creditors  can  not  control  management.6 — The  gen- 
eral rule  that  a  simple  contract  creditor  can  not  come  into 
equity  and  have  the  property  of  his  debtor  subjected  to  the 
payment  of  his  claim  applies  to  corporations  as  well  as  to 
natural  persons.  Until  he  has  secured  a  specific  lien,  the  cor- 
poration may  manage  its  property  free  from  the  control  of  its 
creditors,  as  there  is  no  direct  or  express  trust  attached  to  the 
property.  The  mere  fact  of  the  existence  of  the  relation  of 
debtor  and  creditor  gives  the  creditor  no  right  to  interfere 
with  the  management  of  the  corporation  by  restraining  it  from 
the  making  of  contracts  and  the  disposing  of  its  property. 
"The  plaintiffs  were  simple  contract  creditors  of  the  com- 
pany. Their  claims  had  not  been  reduced  to  judgment, 
and  they  had  no  express  claim  by  mortgage,  trust  deed  or 
otherwise.  It  is  the  settled  law  of  this  court  that  such  cred- 
itors can  not  come  into  equity  and  obtain  the  seizure  of  the 
property  of  the  debtor,  and  its  application  to  the  satisfaction 

'Douglass  v.  Merchants',  etc.,  Co.,  *  Imperial,  etc.,  Co.  v.  Hampson,  L. 

L18N.Y.484.  R.  23,  CI).  Div.  1.   See, generally, Burr 

*Perryv.Oil  Mill  Co.,  93  Ala.  364;  v.  McDonald,  3  Grat..(Va.)  215;   Btate 

Johnston  v.  Jones,  23  N..I.  Eq.  216;  v.  Bryce,  7  Ohio  (Pt.  2)  82 ;  Bayless  v. 

Neall  v.  Hill,  L6  Cal.  L45.76  Am.  Dec.  Orn,  Freem.  Ch.  L61   L76. 

Peoplev.  Albany,  etc.,  E.  Co.,  6  'Morawetz  Priv.  Corp.  1,  §542.    Bee 

Lam  Btate  v.  Vicker,  11  Am.  St.  Rep.  675. 

•Nathan  v.  Tompkins,  82  Ala.  487;  "Bee  Wilgus'  Cases,  Rights  of  Cor- 

Commonwealtb  v.  Detwiller,  131  Pa.  poration  as  Against  Creditors. 
St.  614,  7  I..  R.   \.  3 


§  537  OFFICERS  AND  AGENTS.  589 

of  their  claims,  and  this,  notwithstanding  a  statute  of  this 
state  may  authorize  such  a  proceeding  in  the  courts  of  the 
state.  The  line  of  demarcation  between  legal  and  equitable 
remedies  in  the  federal  courts  can  not  be  obliterated  by- 
state  legislation.  Nor  is  it  otherwise  in  case  the  debtor  is  a 
corporation  and  an  unpaid  stock  subscription  is  sought  to  be 
enforced."1  Before  a  court  of  equity  will  take  jurisdiction, 
the  case  must  be  brought  under  one  of  the  recognized  heads 
of  equity  jurisdiction,  such  as  fraud  or  breach  of  trust.  Where 
a  creditor  attempted  to  enjoin  the  making  of  a  lease  the  court 
said: 2  "The  plaintiffs  can  not  maintain  this  bill  unless  upon 
the  ground  that  any  creditor  can  maintain  a  bill  in  equity 
against  an  individual  debtor  upon  like  allegations.  But  there 
is  no  allegation  of  fraud  or  breach  of  trust  or  any  other  ground 
of  jurisdiction  which  brings  the  case  within  the  general  equity 
powers  of  a  court  of  chancery.  The  bill  is  an  attempt  by  a 
creditor  to  restrain  his  debtor  from  making  what  is  alleged 
to  be  an  improvident  contract.  The  rights  of  the  parties  are 
governed  by  the  rules  of  the  common  law.  The  plaintiffs,  as 
creditors,  might  by  an  attachment  have  obtained  security 
which  would  take  precedence  of  the  contemplated  lease;  but  if 
they  could  not,  the  court  has  no  power  to  restrain  the  debtor 
from  making  a  disposition  of  his  property  which  is  permitted 
by  the  common  law  unless  fraud  or  a  breach  of  trust  is  alleged 
and  shown.  .The  allegation  that  the  defendant  corporation  is 
insolvent  does  not  aid  the  plaintiffs.  In  the  absence  of  a  stat- 
ute giving  the  power,  this  court  has  no  authority  to  act  as  a 
court  of  insolvency  for  the  liquidation  of  the  affairs  of  an  in- 
solvent railroad  corporation." 

Where  the  creditors  of  a  corporation  sought  to  enjoin  it 
from  issuing  debenture  stock  and  doing  other  ultra  vires  acts, 
Lord  Hatherly  said:3  "The  only  remedy  for  a  creditor  in 
that  case  is  to  obtain  his  judgment  and  take  out  execution ;  or 

1Hollins  v.  Brierfield,  etc.,  Co.,  150  2Pond  v.  Framingham,  etc.,  R.  Co., 

U.  S.  371 ;  Tube  Works  v.  Ballou,  146  130  Mass.  194. 

U.  S.  517;  Cattle  Co.  v.  Frank,  148  3  Mills  v.  Railway  Co.,  L.  R.  5  Ch. 

U.  S.  603.  App.  621. 


590  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  537 

it  may  be  that  he  may  have  a  power,  if  the  case  warrants  it, 
of  applying  to  wind  up  the  company.  But  it  is  wholly  un- 
precedented for  a  mere  creditor  to  say,  'Certain  transactions  are 
taking  place  within  the  company,  and  dividends  are  being 
paid  to  shareholders  which  they  are  not  entitled  to  receive, 
and,  therefore,  I  am  entitled  to  come  here  and  examine  the 
company's  deed,  to  see  whether  or  not  they  are  doing  what  is 
ultra  vires,  and  to  interfere  in  order  that,  as  by  a  bill  quia 
timet,  I  may  keep  the  assets  in  a  proper  state  of  security  for 
the  payment  of  my  debt  whensoever  the  time  arrives  for  its 
payment.' '  Sales  and  transfers  of  the  corporate  property  can 
be  questioned  only  by  those  creditors  who  have  a  specific  lien, 
or  have  reduced  their  claims  to  judgment,  and  as  judgment 
creditors  assert  that  such  transfers  are  fraudulent  as  to  them.1 
Fraudulent  conveyances  and  transfers  of  corporate  property 
for  the  purpose  of  delaying  creditors  are  governed  by  the  same 
rules  as  similar  conveyances  by  natural  persons,  and  only 
those  who  became  creditors  prior  to  the  transfer  in  question 
can  complain.2 

1  Scott  v.  Neely,  140  U.  S.  106.  to  the  effect  of  a  transfer  to  a  new  cor- 

2  Graham  v.  Railway  Co.,  102  U.  S.  poration,  see  Montgomery,  etc.,  Co.  v. 
148;  Sutton,  etc.,  Co.  v.  Hutchinson,  Dienelt,  133  Pa.  St.  585;  Gray  v. 
11  C.  C.  A.  320,  63  Fed.  Rep.  496.   As  Steamship  Co.,  115  U.  S.  116. 


CHAPTER  19. 

THE    COMMON    LAW    LIABILITY    OF    STOCKHOLDERS. 

§  538.   In  general.  §  549.   One  man  corporations,  contin- 

539.  Liability  to  corporation  meas-  ued. 

ured  by  the  contract  of  sub-  550.   Corporations  organized   to  do 

scription.  business  exclusively  in   an- 

540.  Acts  prior  to  incorporation.  other  state. 

541.  The  incorporation  of  a  partner-  551.    Liability    for    capital    wrong- 

ship  business.  fully  distributed. 

542.  Debts    contracted    before  dis-       552.   Liability    upon   shares   issued 

tribution  of  stock.  below  par. 

543.  Liability  resulting  from  illegal        553.   Fraudulent  acts. 

or  defective  incorporation.  554.  Enforcement — Defenses. 

544.  Liability  as  partners.  555.   Enforcement  of  liability  in  a 

545.  Conflicting  theories  and  decis-  foreign  jurisdiction. 

ions.  556.   Decree  determining  assets  and 

546.  The  tendency  of  the  decisions.  debts,    and    making    assess- 

547.  Where  there  is  not  even  a  de  ments — Conclusiveness. 

facto  corporation.  557.   Conclusiveness  of  decree,  con- 

548.  "One  man"  corporations.  tinued. 

§  538.  Ill  general. — The  liability  of  a  stockholder  at  com- 
mon law  is  determined  and  measured  by  the  contract  of  sub- 
scription. When  this  contract  with  the  corporation  is  fully 
performed,  there  is  no  further  liability  to  the  corporation  or  to 
its  creditors.  This  freedom  from  personal  liability  was  origi- 
nally the  distinctive  feature  of  a  corporation  and  was  the  prin- 
cipal inducement  for  the  organization  of  business  corporations 
rather  than  the  formation  of  partnerships  and  joint  stock  com- 
panies. But  within  recent  years  many  constitutions  and  legis- 
latures have,  upon  grounds  of  supposed  public  policy,  imposed 
additional  liability  upon  stockholders  for  the  benefit  of  credit- 
ors of  corporations.  Many  statutes  simply  declare  a  liability 
which  already  existed  at  common  law.  The  liability  which  re- 
sults from  a  failure  to  become  properly  incorporated  is  not 
strictly  an  imposed  liability  but  rather  a  liability  for  debts  cre- 
ated when  there  were  no  stockholders  and  hence  when  the  per- 
sons claiming  to  be  such  were  not  entitled  to  the  protection  af- 
forded by  the  relation. 

(591) 


592  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  539 

§  539.  Liability  to  corporation  measured  by  the  contract  of 
subscription. — The  common  law  liability  of  a  stockholder  to  a 
corporation  is  simply  a  question  of  contract  between  him  and  the 
corporation,  and,  in  the  absence  of  a  statutory  or  constitutional 
provision  to  the  contrary,  all  liability  is  terminated  by  the  pay- 
ment of  the  full  par  value  of  his  stock.1  He  is  not,  therefore, 
liable  for  the  debts  of  the  corporation  unless  made  so  by  law  or 
special  contract.2  The  rule  is  exactly  the  reverse  in  the  case  of 
the  members  of  a  joint  stock  company  who  are  liable  jointly 
and  severally  for  the  debts  of  the  company  unless  restricted  by 
statute.3  The  members  of  a  corporation  may  enlarge  their  lia- 
bility over  that  imposed  by  the  charter  by  contract,  but  not,  by 
by-laws  or  resolutions  without  the  consent  of  all  those  who  are 
to  be  affected  thereby.4  The  statutory  liability  may  be  contract- 
ual in  its  nature,  as  one  who  becomes  a  stockholder  is  charged 
with  the  knowledge  of  the  laws  which  create  the  corporation 
and  impliedly  contracts  with  all  who  become  creditors  of  the 
corporation  that  he  will  assume  the  liability  imposed  by  the 
law.5  But  there  is  no  privity  between  such  a  stockholder  and 
the  creditors  of  the  corporation,  and  it  is  only  after  the  insol- 
vency of  the  corporation  and  in  a  proper  equitable  or  statutory 
proceeding  that  the  creditors  have  any  right  against  such 
stockholder.  The  stockholder  is,  however,  in  all  cases  liable 
in  some  form  of  proceeding  to  pay  according  to  the  terms  of 
his  contract  what  remains  unpaid  on  his  subscription.6  As  a 
general  rule,  there  is  no  liability  to  creditors  after  the  corpora- 
tion has  become  insolvent  unless  a  liability  to  the  corporation 

1  Gainey  v.  Gilson,  149  Ind.  58,  48  fin  v.  Rich,  45  Maine  507,  71  Am.  Dec. 

N.  E.  Rep.  '133.     It  must  be  remem-  559. 

bered,  however,  that  (In-  liability  may  "Walburn  v.  Ingilby,  1  Myl.  &  K. 

bemcMsnn-.l   by  the  apparent  rather  61,76;  Frost  v.  Walker,  60  Maine  468. 

than  the  actual  contract  between  tbe  4  Trustees  v.  Flint,  13  Met.  (Mass.) 

cribei  and  the  corporation.     See  539;  Flint  v.  Pierce,  99  Mass.  68,  96 

ii'. N-s  on  liability  of  stockholders  in  Am.  Dec.  691. 

99  \i,,.  Dec.  132,  and  27  Am.  L.  Reg.  B§564,  infra.  Nimickv. Mingo, etc., 

(U.S.)    168.      Liability   ol   ■lire-tors,  Co.,  25   W.  Va.    184;    Flash  v.  Conn, 

502, supra, Tradesmen's  Pub.  Co.  109  U.  8.  371. 

v.  Car  Wheel  Co.,  95  Tenn.  634.  'Walker  v.    Lewis,    49    Tex.    123; 

•Shaw  v.  Boylan,  16  [nd.  884;  Oof-  Warfield,  etc.,  Co.  v.  Marshall,  etc., 

Co.,  72  Iowa 666,  2  Am.  St.  Rep.  263. 


§  540  COMMON    LAW    LIABILITY    OF    STOCKHOLDERS.  593 

exists  or  the  stockholder  has  by  his  conduct  estopped  himself 
from  availing  himself  of  his  defense.1  A  release  by  the  cor- 
poration is  not  always  good  as  against  the  creditors  of  the  cor- 
poration.2 A  bona  fide  purchaser  of  shares  in  the  market,  under 
the  belief  that  they  are  paid  up,  is  not  liable  to  the  creditors 
of  the  corporation,  for  the  par  value,  although  the  representa- 
tions of  the  corporation  prove  to  be  false.3  The  liability  usu- 
ally attaches  to  the  person  whose  name  appears  as  the  owner  of 
the  stock  upon  the  books  of  tlie  corporation.1*  Ii  there  is  no 
ground  for  estoppel,  a  person  to  whom  shares  of  stock  are 
issued  by  a  corporation  as  security  for  a  debt  is  not  liable  to 
the  corporation  or  its  creditors  as  a  stockholder.5 

§  540.  Acts  prior  to  incorporation. — Personal  liability  may 
attach  to  parties  for  acts  done  before  they  become  members, 
but  while  engaged  in  the  organization  of  the  corporation.  Un- 
less such  contracts  are  expressly  conditioned  upon  the  incorpo- 
ration of  the  company,  and  its  ratification  of  their  acts,  the 
promoters  are  personally  liable  thereon.6  The  relation  is  sim- 
ilar to  that  of  an  agent  of  an  undisclosed  principal.7  If  the 
corporation  after  its  creation  ratifies  the  act  of  the  promoter, 
the  creditor  may  proceed  against  either.8  The  promoters  are 
liable  for  such  preliminary  expenses  as  they  have  authorized, 
but  they  are  not  partners  and  there  is  no  presumption  of 
agency  to  act  one  for  the  other.  It  must  be  shown  that  the 
contract  was  made  with  the  party  or  his  authorized  agent. 

§  541.   The  incorporation  of  a  partnership  business.— The 

liability  of  the  members  of  a  partnership  on  existing  contracts 
is  not  affected  by  a  change  from  a  partnership  to  a  corpora- 

1  Union,  etc.,  Assn.  v.  Seligman,  92        4  Crease  v.  Babcock,  10  Met.  (Mass.) 
Mo.  635,  1  Am.  St.  Rep.  776;  Burgess    525. 

v.  Seligman,  107  U.  S.  20;  First  Nat'l  5  §  569.    Burgess  v.   Seligman,   107 

Bank  v.  Gustin,  etc.,  Co.,  42  Minn.  U.  S.  20;  Fisher  v.  Seligman,  7  Mo. 

327,  18  Am.  St.  Rep.  510,  App.  383;  Thompson's  Corps.,  §  2935. 

2  See  Upton  v.  Honsborough,  3  Biss.  *  Ante,  §  55. 

417 ;  Thompson's  Corps.,  §  1517.  7  Hurt  v.  Salisbury,  55  Mo.  310. 

3  Young  v.  Erie,  etc.,  Co.,  65  Mich.  8Whitwell  v.  Warner,  20  Vt.  425; 
111 ;  Johnson  v.  Lullman,  15  Mo.  App.  Kelner  v.  Baxter,  L.  R.  2  C.  P.  174. 
55,  88  Mo.  567. 

38— Private  Corp. 


594  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  542 

tion.1  But  if,  as  is  often  the  case,  the  firm  name  is  retained 
as  the  name  of  the  corporation,  it  is  incumbent  upon  the 
members  to  advertise  the  fact  of  the  change,2  and  a  failure  to 
do  so  will  render  the  members  liable  as  partners  to  parties  who 
become  creditors  after  the  incorporation  without  knowledge  of 
the  fact  of  incorporation.3 

§  542.    Debts  contracted  before  distribution  of  stock. — It 

seems  that,  in  the  absence  of  a  statute,  the  members  of  a  corpo- 
ration are  jointly  and  severally  liable  for  debts  contracted  after 
the  incorporation  is  completed,  but  before  the  capital  stock  is 
distributed.4  Where  the  members  are  by  statute  made  liable  for 
the  debts  of  the  corporation  contracted  before  the  capital  stock 
is  paid  in,  and  a  certificate  thereof  recorded,  the  liability  at- 
taches to  all  who  were  stockholders  when  the  debt  was  con- 
tracted, and  are  such  when  the  liability  is  sought  to  be  en- 
forced, but  not  to  those  who  became  stockholders  after  the  debt 
was  contracted,  and  disposed  of  their  shares  before  the  action 
was  brought.5 

§  543.  Liability  resulting  from  illegal  or  defective  incorpora- 
tion.6— There  is  much  diversity  of  opinion  as  to  the  liability  of 
the  members  of  a  defectively  or  irregularly  organized  corpora- 
tion. It  is  generally  conceded  that  persons  who  attempt  to  form 
a  corporation  will  not  escape  individual  liability  if  they  do  not 
so  far  comply  with  the  law  as  to  create  at  least  a  de  facto  cor- 
poration. In  order  to  secure  the  exemption  which  results 
from  incorporation  it  is,  at  the  least,  necessary  that  the  corpo- 
ration be  of  such  a  character  as  to  be  able  to  defend  its  right  to 
exist  as  against  all  persons  except  the  state.7  An  incorpora- 
tion  which  is  merely  a  cloak  to  cover  illegal  transactions  will 

1  Broyles  v. McCoy,  5  Sneed (Tenn.)  Almy,  1 17  Mass.  476.    Compare  Bur- 
nap  v.  Raskins,  etc.,  Co.,  127  Mass. 

Martin  v.  Fewell,  79  Mo.  401,  Wil-  586. 

ises.  "Sayles  v.  BateB,  L5  R.  I.  342. 

•McGowan  v.   American,  etc.,  Co.,  "See    Wilgus'    Cases,    particularly 

L21  0.S.575;  McFall  v.  McKeesport,  De  Facto  Corporations  and  Corpora- 

;•      .  L6  Ail.  Rep.  178.  tions  by  Estoppel. 

'Hawea   v.  Anglo-Saxon,  etc.,  Co.,  7^>'f    Taylor    Priv.    Corp.,   §   148; 

101    M                  I    i  i    Nat'l    Bank  v.  Morawetz  Priv.  Corp.,  §  748. 


§  544  COMMON    LAW    LIABILITY    OF    STOCKHOLDERS.  595 

not  protect  the  stockholders  from  personal  liability.1  If  the 
corporation  is  illegal  or  not  even  de  facto,  the  members  are 
generally  held  liable  for  the  debts,  either  as  partners,  or  on 
some  principle  of  the  law  of  agency.  Where  the  public  policy 
of  the  state  forbids  the  organization  of  corporations  for  certain 
kinds  of  business,  those  who  organize  a  corporation  to  carry 
on  such  business  are  liable  as  partners,  and  those  who  deal 
with  them  in  the  assumed  corporate  name  are  not  estopped.2 

§  544.  Liability  as  partners. — In  order  that  there  may  be 
exemption  from  personal  liability  there  must  be  either  a  legal 
incorporation,  the  existence  of  a  de  facto  corporation,  or  of  a 
condition  of  affairs  which  will  raise  an  estoppel  as  against  par- 
ties who  might  otherwise  deny  the  fact  of  incorporation.  In 
some  cases  it  is  held  that  where  parties  attempt  to  organize  a 
corporation  and  fail  to  comply  with  the  statutory  provisions, 
requisite  to  legal  incorporation,  the}r  are  liable  to  creditors  as 
partners.3  It  has  also  been  held  that  the  fact  that  a  person  has 
dealt  with  such  an  organization  as  a  corporation  will  not  estop 
him  from  repudiating  a  contract  and  holding  the  members  of 
the  defective  organization  as  partners.4  This,  however,  is 
manifestly  inconsistent  with  the  generally  admitted  rule  that 
one  who  deals  with  a  de  facto  corporation  as  such  can  not 
thereafter  be  heard  to  deny  its  legal  existence.  Where  the  lia- 
bility exists  it  is  only  on  the  part  of  those  who  were  members 
at  the  time  the  debt  was  contracted.5  It  exists  only  when  the 
corporation  is  created  for  the  purpose  of  carrying  on  a  com- 
mercial business  for  the  profit  of  its  members.  If  the  object 
of  the  organization  is  other  than  commercial  although   pecu- 

1McGrew  v.  City  Produce  Exch.,  Garnett  v.  Richardson,  35  Ark.  144. 
85  Tenn.  572,  4  Am.  St.  Eep.  771;  In  some  states  a  liability  as  partners 
Paterson  v.  Arnold,  45  Pa.  St.  41(5.  is  imposed  by  statute.  Heuer  v.  Car- 
empire  Mills  v.  Alston,  etc.,  Co.  michael,  82  Iowa  288;  Abbott  v. 
(Tex.  App.),  15  S.  W.  Rep.  505,  12  L.  Omaha,  etc.,  Co.,  4  Neb.  416.  See 
R.  A.  366,  annotated.  note  on  partnership  liability  of  stock- 
3Bigelow  v.  Gregory,  73  111.  197;  holders  in  case  of  defective  or  illegal 
Coleman  v. Coleman,  78  Ind.  344;  Mar-  incorporation,  17  L.  R.  A.  549. 
tin  v.  Fewell,79  Mo.401,"\Vilgus'Cases;  4  Empire  Mills  v.  Alston  Grocery 
Richardson  v.  Pitts,  71  Mo.  128;  Ab-  Co.,  supra,  and  cases  there  cited, 
bott  v.  Omaha,  etc.,  Co.,  4  Neb.  416;  5 Fuller  v.  Rowe,  57  N.  Y.  23;  Staf- 
Whipple   v.   Parker,   29    Mich.    369;  ford  Bank  v.  Palmer,  47  Conn.  443. 


596  THE    LAW    OF    PRIVATE    CORPORATIONS.  §    545 

niary  profit  may  result  to  the  members,  they  will  not  be  liable 
for  the  debts  of  the  corporation  unless  they  have  authorized  or 
ratified  the  contracts.1 

§  545.  Conflicting  theories  and  decisions. — After  noting 
the  conflict  among  the  decisions,  and  that  in  some  states  a 
liability  as  partners  is  imposed  by  statute,  Judge  Thompson 
says:2  "Outside  of  the  question  of  the  existence  of  such  stat- 
utes, and  chiefly  in  jurisdictions  where  they  do  not  exist,  there 
is  a  class  of  cases  holding  to  the  simple,  just  and  easily  applied 
doctrine  that  where  a  number  of  coadventurers  assume  or  at- 
tempt, under  the  provisions  of  a  general  statute,  to  organize 
themselves  into  a  corporation,  and  fail  to  take  the  steps  which 
that  statute  makes  essential  to  their  becoming  incorporate,  and 
assume  to  contract  corporate  debts  without  having  taken  such 
steps  they  are  liable  for  such  debts  as  partners.3  Totally  op- 
posed to  these  conceptions  is  the  doctrine  of  some  of  the  courts 
that,  in  the  case  last  named,  the  shareholders  in  the  defectively 
organized  corporation  do  not  become  liable  as  partners,  gen- 
eral or  special.4  These  cases,  in  general,  proceed  upon  the 
theory  that  the  members  are  not  in  such  a  case,  liable  as  part- 
ners, (a)  because  they  have  not  agreed  among  themselves  to 
be  so  liable,  (6)  because  they  have  not  agreed  with  the  other 
part}'  to  the  contract  to  be  so  liable,  (c)  because  they  have  not 
held  themselves  out  to  him  as  partners;  and  some  of  them  fall 
back  upon  the  well-known  doctrine5  that  a  partnership  is  not 
necessarily  formed  by  an  abortive  agreement  to  form  a  corpo- 
ration;6 and  some  of  them  dwell  upon  the  impropriety  of  the 
courts  making  contracts  between  parties  which  they  have  not 
made  between  themselves.  Finally  there  is  a  class  of  cases 
maintaining  the  doctrine  that  where  the  corporation  has  been 

1  Bigelow  v.   Gregory,  73  111.  197;  Wilgus'  Cases;  Trowbridge  v.  Scudder, 

Johnson  v.  Corser,  34  .Minn.  355.  11  Cush.(Mass.)83;  First  Nat']  Bank  v. 

*  Thompson's  Corps  ,§  2992.  Almy,  117  Mass.  476;   Stafford  Nat'] 

•Bigelow  v.   Gregory,  7:;   III.  197;  Bank  v.  Palmer,  47  Conn.  443;  Central 

Coleman  v.   Coleman,   78   [nd.   344;  City, etc., Bank v.Walker,66 N.Y. 424; 

Garnetl   v.   Bicharson,  36   A.rk.    144;  Blanchard  v.  Kaull,  44  Cal.  440,  450. 

AMx.tt   v.  Omaha,  etc.,  Co.,  4  Neb.  'See  Thompson's  Corps.,  §  421. 

U6.  'Blanchard  v.  Saul,  44  Cal.  440. 

4  Fay  v.  Noble,  7  Cash.  (.Muss.)  188, 


§  546  COMMON    LAW    LIABILITY    OF    STOCKHOLDERS.  597 

defectively  organized,  but  nevertheless  has  a  colorable  organiza- 
tion, and  exists  and  carries  on  its  business  as  a  corporation  de 
facto,  the  state  not  electing  to  interfere, — there  being  no  fraud 
nor  any  statute  making  the  stockholders  individually  liable, — 
one  who  enters  into  a  contract  with  it  as  a  corporation  estops 
himself  from  attempting  to  enforce  the  contract  against  its 
members  as  partners  or  original  undertakers.1  The  general 
theory  of  these  cases  is  that  the  creditor  is  estopped  by  his  own 
contract  from  so  proceeding  against  the  stockholders,  and  that 
he  will  not  be  allowed  in  the  face  of  his  own  contract  to  im- 
peach the  franchise  of  a  de  facto  corporation,  so  long  as  the 
state  is  content  that  it  should  exist.  It  is  conceded  in  some  of 
the  cases  that  this  principle  can  have  no  application  in  a  case 
where  the  corporation  does  not  exist  de  facto,  but  is  a  mere 
pretense  or  usurpation;  and  in  reason  and  justice  it  is  abso- 
lutely essential  to  the  support  of  this  view  that  there  should 
be  a  corporation  having  a  corporate  fund  answerable  for  the 
debt  as  fully  as  though  the  organization  of  the  corporation  had 
been  legally  efficient." 

§  546.  The  tendency  of  the  decisions. — The  tendency  of 
the  decisions  is  toward  holding  that  no  partnership  liability 
attaches  where  the  parties  acted  in  good  faith  and  attempted 
to  organize  under  a  statute  which  authorized  the  organization 
of  such  a  corporation.  The  weight  of  authority  is  in  favor  of 
protecting  members  from  liability  where  business  has  been 
carried  on  in  good  faith,  under  the  belief  that  the  incorpora- 
tion was  valid.2  To  hold  such  persons  as  partners  "  involves 
not  only  the  nullification  of  the  contract  which  was  actually 
contemplated  by  the  parties,  but  the  creation  of  a  different  con- 
tract, which  neither  of  the  parties  intended  to  make."3  Mr. 
Cook  says:     "During  the  past  few  years,  however,  the  great 

1  Sniders,  etc.,  Co.  v.  Troy,  91  Ala.  L.  R.  A.  549,  annotated,  Wilgus' 
224,  11  L.  R.  A.  Rep.  515,  24  Am.  St.  Cases;  Humphreys  v.  Mooney,  5 
Rep.  887,  Wilgus'  Cases;  Cory  v.  Lee,  Colo.  282,  and  note.  But  mere  intent 
93  Ala.  468;  Planters'  etc.,  Bank  v.  to  form  a  corporation  is  not  enough. 
Padgett,  69  Ga.  159 ;  American,  etc.,  Martin  v.  Fewell,  79  Mo.  401,  Wilgus' 
Co.  v.  Heidenheimer,  80  Tex.  344,  26  Cases. 

Am.  St.  Rep.  743.  3  Morawetz    Priv.   Corp.    2,    §748; 

2  Rutherford  v.  Hill,  22  Ore.  218,  17    Planters'  Bank  v.  Padgett,  69  Ga.  159, 


598  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  546 

weight  of  authority  has  clearly  established  the  rule  that  when 
a  supposed  corporation  is  doing  business  as  a  de  facto  corpora- 
tion, the  stockholders  can  not  be  held  liable  as  partners,  al- 
though there  have  been  irregularities,  omissions  or  mistakes  in 
incorporating  or  organizing  the  company.     *     *  It  must 

be  admitted  that  this  conclusion  of  the  law  is  reasonable  and 
just.  *  *  *  The  courts  have  gradually  departed  from  the 
old  decisions  on  this  subject  and  have  wisely  refused  to  hold 
the  stockholder  liable.  Recent  cases  have  so  settled  the  law 
beyond  reasonable  controversy."1 

Mr.  Justice  Brewer  says:2  "  I  think  the  rule  is  this:  that 
where  persons  knowingly  and  fraudulently  assume  a  corporate 
existence,  or  pretend  to  have  a  corporate  existence,  they  can 
be  held  liable  as  individuals;  but  where  they  are  acting  in 
good  faith,  and  suppose  that  they  are  legally  incorporated — 
that  they  are  stockholders  in  a  valid  corporation — and  where 
the  corporation  assumes  to  transact  business  for  a  series  of 
years,  and  the  assumed  corporate  existence  is  not  challenged 
by  the  state,  then  they  can  not  be  held  liable  as  individuals." 
In  a  recent  Alabama  case  the  court  said:3  "The  doctrine  that 
a  creditor  who  has  dealt  with  a  de  facto  corporation  in  its  cor- 
porate capacity,  can  not  charge  the  stockholders  as  partners 
with  the  corporate  debts,  there  being  no  fraudulent  intent  al- 
leged and  proved,  seems  to  us  to  be  sustained  by  the  weight 
of  authority,  maintained  by  stronger  reasoning,  consistent 
with  well-settled  principles,  and  in  harmony  with  the  policy 
of  the  state." 

1Cook  Corps.  1,§234;    Whitney  v.  Consolidated,  etc.,  Co.  (111.,  1891),  27 

Wyman,  101   U.  S.  392;  Christian   v.  N.  E.  Rep.  596;  Cory  v.  Lee,  93  Ala. 

Bowman,  49  Minn.  99;  Lamed  V.  Beal  4(58;  American,  etc.,  Co.  v.  Heiden- 

(N.  H.),  23  All.  Rep.  L49;  Vanneman  heimer,  80  Tex.  344.    See,  also,  Fin- 

v.  Young  CX.  J.),   20    All.    Rep.   53;  negan  v.  Noerenberg,  52  Minn.  239, 

Bates  v.  Wilson  (Colo.),  24  Pac.  Rep.  Wilgus'  Cases. 

99;    Walton    v.   Riley,  85    Ky.   413;  8Gartside,  etc.,  Co.  v.  Maxwell,  22 

Welch  v.  Importers'  Bank,  122  N.Y.  Fed.  Rep.  197. 

177;    Reinhard   v.  Virginia,  etc.,  Co.  •Snider's  Sons  Co.  v.  Troy,  91  Ala. 

(Mo.),  L8  B.  W.  Rep.  17;  Beacord   v.  224,  24   Am.  St.  Rep.  887,  11  L.  R.  A. 

Pen- II. -Ion,  55  J 1 0 ii  .',7'.);   Bushnell  v.  515,  Wilgus'  Cases. 


§547 


COMMON    LAW    LIABILITY    OF    STOCKHOLDERS. 


599 


§  547.    Where  there  is  not  even  a  de  facto  corporation,1 — 

There  is  substantial  agreement  among  the  courts  that  where 
there  is  not  even  a  de  facto  corporation,  the  associates  are  lia- 
ble, either  as  partners  or  as  agents,  for  obligations  incurred  in 
the  name  of  the  association.  Thus,  if  there  is  no  law  author- 
izing the  creation  of  such  a  corporation,  or  if  the  incorporat- 
ing act  is  unconstitutional,  all  organizations  effected  there- 
under will  be  treated  as    partnerships.2     The  liability  of  the 


1  See  Wilgus'  Cases,  Corporations 
by  Estoppel. 

2  Eaton  v.  United  States,  etc.,  Co., 
76  Mich.  579, 6  L.R.A.  102 ;  Johnson  v. 
Corser,  34  Minn.  355;  Guckert  v. 
Hacke,  159  Pa.  St.  303,  Wilgus'  Cases ; 
Empire  Mills  v.  Alston,  etc., Co. (Tex.), 
15  S.  W.  Rep.  200;  Kaiser  v.  Bank,  56 
Iowa  104;  Bigelow  v.  Gregory,  73  111. 
197;  Abbott  v.  Refining  Co.,  4  Neb. 
416 ;  Coleman  v.  Coleman,  78  Ind.  344 ; 
Wechselberg  v.  Bank,  64  Fed.  Rep.  90, 
12  C.  C.  A.  56,  Wilgus'  Cases ;  Booth 
v.  Wonderly,  36  N.  J.  L.  250;  Vreden- 
berg  v.  Behan,  33  La.  Ann.  627. 
Sheren  v.  Mendenhall,  23  Minn.  92, 
was  an  action  against  Mendenhall  and 
Baldwin  as  partners,  under  the  name 
of  the  "State  Savings  Association." 
It  appeared  that  the  defendants  un- 
dertook to  become  a  corporation  under 
the  general  laws,  but  the  court  held 
that  the  law  under  which  it  attempted 
to  incorporate  did  not  authorize  the 
formation  of  such  a  corporation,  and 
the  defendants  were  held  liable  as 
partners.  Johnson  v.  Corser,  34  Minn. 
355,  was  a  case  not  of  irregularity  in 
omitting  to  conform  to  some  require- 
ment of  the  law,  but  an  attempt  to 
organize  a  corporation  such  as  was 
not  authorized  by  the  law.  In  an 
action  against  the  members,  all  the 
parties  concerned  in  or  authorizing 
the  contract  personally  were  held  lia- 
ble, but  the  court  refused  to  apply  the 
doctrine  of  implied  agency  recognized 


in  the  law  of  partnership.  The  court 
said:  "The  plaintiff  asserts,  as  a  rule 
of  law  applicable  to  the  case,  that 
from  the  mere  failure  to  perfect  the 
contemplated  incorporation,  the  asso- 
ciation, after  proceeding  to  carry  on 
the  proposed  enterprise,  became  a 
partnership,  and  the  members  co- 
partners, with  authority,  implied  from 
the  relation,  in  each  member  to  bind 
all  the  associates  by  any  act  within 
the  scope  of  the  business  carried  on 
by  the  association.  We  can  not  sanc- 
tion the  application  to  this  case  of 
the  doctrine  of  implied  agency,  as  it 
is  recognized  in  ordinary  business  co- 
partnerships. *  *  *  As  far  as  ap- 
pears, the  business  undertaken  and 
carried  on  by  the  defendants,  was 
not  of  a  partnership  character,  nor 
the  purpose  such  as  to  suggest  the  re- 
lation of  co- partners  between  those 
engaged  in  it."  In  Foster  v.  Moulton, 
35  Minn.  458,  Wilgus'  Cases,  the  court 
said :  "It  was  manifest  that  the  under- 
standing between  the  members  and 
the  basis  upon  which  the  certificates 
of  membership  were  issued,  was  a  cor- 
poration in  fact  as  it  was  in  form. 
It  is,  at  least  as  between  the  members 
themselves,  to  be  treated  as  a  cor- 
poration de  facto,  and  the  plaintiff 
estopped  from  treating  the  members 
as  partners."  See  Finnegan  v.  Noern- 
berg,  52  Minn.  239,  Wilgus'  Cases: 
Christian  v.  Bowman,  49  Minn.  99. 


600  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  548 

contracting  parties  is  sometimes  based  upon  the  rule  that  by 
assuming  to  act  for  a  principal  that  does  not  exist,  the  agent 
becomes  personally  liable,  as  for  a  breach  of  implied  warranty 
to  make  good  the  undertaking.1  Where  an  action  was  brought 
against  a  stockholder  on  a  note  given  by  a  pretended  corpora- 
tion the  court  said:2  "The  apparent  corporation  was  not  a 
corporation.  The  statute  of  New  Hampshire  requires  five  as- 
sociates, and  the  articles  of  agreement  must  be  recorded  in  the 
town  in  which  the  principal  business  is  to  be  carried  on,  and 
the  place  in  which  the  business  is  to  be  carried  on  must  be 
distinctly  stated  in  the  articles ;  otherwise  there  is  no  corpora- 
tion. The  defendant's  pretended  associates  were  associates 
only  in  name ;  he  alone  was  interested  in  the  enterprise.  The 
articles  of  agreement  were  recorded  in  Nashua,  and  stated  that 
the  business  was  to  be  carried  on  there ;  but  it  was  not  in  fact 
carried  on  there,  and  was  not  intended  to  be.  The  defendant 
took  all  the  shares  of  the  capital  stock,  and  paid  in,  to  himself, 
as  treasurer,  -only  fifty  per  cent,  of  the  amount  thereof.  This 
is  not  a  case  where  there  has  been  a  defective  organization  of 
a  corporation  which  has  a  legal  existence  under  a  valid  char- 
ter. Here  there  was  no  corporation.  It  was  just  the  same  as 
if  the  defendant  had  done  nothing  at  all  in  the  way  of  estab- 
lishing a  corporation,  but  had  conducted  his  business  under 
the  name  of  the  Forbes  Woolen  Mills,  calling  it  a  corporation. 
The  business  was  his  personal  business,  which  he  transacted 
under  that  name." 

§  548.  "One  man"  corporations.3 — The  courts  have  had  con- 
siderable trouble  with  what  have  come  to  be  known  as  one 
man  corporations.  By  the  weight  of  authority  the  fact  that 
all  the  shares  of  the  stock  have  come  into  the  hands  of  one 
person  does  not  operate  as  a  dissolution  of  the  corporation,  or 
make  it  a  fraud  upon  the  public  for  him  to  continue  the  busi- 

»Thompson  Corps.,  §  418.  3See  Louisville  Banking  Co.  v.  Eis- 

» Montgomery  v.  Forbes,  148  Mass.  enman,  94  Ky.  83,  42  Am.  St.  R.  335, 
24P,  Wilgas'  Cases.  19  L.  R.  A.  604,  Wilgus'  Cases. 


§  548  COMMON    LAW    LIABILITY    OF    STOCKHOLDERS.  601 

ness  in  the  corporate  name.1  In  a  celebrated  English  case 
it  appeared  that  one  Salomon  was  carrying  on  business  as  a 
merchant,  and  while  solvent  he  organized  a  corporation  for 
the  purpose  of  taking  over  and  carrying  on  his  business.  The 
memorandum  of  association  was  signed  by  Salomon,  his  wife, 
daughter  and  four  sons,  who  each  subscribed  for  one  share. 
Twenty  thousand  shares  were  allotted  to  Salomon,  who  also 
received  debentures  amounting  to  ten  thousand  pounds,  which 
constituted  a  first  lien  upon  the  property  of  the  corporation. 
Subsequently  these  debentures  were  canceled,  and  others  for 
the  same  amount  at  the  request  of  Salomon  issued  to  one  Brod- 
erip  as  security  for  a  loan  of  five  thousand  pounds,  which  was 
made  to  Salomon  and  by  him  loaned  to  the  corporation. 
Broderip  commenced  an  action  to  enforce  his  security.  A 
receiver  was  appointed  and  an  order  for  compulsory  winding 
up  made.  The  corporation  owed  unsecured  debts  to  a  large 
amount,  of  which  more  than  one-half  was  owed  to  Salomon. 
The  receiver  paid  Broderip 's  debt,  and  Salomon  claimed 
the  balance  as  the  owner  of  the  debentures.  The  receiver 
disputed  the  validity  of  the  debentures  on  the  ground  of 
fraud,  and  claimed  a  rescission  of  the  agreement  for  the 
transfer  of  the  business,  and  the  cancellation  of  the  debentures. 
The  trial  court  held  that  the  company  was  a  mere  nominee  of 
Salomon,  and  that  the  case  stood  as  if  the  nominee  instead  of 
being  a  company  had  been  merely  some  individual  agent  of 
Salomon,  to  whom  he  had  proposed  to  sell  his  business.  The 
trustee  in  bankruptcy  would  then  have  had  the  right  to  make 
Salomon  indemnify  the  agent  against  the  debts  that  he  had 
contracted  by  the  direction  of  his  principal.  The  right  of  the 
liquidator  was  held  to  be  precisely  the  same,  notwithstanding  the 
debentures  (which  were  a  mere  form),  intended  to  give  the  ap- 
pearance of  reality  to  a  sale  which  was  in  fact  no  sale,  because 
it  was  a  sale  by  a  man  to  an  agent  for  his  own  profit.  Salo- 
mon  was    required   to   indemnify   the   company   against  the 

1  Louisville,  etc.,  Co.  v.  Kaufmann  be  transferred  to  him,  may  be  held 

(Ky.),   48  S.  W.   Rep.  434.     A  sole  responsible  for  its   debts.     Angle  v. 

stockholder  who   wrongfully  caused  Chicago,  etc.,  R.  Co.,  151  U.  S.  1. 
all  the  property  of  the  corporation  to 


602  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  548 

amount  of  its  unsecured  debts,  and  a  judgment  was  entered 
against  him.     Upon  appeal  the  judgment  was  affirmed.1 

Lord  Justice  Lindley  said:  "There  can  be  no  doubt  that  in 
this  case  an  attempt  has  been  made  to  use  the  machinery  of 
the  company's  act  for  a  purpose  for  which  it  never  was  intended. 
The  legislature  contemplated  the  encouragement  of  trade  by 
enabling  a  comparatively  small  number  of  persons,  namely 
not  less  than  seven,  to  carry  on  business  with  a  limited  joint 
stock  or  capital  and  without  the  risk  of  liability  beyond  the 
loss  of  such  joint  stock  or  capital.  But  the  legislature  never 
contemplated  an  extension  of  limited  liability  to  sole  traders  or 
to  a  fewer  number  than  seven.  In  truth  the  legislature  clearly 
intended  to  prevent  anything  of  the  kind  for  section  48  takes 
away  the  privilege  conferred  by  the  act  from  those  members  of 
limited  companies  who  allow  such  companies  to  carry  on  busi- 
ness with  less  than  seven  members;  and  by  section  79  the  re- 
duction of  the  number  of  members  below  seven  is  a  ground  for 
winding  up  of  the  company.  Although  in  the  present  case 
there  were  and  are  seven  members,  yet  it  is  manifest  that  six 
of  them  are  members  simply  in  order  to  enable  the  seventh 
himself  to  carry  on  business  with  limited  liability.  The  object 
of  the  whole  arrangement  is  to  do  the  very  thing  which  the 
legislature  intended  not  to  be  done;  and  ingenious  as  the  scheme 
is,  it  can  not  have  the  effect  desired  so  long  as  the  law  remains 
unaltered.  *  *  *  The  incorporation  of  the  company  can  not 
be  disputed.  Whether  by  any  proceeding  in  the  nature  of  a 
scire  facias  the  court  could  set  aside  the  certificate  of  incorpo- 
ration is  a  question  which  has  never  been  considered,  and  on 
which  I  express  no  opinion;  but  be  that  as  it  may,  in  such  an 
action  as  this  the  validity  of  the  certificate  can  not  be  im- 
peached. The  company  must,  therefore,  be  regarded  as  a  cor- 
1 1' >i;ition,  but  as  a  corporation  created  for  an  illegitimate  pur- 
pose." Lord  Justice  Lopes  said:  "The  incorporation  of 
the  company  was  perfect.  The  machinery  by  which  it  was 
formed  was  in  every  reaped  perfect,  every  detail  had  been  ob- 
served, bul  notwithstanding  the  business  was  in  truth  and 
fact  the  business  of  A.aron  Salomon;  he  bad  the  beneficial  in- 
1  Broderip  v.  Salomon,  L.  B.  (1895)  20h.  Div.  323. 


§  549  COMMON    LAW    LIABILITY    OF    STOCKHOLDERS.  603 

terest  in  it;  the  company  was  a  mere  nominis  umbra,  under 
cover  of  which  he  carried  on  his  business  as  before,  securing 
himself  against  loss  by  a  limited  liability  of  one  pound  per 
share,  all  of  which  shares  he  practically  possessed  and  obtain- 
ing a  priority  over  the  unsecured  creditors  of  the  company  by 
the  debentures,  of  which  he  had  constituted  himself  the 
holder."  Notwithstanding  the  fact  that  the  incorporators  had 
complied  in  every  respect  with  the  statute  authorizing  the 
organization  of  such  companies  the  decision  of  the  lower  court 
was  affirmed  and  the  appeal  of  Salomon  dismissed. 

§  549.  One-man  corporations,  continued. — An  entirely  dif- 
ferent view  of  the  case  was  taken  in  the  house  of  lords, 
where  the  order  appealed  from  by  Salomon  was  reversed,1 
where  it  was  said  that  the  only  question  of  importance 
was  whether  the  respondent  company  wras  a  corporation, 
and  in  order  to  determine  that  question  it  was  simply  neces- 
sary to  examine  the  statute.  The  lord  chancellor  said:  "I 
must  pause  here  to  point  out  that  the  statute  enacts  nothing  as 
to  the  extent  or  degree  of  interest  which  may  be  held  by  each 
of  the  seven,  or  as  to  the  proportion  of  interest  or  influence 
possessed  by  one  or  the  majority  of  the  shareholders  over  the 
others.  One  share  is  enough.  Still  less  is  it  possible  to  con- 
tend that  the  motive  of  becoming  shareholders  or  of  making 
them  shareholders  is  a  field  of  inquiry  which  the  statute  itself 
recognizes  as  legitimate.  If  they  are  shareholders,  they  are 
shareholders  for  all  purposes,  and  even  if  the  statute  was  silent 
as  to  the  recognition  of  trusts  I  should  be  prepared  to  hold 
that  if  six  of  them  were  the  cestui  que  trusts  of  the  seventh, 
whatever  might  be  their  rights  inter  se,  the  statute  would  have 
made  them  shareholders  to  all  intents  and  purposes  with  their 
respective  rights  and  liabilities;  and  dealing  with  them  in 
their  relation  to  the  company,  the  only  relation  which  I  be- 
lieve the  law  would  sanction,  would  be  that  they  were  corpo- 
rators of  a  corporate  body.     *     *     *     Either  the  limited  com- 

1  Salomon   v.    Salomon,    etc.,  Co.,    gomery  v.  Forbes,  148  Mass.  249,  Wil- 
Lim.,  L.  R.  App.  Cas.  1897,  22 ;  75  Law    gus'  Cases. 
Times  N.   S.   427.     See,   also,   Mont- 


604  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  550 

pany  was  a  legal  entity  or  it  was  not.  If  it  was,  the  business 
belonged  to  it  and  not  to  Mr.  Salomon;  if  it  was  not,  there 
was  no  person  and  no  thing  to  be  an  agent  at  all;  and  it  is 
impossible  to  say  at  the  same  time  that  there  is  a  company  and 
there  is  not.  *  *  *  The  truth  is  that  the  learned  judges 
have  never  allowed  in  their  own  minds  the  proposition  that 
the  company  has  a  real  existence.  They  have  been  struck  by 
what  they  considered  the  inexpediency  of  permitting  one 
man  to  be,  in  influence  and  authority,  the  whole  company,  and 
assuming  that  such  a  thing  could  not  have  been  intended  by 
the  legislature,  they  have  sought  various  grounds  upon  which 
they  might  insert  into  the  act  some  prohibition  of  such  a  result. 
Whether  such  a  result  be  right  or  wrong,  politic  or  impolitic, 
I  say,  with  the  utmost  deference  to  the  learned  judges,  that 
we  have  nothing  to  do  with  that  question  if  this  company 
has  been  duly  constituted  by  law,  and  whatever  may  be  the 
motives  of  those  who  constituted  it,  I  must  decline  to  insert 
into  that  act  of  parliament  limitations  which  are  not  to  be 
found  there."  - 

§  550.    Corporations  organized  to  do  business  exclusively  in 

another  state, — The  decisions  are  not  uniform  on  the  question 

as  to  whether  a  corporation  can  be  created  by  one  state  with 

power  to  do  business  only  in  a  state  other  than  that  of  its  creation . 

In  Massachusetts  and  Texas  such  an  incorporation  will  not 

protect   the   members   from   liability  as  partners.1     The   same 

doctrine  was  established  in  New  Jersey2  at  an  early  day.    This 

is  the  general  rule  where  there  is  lack  of  good  faith  on  the  part  of 

either  the  state  or  the  corporators,  as   "  no  rule  of  comity  will 

allow  one   state  to   spawn  corporations,  and  send  them   forth 

into  other  states  to  be  nurtured  and  do  business  there,  when  said 

first  mentioned  state  will  not  allow  them  to  do  business  within 

its  own  borders."3  In  Now  York  and  at  present  in  New  Jersey 

1  Montgomery  v.  Forbes,  148  Mass.  if<>ston  the  face  of  their  proceedings 

249,  19  N.  E.  Rep.  342,  Wilgu  that    their    attempted    organization, 

Empire  Mills  v.  Alston  (Tex.  A.pp.),  15  under  the  general  laws  of  New  York 

s.  W.  Rep.  200,   12  I..  !«'.  A.  366,  an-  respecting  corporations,  was  a  fraud 

notated.  upon  the  law  of  this  stale" 

i   Hill  v.  Beach,  L2  N.J.  Eq.  31,  BLand  Grant,   etc.,   Co.   v.    Coffey 

the  court  said :     "It  is  perfectly  man-  Co.,  6  Kan.  245. 


§550 


COMMON    LAW    LIABILITY    OF    STOCKHOLDERS. 


605 


the  stockholders  will  not  be  held  liable  as  partners,  although  the 
corporation  was  created  for  the  purpose  of  doing  all  its  busi- 
ness in  foreign  states  if  there  was  no  fraud  or  evasion  of  the 
laws  of  the  state  of  incorporation.1  In'a  recent  case  the  court  of 
appeals  of  New  York  said:2  "Whatever  inferences  can  be  drawn 
as  to  the  motives  which  took  them  into  a  foreign  jurisdiction  to 
organize  a  corporation  under  its  laws,  I  agree  with  the  general 
term  that  any  such  question  has  been  once  and  for  all  settled 
by  our  recent  decision  in  the  case  of  Demarest  v.  Flack.3  It 
appeared  in  that  case  that  citizens  of  this  state,  incorporated 
under  the  laws  of  West  Virginia,  to  carry  on  a  certain  busi- 
ness, with  the  principal  office  of  the  company  in  New  York 
City,  where  only  it  had  been  conducting  its  operations. 
It  was  claimed  that  these  facts  invalidated  the  corporation, 
and  that  there  was  a  manifest  evasion  of,  and  fraud  upon,  the' 
laws  of  the  state.  But  it  was  held  that  they  constituted  no 
1  Demarest  v.  Flack,  128  N.  Y.  205,     dent  corporations  by  relieving  them 

of  a  burden  which  we  place  upon  do- 
mestic corporations.  As  was  said  in 
Martine  v.  International,  etc.,  Soc, 
'53  N.  Y.  339,  347  :  'It  would  be  most 
unreasonable  for  these  foreign  corpo- 
rations to  ask  the  privilege  of  doing 
business  under  our  laws  in  competi- 
tion with  domestic  institutions,  and 
then  ask  exemption  from  the  obliga- 
tions and  liabilities  which  attach  to 
the  latter.'  It  is  a  matter  of  common 
knowledge  as  well  as  of  grave  public 
concern  in  this  state,  that  for  the  sake 
of  a  paltry  license  tax,  certain  sister 
states  are  competing  with  each  other 
in  granting  loose  charters  without 
adequate  protection  for  the  public, 
and  thus  inducing  the  promoters  of 
corporations  to  organize  under  their 
statutes,  when  there  is  no  intention 
of  investing  capital  or  doing  business 
in  the  state  where  the  organization  is 
affected.  Such  selfish  and  unfriendly 
legislation  should  not  be  encouraged 
by  the  court  of  the  state  which  is 
most  injured  by  it." 


13  L.  R.  A.  854;  Merrick  v.  Van  Sant- 
voord,  34  N.  Y.  208;  Second  Nat'l 
Bank  v.  Hall,  35  Ohio  St.  158.  See 
Wright  v.  Lee,  2  S.  Dak.  596,  51  N. 
W.  Rep.  706;  Oakdale,  etc.,  Co.,  v. 
Garst,  18  R.  I.  484,  28  Atl.  Rep.  973; 
Missouri,  etc.,  Co.  v.  Reinhard,  114 
Mo.  218;  Trowbridge  v.  Scudder,  11 
Cush.  (Mass.)  83. 

2  Lancaster  v.  Amsterdam,  etc.,  Co., 
140  N.  Y.  576,  35  N.  E.  Rep.  964. 

3 128  N.  Y.  205.  In  People  v.  Board 
of  Assessors  (N.  Y.),  N.  Y.  Law 
Journal  of  May  3, 1899,  it  was  held  by 
a  divided  court  that  the  good  will  of 
a  corporation  organized  under  the 
laws  of  West  Virginia  by  residents  of 
New  York  for  the  purpose  of  doing 
business  wholly  in  New  York  was 
capital  employed  in  New  York  and 
therefore  taxable  in  New  York.  The 
court  said  :  "If  we  hold  that  the  good 
will  of  a  foreign  corporation  is  not 
taxable  here  simply  because  it  is  in- 
tangible, although  it  grew  up  here, 
has  a  market  value  here  and  nowhere 
else,  we  place  a  premium  on  non-resi- 


606  THE  LAW  OF  PRIVATE  CORPORATIONS.         §  551 

reason  for  refusing  recognition  to  the  corporation;  that  there 
was  no  essential  difference  between  a  corporation,  formed  un- 
der the  laws  of  a  foreign  state,  the  members  of  which  were  ita 
own  citizens,  and  one  so  formed,  the  members  of  which  were 
citizens  of  our  own  state.  If  our  citizens  are  attracted  to 
other  jurisdictions  for  purposes  of  incorporation,  because  of 
more  favorable  corporation  or  taxation  laws,  I  can  not  see  in 
that  fact,  however,  and  in  whatever  sense  to  be  deplored,  any 
reason  that  they  should  be  prevented  from  employing  here 
the  corporate  capital  in  the  various  channels  of  trade  or 
manufacture.  That,  as  it  seems  to  me,  would  be  a  rather  hurt- 
ful policy,  and  one  not  to  be  attributed  to  the  state." 

§  551.    Liability  for  capital  wrongfully  distributed. — It  has 

been  held  that  if  any  portion  of  the  capital  is  paid  to  the 
stockholders  under  the  name  of  dividends  it  may  be  recovered 
by  the  representative  of  the  creditor,  although  the  stockholder 
had  no  knowledge  but  that  the  dividends  had  been  earned 
and  were  properly  paid.  Equity  will  require  such  stock- 
holders to  contribute  pro  rata  for  the  payment  of  the  debts.1 
"The  stockholders  have  no  rights  to  anything  but  the  residuum 
of  the  capital  stock,  after  the  payment  of  all  the  debts  of  the 
corporation.  If  before  all  such  debts  are  discharged,  they  take 
into  their  hands  any  of  the  funds  of  the  corporation,  they  hold 
them  subject  to  an  equity  which  it  is  against  conscience  to  re- 
sist.":  But  the  supreme  court  of  the  United  States  in  a  late 
case  held  thai  the  receiver  of  a  national  bank  can  not  recover 
a  dividend  paid  entirely  out  of  capital  when  the  stockholder 
receiving  the  dividend  acted  in  good  faith,  believing  the  same 
to  be  paid  out  of  profits,  and  the  bank  at  the  time  of  the  pay- 
ment was  not  insolvent.3  Legitimate  profits  form  no  part  of 
the  capital  stock,  and  a  stockholder  can  not  be  required  to 
surrender  bona  fide  dividends  declared  and  distributed  at  a 
time  when  the  corporation    was  solvent.4 

1  Minnesota,  etc.,  Co.   v.  Langdon,  v.  Drew,  57  N.  Y.  587 ;  Gratz  v.  Redd, 

[inn.  37.  I  B.  Men.  (Ky.)  178. 

'Kohl    v.   Lilienthal,  81    Cal.  378;  B McDonald v.Williams,174U.S. 397. 

Clapp  v.  Peterson,  104  III.  26;  Cran-  *Reidv.  Eatonton,  etc.,  Co.,  10  Ga. 

dall  v.  Lincoln,  52  Conn.  73;   Bartleti  98,  2  Am.  Rep.  563. 


§  552  COMMON    LAW    LIABILITY    OF    STOCKHOLDERS.  607 

§  552.  Liability  upon  shares  issued  below  par. — The  rule 
that  holds  original  subscribers  to  the  stock  of  a  corporation 
liable  to  pay  the  full  face  value  of  shares  for  the  benefit  of  the 
creditors  of  the  corporation,  notwithstanding  a  contract  with 
the  corporation  by  which  it  has  agreed  to  accept  a  less  amount 
in  full  payment,  has  been  already  discussed.1  Such  a  contract 
is  valid  as  against  the  corporation,  at  least  by  estoppel,2  but  it 
is  impeachable  by  parties  who  extend  credit  to  the  corporation 
after  the  issue  of  such  stock.3  The  trust-fund  theory,  as  origi- 
nally established,  required  that  the  par  value  of  the  share 
must  be  paid  into  the  corporation  treasury  when  necessary  to 
liquidate  the  claims  of  creditors,  unless  the  stockholders  are 
able  to  show  a  greater  equity  than  that  possessed  by  the  credi- 
tors. But  it  has  been  considerably  modified.  "There  is  not 
much  room  to  doubt  the  soundness  of  the  conclusion  that 
where  the  rights  of  creditors  are  not  concerned,  an  agreement 
between  the  corporation  and  its  shareholders  that  they  are  to 
have  their  shares  upon  the  payment  of  a  sum  less  than  the 
par  or  nominal  value  will  estop  the  corporation  from  main- 
taining an  action  to  collect  the  balance.  But  it  was  formerly 
supposed,  in  conformity  with  the  holding  of  the  supreme  court 
of  the  United  States,  just  referred  to,  that  a  subscriber  to  the 
shares  of  a  corporation  could  be  compelled  to  pay,  if  necessary 
to  liquidate  its  debts,  the  entire  par  value  of  his  shares,  no 
matter  what  agreement  he  may  have  made  with  the  corpora- 
tion in  respect  to  their  payment,  at  the  time  of  his  subscrip- 
tion or  afterwards.  But  this  doctrine,  as  already  seen,  has 
been  recently  modified  by  the  supreme  court  of  the  United 
States,  to  the  extent  of  holding  that,  in  the  absence  of  circum- 
stances creating  an  equitable  estoppel  in  favor  of  the  creditor  of 
the  corporation,  and  against  the  shareholder,  the  latter  can 
not  be  compelled  to  pay,  even  for  the  purpose  of  liquidating 

*See  §  329,  supra.    When  shares  are  liability.     Fort  Madison  Bank  v.  Al- 

issued   as  full   paid   for  property  re-  den,  129  U.  S.  372.     See  §  340,  supra. 

ceived    in    payment,    there   must  be  z  Ante,  §  329.     Kenton,    etc.,    Co.  v. 

actual  fraud  in  the  transaction  to  ena-  McAlpin,  5  Fed.  Rep.  737. 

ble  the  creditors  of  the  corporations  3  Washburn  v.  Green,  133  IT.  S.  30; 

to  hold  the  stockholder  to  a  further  Upton  v.  Tribilcock,  91  U.  S.  45;  Sco- 

vill  v.  Thayer,  105  U.  S.  143. 


608  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  553 

the  debts  of  the  corporation  after  its  insolvency,  anything  be- 
yond what  the  corporation  agreed  with  hirn  to  accept  as  full 
payment.  This  is  tantamount  to  holding  that,  as  far  as  the 
rights  of  creditors,  who  became  such  prior  to  the  issuing  of  the 
shares,  are  concerned,  whatever  the  corporation  agreed  to  ac- 
cept as  payment  is  payment,  even  though  it  agreed  to  give 
away  the  shares,  or  to  issue  them  as  a  bonus,  or  in  considera- 
tion of  some  past  benefit,  it  is  to  be  deemed  payment.  This 
lifts  the  obligation  of  the  shareholder  to  pay  the  par  value  of 
his  shares,  even  for  the  purpose  of  liquidating  the  debts  of  the 
corporation,  out  of  the  category  of  principles  of  public  policy, 
and  lets  it  down  to  the  mere  doctrine  of  an  equitable  estop- 
pel. The  meaning  is  that,  except  in  cases  where  creditors  have 
been  deceived  and  misled  by  the  corporation  pretending  to 
have  a  capital  which  it  has  not,  a  creditor  can  enforce  no 
right  against  a  shareholder  greater  than  the  corporation  itself 
could  enforce  against  him."1  This  is  believed  to  be  an  ac- 
curate statement  of  the  law  at  the  present  time. 

§  553.  Fraudulent  acts. — The  stockholders  are  not  liable  for 
the  torts  of  the  corporation,  but  they  are  liable  for  their 
own  torts  committed  under  pretense  of  acting  for  the  corpora- 
tion. Thus  they  "may  have  originally  contracted  debts  in  the 
name  and  upon  the  credit  of  the  corporation,  without  any  pur- 
pose of  payment  or  without  any  reasonable  probability  that 
payment  could  be  made  by  the  corporation;  or  they  may  have 
diverted  all  the  funds  of  the  corporation  to  their  own  use,  in 
either  case  evincing  a  settled  purpose  of  defrauding  creditors."1 
It  was  held  that  a  stockholding  creditor  did  not  become  person- 
ally Liable  for  the  corporate  debts  by  securing  a  preference  out 
of  the  corporate  property.  But  in  order  to  make  the  stock- 
holders personally  liable  the  creditor  must  show  that  he  was 
induced  to  become  such  by  their  deceit.3 

§554.  Enforcement — Defenses. — A  debt  growing  out  of  a 
contract   of   subscription    may    be   enforced   by   the  corpora- 

"Thompson  Corps.,  §2953.  Swan   Land,  etc.,  Co.  v.  Frank,  148 

•Whitwell  v.  Warner,  20  Vt.  425;     U.  8.  603. 
Medill  v.  Collier,  L6  Ohio  St. 699.  Bee       "Sisson  v.  Matthews,  20  Ga.  848. 


§  554  COMMON    LAW    LIABILITY    OF    STOCKHOLDERS.  609 

tion  in  an  action  at  law,  or  after  its  insolvency  by  its  as- 
signee or  receiver  in  an  appropriate  action  for  the  benefit  of 
its  creditors.1  Ordinarily  the  same  defenses  are  available 
against  the  assignee  or  receiver  as  would  have  been  available 
against  the  corporation.  But  the  party  may  have  put  himself 
in  such  a  position  as  to  be  unable  to  assert  his  defense  against 
the  creditors.  Certain  contracts,  valid  as  between  a  subscriber 
and  a  corporation,  are  not,  however,  binding  upon  creditors 
of  the  corporation.  Thus  a  contract  between  a  corporation 
and  a  subscriber  that  the  subscription  is  not  to  be  collected  or 
is  to  be  payable  only  in  part  is  void  as  against  creditors  of 
the  corporation,  although  binding  upon  the  corporation  and 
the  stockholders  who  assented  to  it.2  A  conditional  subscrip- 
tion may  be  binding  in  favor  of  creditors,  although  the  con- 
ditions have  not  been  performed,  if  the  subscriber  has  waived 
the  condition  by  acting  as  a  stockholder.3  So  certain  conditions 
will  be  treated  as  void  in  favor  of  creditors.  Thus,  in  some 
jurisdictions,  a  subscription  made  prior  to  incorporation  is  un- 
authorized and  void,  and  will  be  treated  as  unconditional  and 
binding.4  A  stockholder  can  not  set  up  the  illegality  of  the 
scheme  of  the  corporation  which  did  not  appear  on  the  face 
of  the  contract  of  subscription  or  the  prospectus  referred  to 
in  the  contract  in  order  to  escape  from  liability  to  creditors 
whose  debts  have  been  contracted  upon  the  faith  of  the  sub- 
scription.5 The  liability  for  unpaid  subscriptions,  when  im- 
posed by  the  constitution  of  the  state,  can  not  be  avoided  by 
a  provision  in  the  charter  which  attempts  to  exempt  the  stock- 
holders from  such  liability.6 

1  Hatch  v.  Dana,  101  U.  S.  205.    As       3  Cornell  &  Michler's  Appeal,  114 
to  right  of    the  creditor  by    bill    in    Pa.  St.  153. 

equity,  or  other  appropriate  proceed-  *  Burke  v.  Smith,  16  Wallace  17.  S. 

ings,   to    have    unpaid    subscription  390;  Caley  v.  Railroad  Co.,  80  Pa.  St. 

subjected  to  the  payment  of  his  debt,  363. 

see  Hawkins  v.  Glenn,  131  U.  S.  319;  5Cardwell  v.  Kelly,  95  Va.  570,  40 

Handley  v.  Stutz,  139  U.  S.  417.  L.  R.  A.  240. 

2  Burke  v.  Smith,  16  Wallace  U.  S.  6  Van  Pelt  v.  Gardner,  54  Neb.  701, 
390;  Upton  v.  Triblicock,  91  U.  S.  45.  75  N.  W.  Rep.  874. 

39 — Private  Corp. 


610  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  555 

§  555.  Enforcement  of  liability  in  a  foreign  jurisdiction.1 — 
The  liability  of  a  non-resident  stockholder  on  his  contract  of 
subscription  can  be  enforced  in  any  forum  where  jurisdiction  of 
the  person  can  be  obtained.  The  enforcement  of  this  simple 
contract  liability  growing  out  of  the  express  or  implied  prom- 
ise to  pay  contained  in  the  contract  of  subscription,  is  to  be 
distinguished  from  the  right  to  enforce  the  statutory  lia- 
bility which  is  considered  elsewhere.  The  contract  of  sub- 
scription is  governed  by  the  laws  of  the  state  by  which  the 
corporation  was  created.2  The  right  to  recover  unpaid  sub- 
scriptions in  another  state  should  not  be  treated  as  resting 
upon  the  doctrine  of  comity,  but  upon  the  universally  recog- 
nized right  to  enforce  a  valid  contract  wherever  the  defendant 
can  be  found.3  The  right  to  sue  the  stockholder  in  a  foreign 
state  rests  upon  his  contract  to  pay  for  the  shares,  and,  hence, 
it  can  not  be  maintained  in  those  states  which  do  not  recognize 
an  implied  contract  to  pay  as  arising  out  of  a  mere  subscrip- 
tion for  shares.4  A  suit  on  an  assessment  against  a  stock- 
holder, made  under  a  decree  of  a  court  of  the  state,  is  enforci- 
ble  in  a  foreign  jurisdiction.5  In  some  states  the  receiver  of  a 
foreign  corporation  is  allowed  to  recover  the  amount  of  an 
unpaid  subscription,6  while  in  other  states  the  right  of  a  re- 
ceiver to  sue  in  a  foreign  jurisdiction  is  denied.7  A  creditor 
seeking  to  enforce  the  liability  of  a  stockholder  for  an  unpaid 

1  See  Wilgus'  Cases.  Hosmer,  101  Mich.  119,  25  L.  R.  A. 

2Jessup  v.  Carnegie,  80  N.  Y.  441,  739;     Mutual,   etc.,   Co.  v.   Phoenix, 

36  Am.  Rep.  643;  Penobscot,  etc.,  R.  etc.,   Co.    (Mich.),  34  L.  R.  A.  694; 

Co.  v.  Bartlett,  12  Gray  244,  71  Arn.  Western     Nat'l    Bank    v.    Lawrence 

Dec.   753;    Hancock    Nat']    Bank   v.  (Mich.),  76  N.  "W.  Rep.  105. 

Ellis,  166  Mass.  414,  42  L.  R.  A.  396;  6  Cnykendall  v.  Miles,  10  Fed.  Rep. 

Bell  v.  FarwHl,  170  111.  489.     See  also  342;  Dayton  v.  Borst,  31   N.  Y.  435; 

Stebbine  v.  Scott,  172  .Mass.  356,  52  N.  Maun  v.  Cooke,  20  Conn.  178;  Pugh 

I.    Rep.  535;   Ooffing  v.    Dodge,   167  v.  Hurtt,  52  How.  Pr.  22;  Baldwin  v. 

.231;  Marshall  v.  Sherman,  148  Hosmer,   101   Mich.   119;    Fawcett  v. 

N.  y.  9.  Sup.SittingofI.H.(Conn.),24L.R.A. 

3  Mandel  v.  Swan,  etc.,  Co.,  154  111.  815;  Buswell  v.  Sup.  sitting, etc.,  161 

177,27  L.  I;.  A.::  I.;.  Mass.  224,  23  L.  R.  A.  840. 

•New  Haven,  etc.,  Co.  v.  Linden,  7Wyman  v.  Eaton  (la.),  1&L.  R.  A. 

etc.,  Co.,  142  Mass.  349.  695;  Booth  v.  Clark,  17  How.  (U.  S.) 

"  Morris  v.  Glenn,  87  Ala.  628.     By  822;  Beach  on  Receivers,  §683. 
an  ancillary    receiver.     Baldwin  v. 


§  556  COMMON    LAW    LIABILITY    OF    STOCKHOLDERS.  611 

subscription  should  proceed  by  a  creditor's  bill,1  although 
there  are  cases  which  hold  that  even  after  judgment  against  a 
corporation,  the  creditors  must  seek  their  remedy  in  the  state 
where  the  corporation  was  created  and  there  have  the  relations 
of  the  creditors  and  stockholders  toward  each  other  determined.2 

§  556.  Decree  determining  assets  and  debts,  and  making 
assessments — Conclusiveness.3 — It  is  now  well  settled  that  an 
assessment  for  an  unpaid  stock  subscription  made  under  a  de- 
cree of  a  court  of  the  corporate  domicile  is  binding  upon  all 
the  stockholders  without  reference  to  their  residence  or  the 
fact  of  service.  Some  cases  have  held  such  a  decree  equiva- 
lent to  a  judgment  against  the  individual  stockholder,  but 
these  decisions  have  been  modified  by  a  recent  decision  of  the 
supreme  court  of  the  United  States.  An  order  authorizing  an 
assessment  upon  the  capital  of  a  state  bank,  made  by  a  court 
under  statutory  authority  upon  the  petition  of  the  receiver,  is 
binding  upon  all  stockholders  and  can  not  be  collaterally  at- 
tacked by  them,  although  they  were  non-residents  and  not  be- 
fore the  court.4  So  an  order  and  decree  of  the  court  of  the  corpo- 
rate domicile  appointing  a  receiver  for  an  insolvent  bank,  ascer- 
taining the  deficiency  and  directing  an  assessment  upon  the 
stockholders,  was  held  binding  upon  the  stockholders  who 
were  not  parties  to  the  proceeding.5  In  proceedings  in  a  court 
of  another  state  to  wind  up  a  domestic  corporation  as  an  in- 
solvent, in  which  the  court  has  jurisdiction  of  the  subject-mat- 

1  Lemcke  v.  Tredway,  45  Mo.  App.  4Sheafe  v.  Larimer,  79  Fed.  Rep. 
507,  94  Mo.  410.  But  judgment  must  921.  As  to  the  binding  force  of  assess- 
first  be  obtained  against  the  corpora-  ments  by  the  court  upon  stockholders 
tion  in  the  state  of  the  corporate  dom-  in  insolvent  corporations,  wherein  the 
icile  unless  it  is  shown  to  be  impossi-  court  is  the  successor  of  the  corpora- 
ble.  Rule  v.  Omega,  etc.,  Co.  (Minn.),  tion,  see  Marson  v.  Deither,  49  Minn. 
67  N.  W.  Rep.  60.  And  see  Reining-  423;  In  re  Minnehaha,  etc.,  Assn.,  53 
ton,  etc.,  v.Samara  Bay  Co.,  140  Mass.  Minn.  423;  Hale  v.  Harden,  95  Fed. 
494.     §  576,  infra.  Rep.  747.     Call  invalid  for  indefinite- 

2  See  §579,  Infra.  Young  v.  Farwell,  ness,  North,  etc.,  Co.  (Wis.),  46  L.  R. 
139  111.  326.     In  Turner  Bros.  v.  Ala-  A.  174. 

bama,  etc.,  Co.,  25  111.  App.  144,  it  was  5Howarth    v.    Ellwanger,   86    Fed. 

held  that  the  creditor  might  proceed  Rep.   54;  Hawkins  v.  Glenn,  131  U. 

by  way  of  attachment  or  garnishment.  S.  319.     See  Hale  v.  Hardon,  95  Fed. 

8  See  Wilgus'  Cases.  Rep.  747. 


612  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  557 

ter  and  of  the  corporation,  the  members  thereof  are  parties 
through  representation  by  the  corporation  and  until  attacked 
and  set  aside  in  appropriate  judicial  proceedings,  an  assess- 
ment made  in  the  action  upon  the  members  is  conclusive  evi- 
dence in  the  courts  of  another  state  of  the  necessity  for  making 
the  assessment  and  to  that  extent  binds  each  of  the  members 
without  notice  to  him.1  Such  a  decree  as  to  the  amount  of 
assets  and  debts  of  an  insolvent  mutual  insurance  company 
and  of  the  amount  of  assessments  necessary  to  liquidate  its 
debts  was  held  conclusive  on  a  stockholder  when  sued  in  the 
courts  of  another  state  upon  a  note  which  was  in  the  posses- 
sion of  the  company  and  under  the  control  of  the  court  when 
the  decree  was  made.2 

§557.  Conclusiveness  of  decree,  continued. — The  supreme 
court  of  the  United  States  has  modified  its  earlier  decisions 
and  now  holds  that,  although  such  a  judgment  is  conclu- 
sive so  far  as  it  establishes  the  amount  of  debts  and  liabili- 
ties of  the  corporation  and  the  necessity  for  an  assessment,3 
the  stockholder  may  still  plead  any  defense  which  goes  to 
show  that  he  is  not  liable  on  his  contract  of  subscription, 
such  as  payment  or  the  statute  of   limitations.4     Mr.  Justice 

1  Longworthy  v.  Garding  (Minn.),  Lehman,  etc.,  Co.  v.  Glenn,  87  Ala. 
77  N.  W.  Rep.  207.  Citing  Telegraph  618;  Glenn  v.  Williams,  60  Md.  93 ; 
Co.  v.  Purdy,  162  U.  S.  329.  Howard  v.  Glenn,  85  Ga.  238. 

2  Mutual,  etc.,  Co.  v.  Phoenix,  etc.,  *Great  Western,etc.,Co.v.Purdy,162 
Co.,  108  Mich.  170,  34  L.  R.  A.  694,  an-  U.S.  329.  In  Warner  v.  Delbridge.etc, 
notafced.  In  Parker  v.  Lamb,  99  Iowa  Co.,  110  Mich.  590,  34  L.  R.  A.  701,  the 
265,  34  L.  R.  A.  704,  it  was  held  court  said:  "  If  this  contract  is  to  be 
that  one  assessment  on  premium  treated  as  a  Michigan  contract  the 
notes  made  by  a  receiver  of  a  mu-  holding  should  be  sustained,  unless  it 
tual  insurance  company  under  a  de-  beheld  that  the  order  making  the  as- 
cree  of  court  is  not  an  adjudication  sessment,  madeatthes«i?Asof  the  home 
binding  on  the  courts  of  another  state  company,  is  conclusive,  not  only  as  to 
as  against  a  maker  of  one  of  such  the  authority  to  make  the  assessment, 
notes  who  was  not  a  party  to  the  pro-  but  as  to  the  extent  of  the  defendant's 
eeedinge  which  resulted  in  the  assess-  liability.  This  question  was  recently 
incut,  ami  ulio  before  the  bankruptcy  before  the  court  in  the  case  of  Mutual, 
of  the  company  had  surrendered  his  etc., Co.v. Phoenix, etc., Co.,  108Mich. 
policy  and  received  hack  his  note.  170, 34  L.R.  A.  694,  and  the  conclusion 

■See  Glenn  v.  Liggett,  L35U.S.533;  was  (hen  reached  thai  I  he  decision  of 
Hawkins  v.  Glenn,  13]  I'.  8.  319;  a  sister  state  is  binding  upon  the 
Glenn  v.  Springs,  '_'<i  Fed.  Rep.  494;    courts  of  thin  slate   in  all  these  re- 


§557 


COMMON    LAW    LIABILITY    OF    STOCKHOLDERS. 


613 


Gray  said:  "The  order  of  that  court  was,  in  effect,  as  it  was  in 
terms,  simply  a  call  or  assessment  upon  all  stockholders  who 
had  not  paid  for  their  shares  in  full.  It  was  such  as  the  direc- 
tors might  have  made  before  the  appointment  of  a  receiver; 
and  in  making  it,  the  court,  having  by  that  appointment  as- 
sumed the  charge  of  the  assets  and  affairs  of  the  corporation, 
took  the  place  and  exercised  the  office  of  the  directors.1  The 
order  of  assessment,  whether  made  by  the  directors  as  provided 
in  the  contract  of  subscription  or  by  the  court  as  the  successor 
in  this  respect  of  the  directors,  was  doubtless,  unless  directly 
attacked  and  set  aside  by  appropriate  judicial  proceedings, 
conclusive  evidence  of  the  necessity  for  making  such  an  assess- 
ment and  to  that  extent  bound  every  stockholder  without  per- 
sonal notice  to  him.2     But  the  order  was  not  and  did  not  pur- 

the  federal  supreme  court,  and  the 
doctrine  of  the  cases  upon  which  we 
relied  for  our  decision  limited,  and  in 
Great  Western,  etc.,  Co.  v.  Purdy,  162 
U.  S.  329,  it  is  held  that  an  order 
making  a  call  or  assessment  upon  all 
stockholders  of  a  corporation  who 
have  not  paid  their  shares  in  full  is 
merely  such  a  call  as  the  directors 
might  have  made  before  the  matter 
was  brought  within  the  court's  juris- 
diction, and  is  not  a  judgment  against 
the  particular  stockholder,  so  as  to 
be  entitled  to  such  full  faith  and 
credit,  under  the  constitution  and 
laws  of  the  United  States,  and  that 
in  such  action  defendant  is  entitled 
to  rely  on  any  defense  which  he 
might  have  to  an  action  upon  the 
contract  of  subscription." 

^covill  v.  Thayer,  105  IT.  S.  143; 
Hawkins  v.  Glenn,  131  U.  S.  319- 
329;  Lamb  v.  Lamb,  6  Biss.  420- 
424;  Glenn  v.  Sexton,  68  Cal.  353; 
Great  Western,  etc.,  Co.  v.  Gray,  122 
111.  630;  Great  Western,  etc.,  Co.  v. 
Loewenthal,  154  111.  261. 

2  Hawkins  v.  Glenn,  131  TJ.  S.  319; 
Glenn  v.  Liggett,  135  U.  S.  533 ;  Glenn 
v.  Marbury,  145  TJ.  S.  499. 


spects.  This  conclusion  was  based 
upon  the  constitutional  provision  that 
full  faith  and  credit  shall  be  given  in 
each  state  to  the  public  acts,  records 
and  judicial  proceedings  of  every 
other  state.  Art.  4,  §  1.  An  examina- 
tion of  the  decisions  of  the  federal 
supreme  court  led  us  to  the  conclu- 
sion that  a  stockholder  of  a  corpora- 
tion is  so  far  an  integral  part  of  the 
corporation  that,  in  view  of  the  law, 
he  is  privy  to  the  proceedings  touch- 
ing the  body  of  which  he  is  a  mem- 
ber, and  that  a  determination  that  an 
assessment  upon  the  policy-holders  in 
a  certain  amount  and  for  certain  ob- 
ligations of  the  company  should  be 
made  was  final  and  conclusive,  and 
could  not  be  attacked  collaterally 
when  suit  was  brought  upon  such  as- 
sessment in  a  foreign  state.  In  reach- 
ing this  conclusion,  the  question  in- 
volved being  a  federal  question,  we 
felt  ourselves  bound  by  the  deter- 
mination of  the  federal  court  in  Haw- 
kins v.  Glenn,  131  U.  S.  319,  and 
Glenn  v.  Liggett,  135  TJ.  S.  533.  But 
since  the  decision  of  this  court  in 
Mutual,  etc.,  Co.  v.  Phoenix,  etc.,  Co., 
the  question  has  been   again   before 


614  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  557 

port  to  be  a  judgment  against  any  one.  *  *  *  It  did  not  merge 
the  cause  of  action  of  the  company  against  any  stockholder  on 
his  contract  of  subscription,  nor  deprive  him  of  the  right  when 
sued  for  an  assessment  to  rely  on  any  defense  which  he  might 
have  to  an  action  upon  that  contract.  In  this  action,  there- 
fore, brought  by  the  receiver  in  the  name  of  the  company  as 
authorized  by  the  order  of  assessment  to  recover  the  sum  sup- 
posed to  be  due  from  the  defendant,  he  had  the  right  to  plead 
a  release  or  payment  or  the  statute  of  limitations  or  any  other 
defense  going  to  show  that  he  was  not  liable  upon  his  contract 
of  subscription." 


CHAPTER  20. 

THE  CONSTITUTIONAL  AND  STATUTORY  LIABILITY  OF  STOCK- 
HOLDERS. 


§  558.   General  statement. 

559.  Power  of    legislature    to    im- 

pose liability. 

560.  Limitations  by  contract. 

561.  Exceptions  in  favor  of  certain 

classes  of  corporations. 

562.  Repeal   of  statute — Rights  of 

creditors. 

563.  Constitutional    provisions 

— When  self-executing. 
I.   Nature  of  the  Liability. 

564.  "When  contractual. 

565.  When  peual. 

566.  Survival  of  the  right  of  action. 

567.  Liability  of  officers  and  direct- 

ors. 

II.  Against  Whom  the  Liability  is  En- 

forcible. 

568.  As  to  time  of  holding  stock. 

569.  Trustees,  pledgees  and  execu- 

tors. 

570.  Unrecorded  transfers— Liabil- 

ity of  transferrer  and  trans- 
feree. 

III.  The   Debts  for  Which  the  Stock- 

holders are  Liable. 

571.  The  debt  of  the  corporation — 

Release. 

572.  Nature  of  the  obligation. 

573.  Debts  due  laborers  and   em- 

ployes. 

574.  Creditors  who  are  also  stock- 

holders and  officers. 


IV.  Enforcement  of  the  Liability. 

§  575.   At  the  domicile  of  the  corpora* 
tion. 

576.  Remedy  against  the  corpora* 

tion — Judgment. 

577.  Judgment  against  the  corpo* 

ration — Conclusiveness. 

578.  By  whom  the  liability  is  en* 

forcible. 

579.  Enforcement  in  foreign  juris* 

dictions. 

580.  Proceedings  in  the  federaJ 

courts. 

581.  Decisions   in  various  states — 

Massachusetts. 

582.  Decisions  in  New  Hampshire. 

New  York  and  Illinois. 

583.  Where  a  special  statutory  rem- 

edy is  provided. 

584.  Where  no  statutory  remedy  is 

provided. 

585.  Ancillary  proceedings. 

586.  Original  proceedings  in  court 

of  corporate  domicile. 

587.  Conclusiveness  of  the  decree  of 

the  court  of  the  domicile. 

588.  Rights  of  receiver  in  a  foreign 

jurisdiction. 
V.   Miscellaneous  Bights  and  Defenses' 

589.  The  right  of  set-off. 

590.  Statute  of  limitations. 

591.  Contribution    among    stock- 

holders. 


§  558.    General  statement. — In  most  of  the  states  the  mem- 
bers of  private  corporations  are  now  charged  with  an  imposed 

(615) 


616  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  559 

liability  in  addition  to  that  which  grows  out  of  their  contracts 
with  the  corporation.  This  liability  must  of  course  depend 
upon  the  constitutions  and  statutes,  and  there  is  so  great  di- 
versity among  these  as  to  render  it  impracticable  to  attempt  to 
state  general  rules  applicable  in  all  jurisdictions.  The  liabilities 
thus  imposed  may,  however,  be  roughly  classified  as  follows: 
(1)  A  joint  and  several  liability  as  partners;  (2)  a  joint  and 
several  liability  as  guarantors;  and  (3)  a  limited  and  several 
liability  to  be  enforced  absolutely  or,  more  commonly,  upon 
regular  proceedings  against  the  corporation  proving  ineffectual. 
The  first  class  abrogates  entirely  the  rule  of  limited  liability 
and  is  governed  by  the  law  of  partnership.1  The  member  be- 
comes a  principal  debtor.2  Under  the  second  class  the  liability 
is  secondary  and  collateral  to  that  of  the  corporation,  and  is 
governed  in  a  general  way  by  the  rules  of  guaranty.  Thus, 
any  act  on  the  part  of  the  creditor  which  will  release  a  guaran- 
tor will  release  a  stockholder  from  his  liability.3  The  liability 
under  the  third  class  is  ordinarily  limited  to  (a)  an  amount 
equal  to  the  shares  of  capital  stock  held  by  the  member;  or  (b) 
an  amount  equal  to  the  ratio  which  the  members'  proportion 
of  the  capital  stock  bears  to  the  entire  corporation  indebted- 
ness. "The  distinctive  characteristic  of  this  liability  is  that 
each  member  stands  liable  for  a  definite  sum  and  no  more,  ir- 
respective of  the  amount  for  which  the  others  are  liable.  It  is 
a  several,  unequal  and  limited  liability  as  to  which  each  mem- 
ber stands  alone,  except  that,  if  he  pays  more  than  his  propor- 
tion of  the  debts  of  the  company,  he  may,  as  in  other  cases, 
have  contribution  from  his  fellow  shareholders."4 

§  559.   Power  of  legislature  to  impose  liability. — There  is  no 
question  as  to  the  power  of  the  legislature  to  impose  a  statu- 

>See    Corning   v.     McCullough,    1  397,15  Am.  St.  Rep.  618,  and  Ault- 
N.  Y.  47;  Allen  v.  Bewail,  2  Wend,  man's  App.,  98  Pa.  St.  500. 
(N.  V.)  327,  <;  Wend.  335;    Moss  v.  'Thompson     Liability     of    Share- 
ley,  2  Hill    N.  V.)  265.  holders,   §   37.     See   Clarke   v.   Cold 
Booth  v.  Dear,  96  Wis.  516,  71  Spring,   etc.,   Co.    (Minn.,    1894)   59 
N.  W.  Rep.  816.  N.  W.  Rep.  632.    As  to  the  manner  of 
■Sayles  v.  Brown,   K)  Fed  Rep. 8;  proving  who  are  stockholders.see  §471; 
Hanson  v.  Donkersley, 37  .Midi.  L84.  Hinsdale  Sav.  Bank  v.  N.  H.  Banking 
Harpold  v.  Stobart,  46  Ohio  St.  Co.,59  Kan.  716,68  Am.  St.  Rep. 391. 


§  560  LIABILITY    OF    STOCKHOLDERS.  617 

tory  liability  upon  the  stockholders  of  a  corporation,  if  the 
power  to  alter  and  amend  the  corporate  charter  has  been  re- 
served,1 and  the  limit  of  liability  is  not  determined  by  the  con- 
stitution.2 If  there  is  no  such  reservation,  the  liability  can  be 
imposed  upon  those  only  who  become  stockholders  after  the 
passage  of  the  law.  A  constitutional  provision  imposing  a 
liability  does  not  impair  the  power  of  the  legislature  to  impose 
an  additional  liability.3  A  liability  beyond  that  imposed  by 
the  charter  and  contract  of  subscription  can  not  be  imposed  by 
a  by-law  without  the  unanimous  consent  of  the  stockholders.4 

§  560.  Limitations  by  contract, — A  creditor  may,  by  an  ex- 
press contract5  at  the  time  the  debt  was  contracted,  or  by  his 
conduct,6  waive  his  right  to  proceed  against  stockholders  for  the 
collection  of  his  debt.  The  only  difficulty  has  been  in  proving 
the  agreement.  Evidence  that  at  the  time  of  the  signing  of 
the  articles  of  association,  and  during  the  negotiations  which 
resulted  in  their  execution,  it  was  verbally  agreed  among  those 
who  signed  the  articles  and  became  stockholders  that  they 
should  not  be  individually  liable  for  corporate  debts,  is  inad- 
missible because  it  tends  to  vary  the  terms  implied  by  law  of 
the  articles  of  incorporation.7  But  the  stockholder  may  show 
that  at  the  time  of  the  giving  of  certain  notes  by  the  corporation 
it  was  orally  agreed  between  the  payee  and  the  corporation  that 

1  Sleeper  v.  Goodwin,  67  Wis.  577,  law  of  the  commonwealth.  Such  a 
31  N.  W.  Rep.  335;  Ireland  v.  Pales-  power  would  be  liable  to  great  abuse, 
tine,  etc.,  Co.,  19  Ohio  St.  369.  and  would  subject  every  member  of 

2  Van  Pelt  v.  Gardner,  54  Neb.  701.  a  corporation, however  liberal  its  char- 
As  to  the  rule  where  the  power  to  alter  terin  excluding  individual  liability,  to 
or  amend  the  charter  has  not  been  re-  be  made  responsible  for  the  entire  in- 
served,  see  Dow  v.  North.,  etc.,  R.  Co.,  debtedness  of  the  corporation  by  the 
67  N.  H.  1 ;  Gray  v.  Coffin,  9  Cash,  act  of  those  convened  at  a  meeting  of 
(Mass.)  192.  the  corporation." 

3  Allen  v.  Walsh,  25  Minn.  543.  5 United  States  v.  Stanford,  70  Fed. 

4  Trustees  v.  Flint,  13  Mete.  (Mass.)  Rep.  346;  44  U.  S.  App.  68;  17  C.  C. 
539.  The  court  said:  "It  is  not,  in  the  A.  143;  affirmed,  161  U.  S.  412;  Rob- 
opinion  of  the  court,  within  the  cor-  inson  v.  Bidwell,  22  Cal.  379. 
porate  powers  conferred  upon  this  and  6Ohio,  etc.,  Co.  v.  Merchants',  etc., 
similar  corporations,  to  impose  upon  Co.,  11  Humph.  (Tenn.)  1,  53  Am. 
their  members  by  any  such  by-law  Dec.  742. 

any  personal  and  individual  liability        7  Oswald  v.  Minneapolis  Times  Co., 
to  third  persons  beyond  such  as  are     65  Minn.  249. 
specified  in  the  charter  or  the  general 


618  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  560 

there  should  be  no  personal  liability  on  the  part  of  the  stock- 
holders for  the  debt,  although  no  reference  was  made  to  the 
agreement  in  the  notes.1    The  court  said: 

"In  terms,  the  notes  promise  only  the  payment  of  a  sum  of 
money  by  the  company  on  a  certain  day.  They  have  nothing 
to  say  about  the  defendants  at  all.  If,  then,  the  agreement  is 
held  to  vary  them  in  their  legal  effect,  it  must  be  on  the 
ground  that  the  statute  which  makes  stockholders  liable  in 
certain  cases  makes  that  liability  a  term  of  the  notes  by  impli- 
cation. With  regard  to  this  it  will  be  observed  that  the  stat- 
ute does  not  create  a  chartered  partnership  which  remains  a 
partnership  and  contracts  as  such,  although  granted  certain 
charter  powers.  It  does  not  make  or  leave  the  members  pri- 
mary contractors  or  debtors.  It  creates  a  corporation  out  and 
out,  and  then  imposes  a  secondary  and  subsidiary  liability 
upon  the  members  'for  its  (the  corporation's)  debts  or  con- 
tracts.' The  liability  of  a  member  does  not  arise  until  after 
the  contract  has  been  broken,  a  judgment  recovered  upon  it 
and  execution  returned  unsatisfied.  The  corporation  is  the 
only  promisor  or  debtor ;  it  alone  breaks  the  contract  by  its 
failure  to  pay,  and  it  alone  is  sued.  The  liability  of  the  mem- 
bers is  no  part  of  the  original  undertaking,  but  a  consequence 
attached  by  the  law  to  its  breach.  But  the  rule  excluding 
evidence  of  oral  agreements  to  vary  a  writing  goes  no  farther 
than  the  writing  goes.  And  at  most  the  writing  only  expresses 
the  obligation  assumed  by  the  party  signing  it.  *  *  *  The 
most  obvious  and  natural  view  is,  that  the  promise  is  the  only 
tiling  which  the  writing  has  undertaken  or  purports  to  express, 
either  in  words  or  by  legal  implication.     Certainly  the  writing 

1  Brown  v.  Eastern  Slate  Co.,  134  in  the  latter  the  consent  to  issue 
j.  500.  The  court  further  said:  them.  But  it  is  not  necessary  to  de- 
'•  We  have  nol  considered  whether  cide  the  point,  because,  even  taking 
theoral  agreement  is  to  he  regarded  it  to  have  been  the  contract  of  the 
as  made  with  the  corporation,  or  with  corporation,  the  plaintiff  could  not 
these  stockholders  in  person  through  strike  at  the  members  of  that  corpora- 
te agency  of  the  directors.  It  would  t ion  in  a  court  of  equity  through  and 
seem  to  be  possible  to  takeiteither  by  means  of  a  transaction  which  bound 
way;  the  consideration  in  the  former  him  not  to  do  so." 
case  being  the  delivery  of  the  notes, 


§  561  LIABILITY    OF    STOCKHOLDERS.  619 

does  not  extend  to  the  remedies  which  the  law  will  furnish  for 
the  collection  of  damages,  even  from  the  promisor  himself,  as 
is  shown  by  the  fact  that  they  are  governed  by  the  lex  fori, 
and  a  fortiori,  not  to  the  collateral  statutory  liability  of  third 
persons  not  parties  to  the  writing." 

§  561.  Exceptions  in  favor  of  certain  classes  of  corpora- 
tions,— Certain  classes  of  corporations,  such  as  those  organ- 
ized for  manufacturing  or  mechanical  purposes,  are  sometimes 
excepted  from  the  operation  of  the  statutes  which  impose  per- 
sonal liability  upon  the  stockholders.  The  exception  in  favor 
of  manufacturing  corporations  applies  only  to  such  as  are 
organized  for  the  purpose  of  carrying  on  an  exclusively  manu- 
facturing business.  If  the  articles  of  association  state  the 
purpose  of  conducting  a  manufacturing  business,  and  also 
other  kinds  of  business  not  incidental  to  or  necessarily  con- 
nected with  the  manufacturing  business,  the  corporation  is  not 
within  the  exception,  although  it  actually  engages  only  in  a 
manufacturing  business.1  So  a  corporation  organized  for  "  the 
manufacture,  purchase,  repair  and  sale  "  of  agricultural  in- 
struments, which  sells  goods  manufactured  by  others,  is  not  a 
manufacturing  corporation  exclusively,  and  the  stockholders 
are  subject  to  the  statutory  liability.2     Persons  can  not  escape 

Arthur  v.  Willius,  44  Minn.  409;  purchase,  repair  and  sale  of  plows, 

Densmore  v.  Shepard,  46  Minn.  54;  cultivators,    and  other    farming  and 

First  Nat'l  Bank  v.  Winona,  etc.,  Co.,  agricultural  implements  of  all  kinds, 

58  Minn.  167,  59  N.  W.  Rep.  997;  State  the  purchase  and  sale  of  all  materi- 

v.  Minnesota,  etc.,  Co.,  40  Minn.  213.  als  necessary   or  convenient  in  the 

2  In  First  Nat'l    Bank  v.   Winona,  prosecution  of  said  business,  and  to 

etc.,  Co.,  58  Minn.  167,  59  N.  W.  Rep.  take,  own,  hold,  mortgage,  lease  and 

997,  the  court  said:     "The  principal  convey  any  and  all  real  estate  neces- 

point  urged  by  appellants  is  that  the  sary  or  useful  therein.'     One  of  the 

stockholders  of  the  defendant  corpo-  findings  of  fact  made  by  the  court  be- 

ration  are  not  liable,  because  it  is  ex-  low  on  the  trial  is  as  follows :     'That 

clusively  a  manufacturing  corporation,  in  fact  the  actual  business  carried  on 

It  was  organized  under  title  2,  ch.  34,  by  said  plow  company  at  all   times 

Gen.   St.  1878,  and  the  purposes  for  since  its  organization,  and   intended 

which   it  was    incorporated    are  ex-  by  its  incorporators  to  be  carried  on 

pressed  in  its  articles  of  incorporation  by  it,  was  exclusively  that  of  manu- 

as   follows:     'The   general  nature  of  facturing  plows  and  other  agricultural 

its  business  shall  be  the  manufacture,  implements,  and  the  disposing  of  the 


620 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  56i 


the  constitutional  liability  by  organizing  as  a  manufacturing 
corporation  when  it  is  evident  that  the  primary  object  of  the 
organization  is  wholly  foreign  to  manufacturing.1  Mining  is 
not  a  manufacturing  business.2  A  "  mechanical  business," 
within  a  provision  exempting  manufacturing  or  mechanical 
corporations,  means  a  business  closely  allied  to  or  incidental  to 
some  manufacturing  business,  such  as  the  mining  of  iron  ore 
in  connection  with  the  manufacture  of  iron  products.3     But  a 


product  of  its  manufacture,  except 
that  for  a  limited  time  it  handled  and 
sold  on  commission  goods  manufac- 
tured by  other  persons  and  corpora- 
tions, in  connection  with,  and  for  the 
purpose  of,  reducing  the  expenses  of 
selling  and  handling  its  own  product.' 
We  are  of  the  opinion  that  by  its  arti- 
cles of  incorporation  this  defendant 
is  both  a  manufacturing  and  mercan- 
tile corporation.  Such  articles  of  in- 
corporation provide  for  the  'purchase' 
and 'sale  of  plows, cultivators  and  other 
farming  and  agricultural  implements 
of  all  kinds,'  as  well  as  for  the  '  manu- 
facture,' 'repair,' and  sale  of  those  arti- 
cles. In  this  respect  the  case  is  quite 
similar  to  that  of  Densmore  v.  Shep- 
ard,  46  Minn.  51,  48  N.  W.  Rep.  528, 
681.  See,  also,  Arthur  v.  Willius,  44 
Minn.  409,  46  N.  W.  Rep.  851  ;  Mohr 
v.  Elevator  Co.,  40  Minn.  343,  41  N. 
W.  Rep.  1074.  The  fact  that  the 
stockholders,  as  found  by  the  court, 
did  not  intend  to  carry  on  any- 
thing but  :m  exclusively  manufactur- 
ing business,  and  (hat  the  corpora- 
tion never  did  carry  on  any  other 
business  except  such  commission  busi- 
ii'--,  can  make  no  difference,  'And 
if  the  corporation  is  organized  for  the 
purpo  e,  I'  declared  in  the  articles  of 
ciation,  of  carrying  on  both  a 
manufacturing  business,  and  also  some 
other  kind  of  business  not  properly 
incidental  to,  or  necessarily  connect- 
ed  with,  a   manufacturing  business, 


the  mere  fact  that  the  corporation 
never  exercised  all  of  its  powers, 
and  never  in  fact  engaged  in  or  car- 
ried on  anything  but  a  manufactur- 
ing business,  will  not  bring  it  with- 
in the  constitutional  exception.'  Ar- 
thur v.  Willius,  44  Minn.  409,  46  N. 
W.  Rep.  851." 

1  State  v.  Minn.,  etc.,  Co.,  40  Minn. 
213;  Mohr  v.  Minn.,  etc.,  Co.,  40 
Minn.  343. 

aByers  v.  Franklin  Coal  Co.,  106 
Mass.  131. 

3  Cowling  v.  Zenith,  etc.,  Co.,  65 
Minn.  263,  33  L.  R.  A.  508.  In  con- 
sidering the  meaning  of  "mechanical" 
as  used  in  the  constitution  the  court 
said:  "We  are  of  the  opinion  that  it 
was  the  intention  of  the  makers  of 
the  constitution  to  exempt  from  lia- 
bility the  stockholders  of  corporations 
organized  to  carry  on  any  such  kind 
of  mechanical  business  as  is  inci- 
dental to  or  closely  allied  with  some 
kind  of  manufacturing  business. 
Thus,  a  concern  engaged  in  the  busi- 
ness of  manufacturing  iron  might 
well,  as  a  mere  extension  of  that  busi- 
ness, or  as  incidental  to  it,  mine  its 
own  ore,  especially  so  if  the  manufac- 
turing plant  and  the  mines  were  in 
the  same  locality."  An  elect  ric  Si  reet 
railway  company  is  not  a  "railroad" 
within  the  meaning  of  a  statute  winch 
exempts  the  stockholders  of  railroad 
corporations  from  liability.  Fergu- 
son v.  Sherman,  116  Cal.  169. 


§  562  LIABILITY    OF    STOCKHOLDERS.  621 

corporation  organized  in  part  for  buying,  selling,  leasing  and 
dealing  in  mineral  lands  is  not  organized  for  an  exclusively 
manufacturing  business  so  as  to  exempt  the  stockholders  from 
liability.1  The  articles  of  association  of  a  corporation  stated 
that  "  its  business  shall  be  the  manufacture  of  clothing  of 
every  description,  and  the  sale  of  clothing  so  manufactured, 
and  the  transaction  of  all  other  business  necessary  and  inci- 
dental to  such  manufacture  and  sale  of  clothing."  The  cor- 
poration was  held  to  be  a  manufacturing  corporation,  and  the 
mere  fact  that  it  engaged  in  some  business  not  authorized  by 
the  articles  of  association  did  not  render  its  stockholders  lia- 
ble for  the  corporate  debts  under  the  constitution.2 

§  562.  Repeal  of  statute — Rights  of  creditors. — In  all  cases, 
the  remedy  by  which  a  right  is  to  be  enforced  is  under  the 
general  control  of  the  legislature,  and  may  be  modified  or 
repealed  if  another  reasonably  adequate  remedy  is  provided.3 
But  the  existing  creditors  of  a  corporation  have  a  vested  right 
in  the  existing  contractual  liability  of  the  stockholders,  of 
which  they  can  not  be  deprived  by  a  repeal  of  the  statute.4 

§  563.    Constitutional  provisions — When    self -executing. — 

Whether  such  provisions  imposing  liability  upon   the   stock- 

1  Anderson  v.  Anderson,  etc.,  Co.,  Green  v.  Biddle,  8  Wheat.  (U.  S.)  1, 

65  Minn.  281,  33  L.  R.  A.  510.  84 ;  Sturges  v.  Crowninshield,4  Wheat. 

8  Nicollet  Nat'l  Bank  v.Frisk-Turner  (U.  S.)  122, 200,  201 ;  Mason  v.  Haile, 

Co.,  71  Minn.  413.  12  Wheat.  (U.  S.)  370,  378;    Beers  v. 

3  Fourth  Nat'l  Bank  v.  Francklyn,  Haughton,  9  Pet.   (U.   S.)  329,  359), 

120    U.    S.    747.     "Whether  a   given  seems  to    have  settled    substantially 

statute,    changing    the     relation    of  upon   the  doctrine  that  the  remedy 

debtor  and  creditor,  reaches  the  con-  does  not  apply  to  those  who  become 

tract  or  affects  the  remedy  merely,  creditors  after  the  repeal.     Ochiltree 

has  been  undoubtedly  the  most  per-  v.  Railroad  Co.,  21  Wall.  (U.S.)  249." 

plexing    question    of     constitutional  4  Hawthorne  v.  Calef,  2  Wall. (U.  S.) 

interpretation    which    has  arisen    in  10.     See  Brown  v.  Eastern  State  Co., 

this  country.    The  supreme  court  of  134    Mass.   590;    Hope,   etc.,    Co.   v. 

the  United  States,  after  a  line  of  de-  Flynn,  38  Mo.  483,  90  Am.  Dec.  438 ; 

cisions  in  which  the  pendulum  has  Grand  Rapids  Sav.  Bank  v. Warren,  52 

oscillated     very     considerably     (see  Mich.  557;   Norris  v.  Wrenschall,  34 

Walker  v.  Whitehead,  16  Wall.  (U.  Md.  492.     Contra,  Coffin  v.  Rich,  45 

S.)  314,  317;  Van  Hoffman  v.  City  of  Maine  507,  71  Am.  Dec.  559. 
Quincy,  4  Wall.  (U.  S.)  535,  550,  552; 


622  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  563 

holders  are  self-executing,  or  require  legislative  action  to  give 
them  effect,  depends  upon  the  intention  of  the  people  by  which 
they  are  adopted,  as  deduced  from  the  language  used.  If  such 
was  the  intention  of  the  law-making  powerr  constitutional 
provisions  are  self-executing.  "A  constitution,"  says  Mr. 
Justice  Mitchell,1  "  is  but  a  higher  form  of  statutory  law,  and 
it  is  entirely  competent  for  the  people,  if  they  so  desire,  to 
incorporate  into  it  self-executing  enactments.  These  are  much 
more  common  than  formerly,  the  object  being  to  put  it  beyond 
the  power  of  the  legislature  to  render  them  nugatory  by  re- 
fusing to  enact  legislation  to  carry  them  into  effect.  Pro- 
hibitory provisions  in  a  constitution  are  usually  self-executing 
to  the  extent  that  anything  done  in  violation  of  them  is  void. 
But  instances  of  affirmative  self-executing  provisions  are 
numerous  in  almost  every  modern  constitution."2  If  the  lan- 
guage of  the  constitution  is  general  and  the  extent  of  the  lia- 
bility not  determined,  legislation  will  be  necessary.3 

The  Minnesota  constitutional  provision  is  self -executing  and 
creates  an  individual  liability  on  the  part  of  the  stockholder 
for  corporate  debts  to  an  amount  equal  to  the  amount  of  stock 
held  or  owned  by  him.4  The  Kansas  constitutional  provision, 
over  the  construction  of  which  there  has  been  so  much  litiga- 
tion, provides  that  "dues  from  corporations  shall  be  secured 
by  individual   liability  of   the  stockholders   to  an  additional 

1  Willis  v.  Mabon,  48  Minn.  140;  31  maker,  24  Cal.  518;  Larrabee  v.  Bald- 
Am.  St.  Rep.  626;  Dupee  v.  Swigert,  win,  35  Cal.  155, 

127  111.  494;  Fowler  v.  Lamson,  146  'l  For  instances  of  this,  see  State  v. 

111.  472.     Judge  Thompson,  after  re-  Weston,    4    Neb.    216;    Thomas    v. 

f.rring  to  the  decision   in  Willis  v.  Owens,  4  Md.  189;  Reynolds  v.  Tay- 

Mabon,   48  Minn.   140;  31    Am.    St.  lor,  43  Ala.  420;  Miller  v.  Marx,  55 

Rep.  626,  says:     "The  writer  is  con-  Ala.  322,  and  People  v.  Hoge,  55  Cal. 

tent  to  refer  for  his  statement  of  his  612. 

own  virus  upon  the  question  to  that  :1  French  v.  Teschemaker,  24  Cal. 

admirable  decision."    Corps.,  §  3004.  518;  Morley  v.  Thayer,  3  Fed.  Rep. 

For  decisions  to  the  effect  thai  con-  737;  Jerman  v.  Benton,  79  Mo.  L48; 

atitutional  provisions  are  not  self-exe-  Bowie  v.  Lott,  24  La.  Ann.  214. 

cuting,  see  Graves  v.  Slaughter,  15  *  Art.  10,  §  3,  Const.  Minn. ;  Willis  v. 

Pel     D.8.)  ii'»;  Blakeman  v.  Benton,  Mabon,  48  Minn.  140,  31  Am.  St.  Rep. 

9  Mo.   App.  107;  French   v.  Tesche-  626. 


§  563  LIABILITY    OF    STOCKHOLDERS.  623 

amount  equal  to  the  stock  owned  by  each  stockholder  and  such 
other  means  as  shall  be  provided  by  law;  but  said  individual 
liability  shall  not  apply  to  railroad  corporations,  nor  corpora- 
tions for  religious  and  charitable  purposes."1  Of  this  provision, 
the  supreme  court  of  Illinois  said:2  "That  provision  seemed 
to  impose  on  the  legislature  the  duty  of  securing  dues  from 
corporations,  but  limited  the  power  and  discretion  of  that  body 
to  the  extent  to  which  it  could  make  stockholders  liable.  It 
is  only  in  exceptional  cases  that  constitutional  provisions  en- 
force themselves.  Usually  they  must  be  supplemented  by 
legislation  to  become  operative.  The  intention  of  the  instru- 
ment must  ordinarily  prevail,  and  in  its  ascertainment  we  must 
look  at  the  consequences  of  a  particular  construction.  *  *  * 
To  treat  the  provision  as  self-operating  would  do  violence  to 
two  leading  principles  of  construction;  by  rejecting  a  clause 
of  the  instrument  and  giving  it  no  force  and  effect,  and  hold- 
ing an  ambiguous  clause  self-executing  when  that  clause  is  of 
the  most  doubtful  construction.  It  is  apparent  from  a  consid- 
eration of  the  provision  itself  that  legislation  was  contem- 
plated as  necessary  to  carry  into  effect  and  enable  the  remedy 
to  be  applied  and  g've  the  intended  security  to  the  creditor,  and 
the  clause  can  not  be  treated  or  construed  as  self-operative." 
Of  the  same  provision,  the  New  York  court  said:3  "We  think 
it  quite  clear  that  the  provision  of  the  constitution  re- 
ferred to  is  not  self-executing,  and  of  itself  creates  no  liability 
whatever.  The  language  used  plainly  contemplates  that  legis- 
lation was  necessary  in  order  to  make  it  effectual.  It  was  in- 
tended simply  to  confer  authority  upon  the  legislature  of  that 
state  to  legislate  upon  the  subject,  and  perhaps  to  impress  upon 
that  body  the  duty  of  securing  the  debts  of  corporations  by 
imposing  upon  the  stockholders  an  individual  liability." 

1  Art.  12,  §  2,  Const,  of  Kansas.  3  Marshall  v.  Sherman,  148  N.  Y.  9, 

2  Tuttle  v.  Nat'l  Bank  of  Republic,  51  Am.  St.  Rep.  654,  and  note.  See, 
161  111.  497,  34  L.  R.  A.  750;  Bell  v.  also,  Bank  v.  Lawrence  (Mich.),  76 
Farwell,  176  111.  489,  68  Am.  St.  Rep.  N.  W.  Rep.  105. 

194. 


624  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  564 

I.    Nature  of  the  Liability. 

§  564.  When  contractual.— The  statutory  liability  of  stock- 
holders is  ordinarily  held  to  be  contractual,  although  this  will 
depend  of  course  upon  the  language  and  purpose  of  the  consti- 
tutional or  statutory  provision.1  In  Massachusetts,  where  the 
courts  have  been  slow  to  enforce  this  liability,  it  was  recently 
said:2  "The  obligation  imposed  by  the  statutes  of  Ohio  upon 
the  stockholders  for  the  purpose  of  securing  the  payment  of 
the  debts  of  the  corporation  is  quasi  ex  contractu.  It  must  be 
taken  that  all  persons  who  become  stockholders  in  an  Ohio 
corporation  know  the  law  under  which  the  corporation  is  or- 
ganized, and  assent  to  the  liability  which  that  law  imposes 
upon  stockholders;  and  that  all  persons  who  deal  with  the  cor- 
poration rely  upon  the  liability  of  the  stockholders  as  security 
for  the  payment  of  whatever  debts  may  be  due  them  from  the 
corporation." 

The  supreme  court  of  Pennsylvania  expressed  the  opinion, 
but  did  not  decide,3  that  the  Kansas  statute  imposed  a 
contractual  liability,  and  the  same  conclusion  was  reached 
by  the  United  States  Circuit  Court  sitting  in  New  Jersey.4 
In  some  states  the  liability  is  said  to  be  merely  "statutory," 
as  distinguished  from  contractual  or  penal.5  A  liability  im- 
posed upon  the  stockholders,  officers  or  agents  of  a  corporation 
for  dereliction  of  duty,  as  for  a  violation  of  the  provisions  of  a 
statute,  such  as  the  requirement  that  annual  reports  of  the 
condition  of  the  corporation  shall  be  made  and  published,  is 
penal  in  its  nature.6     A  joint  and   several  liability  imposed 

1  Bank  v.  Francklyn,  120  U.  S.  747;  8Cushing  v.   Perot,  175  Pa.  St.  66. 

Cashing  v.  Perot,  175  Pa.  St .  66 ;  34  L.  See  also  Beii  v.  Farwell  (111.),  52  N. 

R.  A.  7.'i7;  Bowel!  v.  Manglesdorf  &  E.  Rep.  346. 

Co.,  33  Kan.  194;  AppealOf  Aultmann,  '"Western  Nat'l  Bank  v.  Reckless, 

98   Pa.  St.  505;  Rhodea  v.  U.  B.  Nat'l  96  Fed.  Rep.  59. 

Bank,  24   U.S.  A.pp.  607;  34  L.  R.  A.  5  Rice  v.  Hosiery  Co.,56N.  H.  114, 

742;  National  Bank  v.  Whitman,  76  128;  Marshall  v.  Sherman,  148  N.  Y. 

].-,., I    Rep.  697.  9;    New    Haven   etc.,   Co.  v.  Linden 

•Posl  .v-  Co.  V.Toledo,  etc.,  R.  Co.,  Spring  Co.,  142  Mass.  349,  353. 

in    Mass.  341;   quoted   in    Hancock  ,;  Merchants'  Nat'l  Bank  v.  N.  W., 

Nat'l  Bank  v.  Kills  (Mass.),  42  L.  R.  etc.,  Co.,  48   Minn.  349;  Globe  Pub. 

A.  K»i.  Co.  v.  State  Bank  (Neb.),  59  N.  W. 


§  565  LIABILITY    OB1    STOCKHOLDERS.  625 

upon  the  stockholders  in  an  amount  equal  to  the  amount  of 
their  stock  for  all  debts  created  before  all  the  stock  is  paid  in  is 
contractual.1  The  liability  imposed  by  the  national  banking  act 
is  contractual  and  survives  against  the  personal  representatives 
of  the  stockholder.2  Whether  the  liability  is  primary  or  collateral 
depends  upon  the  language  of  the  statute.  In  California  and 
other  states  having  similar  statutes,  it  is  held  to  be  primary  and 
absolute,  and  the  right  of  action  consequently  accrues  against 
the  stockholder  and  the  corporation  at  the  same  time.3 

§  565.  When  penal. — A  penal  statute  is  an  act  by  which  a 
forfeiture  is  imposed  for  transgressing  the  provisions  of  a 
statute.  It  may  be  remedial  in  one  part  and  penal  in  another. 
The  effect  and  not  the  form  of  the  statute  is  to  be  considered, 
and  if  its  object  is  clearly  to  inflict  a  punishment  on  a  party 
for  doing  what  is  prohibited,  or  failing  to  do  what  is  com- 
manded to  be  done,  it  is  penal  in  its  character.4  Thus,  a  stat- 
ute which  requires  the  officials  of  a  corporation  to  publish  an 
annual  statement  of  its  affairs,  and  in  the  event  of  failing  to 
do  so  makes  the  directors  jointly  and  severally  liable  for  all 
debts  of  the  company,  is  penal.  Such  provisions  are  intended 
for  the  protection  of  creditors  and  the  prevention  of  frauds 
upon  the  public  in  respect  to  the  financial  condition  of  the  cor- 
poration. The  liability  is  created  by  the  statute  and  is  in  the 
nature  of  a  penalty  imposed  for  neglect  of  duty.5 

Rep.  683;  Diversey  v.  Smith,  103  111.  5  Globe,  etc.,  Co.  v.  State  Bank,  41 

378.  Neb.  175,  27  L.  R.  A.  854;  Bank  v. 

1  Flash  v.  Conn,  109  U.  S.  371.  Bliss,  35  N.  Y.  412;  Miller  v.  White, 

2  Richmond  v.  Irons,  121  U.  S.  27;  50  N.  Y.  137;  Easterly  v.  Barber,  65 
Hencke  v.  Twomey,  58  Minn.  550.  N.  Y.  252;  Knox  v.  Baldwin,  80  N.  Y. 

3  Davidson  v.  Rankin,  34  Cal.  503;  610;  Veeder  v.  Baker,  83  N.  Y.  156; 
Morrow  v.  Superior  Court,  64  Cal.  Pier  v.  Hanmore,  86  N.  Y.  95;  Stokes 
383;  Fuller  v.  Ledden,  87  111.  310;  v.  Stickney,  96  N.  Y.  323;  Manufac- 
Stewart  v.  Lay,  45  Iowa  604.  turing  Co.  v.  Beecher,  97  N.  Y.  651 ; 

4  Diversey  v.  Smith,  103  111.  378;  Godsden  v.  Woodward,  103  N.  Y.  242; 
Globe,  etc.,  Co.  v.  State  Bank  (Neb.),  Sayles  v.  Brown,  40  Fed.  Rep.  8.  The 
59  N.  W.  Rep.  683 ;  Huntington  v.  above  section  of  the  New  York  statute 
Attrill,  146  U.  S.  657;  Merchants',  was  copied  in  Colorado  and  of  it  the 
etc.,  Bank  v.  N.  W.  Mfg.,  etc.,  Co.,  48  court  said  :  "This  statute  is  in  its  na- 
Minn.  349;  Aylsworth  v.  Curtis,  19  ture  penal.  It  describes  a  determinate 
R.  I.  516,  61  Am.  St.  Rep.  785.  penalty  for  neglect  of  a  duty  imposed 

40—  Private  Corp. 


626  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  566 

§  566.  Survival  of  the  right  of  action. — Whether  the  right 
to  proceed  against  a  stockholder  upon  his  statutory  liability- 
survives  his  death  will  depend  upon  the  nature  of  the  lia- 
bility. If  it  is  penal,  it  will  not  survive;  if  it  is  contractual, 
it  survives,  and  may  be  enforced  against  the  estate  in  the 
hands  of  his  personal  representative.1  A  New  York  statute 
provided  that  "in  limited  liability  companies,  all  the  stock- 
holders  shall  be  severally  and  individually  liable  to  the  cred- 
itors of  the  company  in  which  they  are  stockholders,  to  an 
amount  equal  to  the  amount  of  stock  held  by  them  respectively, 
for  all  debts  and  contracts  made  by  such  company  until  the 
whole  amount  of  capital  stock  fixed  and  limited  by  such  com- 
pany shall  be  paid  in,  and  a  certificate  thereof  has  been 
made  and  recorded."  The  liability  imposed  by  this  statute 
was  held  to  survive  the  death  of  the  stockholder.  "It  is  not," 
said  the  court,2  "like  the  liability  of  a  trustee  for  neglecting 
to  make  a  report  or  for  declaring  dividends  out  of  capital 
stock,  or  acts  of  a  kindred  character.  These  are  breaches  of 
duty  on  the  part  of  the  managing  agents  of  the  corporation 
for  which  the  statute  has  made  them  liable,  and  this  liability 
can  not  be  said  to  rest  upon  or  grow  out  of  the  contract.  The 
liability  of  a  stockholder  in  the  present  case  is  different.  Upon 
becoming  the  owner  of  the  stock  he  voluntarily  assumes  the 

by  law  upon  the  trustees  of  a  corpora-  'Cochran  v.  Wiechers,  119  N.  Y. 
tion  organized  under  our  general  in-  399,  29  N.  Y.  St.  Rep.  388,  7  L.  R.  A. 
corporation  act.  The  amount  of  the  553;  Flash  v.  Conn,  109  U.  S.  371; 
forfeiture  is  measured  by  the  aggre-  Richmond  v.  Irons,  121  U.  S.  27. 
gate  debt  contracted  by  the  company.  See  Dane  v.  Dane,  etc.,  Co.,  14  Gray 
The  liability  is  not  founded  uim.h  (Mass.)  488.  The  liability,  however, 
ract  bill  arises  from  misconduct  is  not  of  such  a  nature  that  a  claim 
m  oilier."  Gregory  v.  Bank,  3  Colo,  can  be  filed  in  the  probate  court 
332;  Larsen  v.  .lames  (Colo.),  29  Pac.  againsl  the  estate  of  a  deceased  stock- 
Rep,  is:;.  Statutory  provisions  of  holder.  It  must  firsl  be  reduced  to 
similar  character  were  held  to  be  judgment  in  the  manner  provided  by 
penal  in  Mitchell  v.  Hotchkiss,  18  the  statute.  Nolan  v.  Hazen,  44  Minn. 
Conn.  9;  Steam   Kngine  Co.  v.  Huh-  478. 

bard,  101   r.  s.   L88;  Globe,  etc.,  Co.  "Cochran   v.  Wiechers,   119  N.  Y. 

v.  The  State  Bant  (Neb.),  69  N.  W.  399,  29  N.  Y.  St.  Rep.  388,  7  L.  R.  A. 
he,,.   683;   Derrickaon    v.   Smith,    27 
N.J.  L.  166;  Breitungv.  Lindauer, 87 
.Mich.  217. 


§  567  LIABILITY    OF    STOCKHOLDERS.  027 

obligation  imposed  by  the  statute,  and  the  creditors  of  the  cor- 
poration who  trust  it  may  be  said  to  do  so  upon  the  faith  of 
the  statute  which  is  part  of  the  contract.  The  statutory  obli- 
gation is  inherent  in  and  forms  a  part  of  every  contract  that 
the  corporation  makes  with  creditors,  prior  to  the  time 
that  the  certificate  required  by  the  statute  is  filed."  It  is 
settled  that  an  action  to  recover  a  statutory  penalty  does  not 
survive  the  death  of  the  party  liable.1 

§  5G7.  Liability  of  officers  and  directors. — The  liability  im- 
posed upon  the  officers  or  directors  of  a  corporation  for  a  fail- 
ure to  comply  with  some  statutory  requirement  is  commonly 
spoken  of  as  penal.  But,  by  the  highest  courts,  it  is  held 
that  this  is  true  only  in  a  limited  sense,  and  not  in  that  inter- 
national sense  which  will  prevent  its  enforcement  in  a  foreign 
jurisdiction.  The  New  York  statute  provided:  "If  any  certifi- 
cate or  report  made,  or  published  notice  given,  by  the  officers 
of  any  such  corporation  shall  be  false  in  any  material  repre- 
sentation, all  the  officers  who  shall  have  signed  the  same  shall 
be  jointly  and  severally  liable  for  all  the  debts  of  the  corpora- 
tion contracted  while  they  are  officers  thereof."  Under  this 
statute  a  judgment  was  obtained  against  one  of  the  directors 
in  New  York,  and  thereafter  an  action  was  commenced  upon 
the  judgment  in  Canada,  where  it  was  held  that  the  action 
could  not  be  maintained,  as  the  liability  was  penal.  The 
Privy  Council,  however,  reversed  this  decision  on  the  ground 
that  the  statute  was  not  penal  in  the  sense  of  international 
law.2  It  was  admitted  that  the  courts  of  no  state  execute  the 
penal  laws  of  another  state.  "But,"  said  Lord  Watson,  "a 
proceeding,  in  order  to  come  within  the  scope  of  this  rule, 
must  be  in  the  nature  of  a  suit  in  favor  of  the  state  whose  law 
has  been  infringed."  The  same  conclusion  was  shortly  after- 
wards reached  by  the  supreme  court -of  the  United  States  in  a 
suit  which  grew   out  of   the  same  facts.3     In  Illinois  a  lia- 

1  Chitty  Plead.,  1,7th  Am.  Ed.,  103;  3  Huntington  v.  Attrill,  146  U.   S. 
Hambly  v.  Trott,  1  Cowp.  372.  657.    See  Fitzgerald  v.  Weidenbeck, 

2  Huntington  v.  Attrill,  L.  R.  (1893)  76  Fed.  Rep.  695. 
A.  C.  150;  8  L.  T.  R.  341  (P.  C.  1892). 


828  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  568 

bility  imposed  upon  the  directors  of  an  insurance  company, 
which  issued  policies  before  the  capital  stock  was  fully 
paid  in,  and  a  certificate  thereof  recorded,  was  treated 
as  a  penalty.1  The  court  said:  ''Whether  all  the  capital, 
or  all  but  a  nominal  sum,  or  whether  but  an  insignificant 
amount  of  the  capital  has  been  collected  and  paid  in,  would 
obviously  be  unimportant  inquiries.  He  is  only  required  to 
show  that  he  is  a  creditor  of  the  company,  that  the  defendant 
is  a  trustee  or  incorporator,  and  that  the  whole  amount  of  the 
capital  of  the  company  has  not  been  paid  in,  and  a  certificate 
thereof  recorded.  *  *  *  The  statute  in  effect  says  the 
thing  shall  not  be  done,  and  if  it  is  done,  the  trustees  and 
corporators  shall  be  liable,  etc.  In  all  the  cases  referred  to 
the  statute  says  the  thing  may  be  done,  and  the  stockholders, 
etc.,  shall  be  liable,  either  absolutely,  or  until  some  sub- 
sequent thing  shall  be  done.  In  one  case  the  liability  is  a 
consequence  of  violating  the  law,  or  suffering  it  to  be  violated; 
in  the  other,  liability  is  incurred  in  strict  compliance  with  the 
law.  In  short,  in  the  one  case  the  liability  is  for  a  wrong  done 
— a  tort;  in  the  other  it  is  upon  contract.  *  *  *  The  lia- 
bility is  not,  in  fact,  to  those  alone  who  are  injured,  but  exists 
equally  where  no  actual  injury  has  been  done,  as,  for  instance, 
where  the  corporation  is  abundantly  able  to  pay  all  its  debts; 
but  the  liability  is  for  a  wrong  done  to  the  public,  which,  pre- 
sumably, to  some  extent  is  a  wrong  also  to  every  creditor. 
*  *  *  The  liability  is  because  of  the  wrong — i.  e. ,  the  failure 
to  perform  the  duties  enjoined  by  the  statute,  and  not  upon 
the  contract  of  subscription." 

II.    Against  Whom  the  Liability  is  Enforcible. 

§  508.  As  to  time  of  holding  stock. — No  general  rule  can  be 
stated  applicable  to  all  the  states,  as  (he  question  must  be  de- 
termine! by  fin;  Qature  of  the  liability.  It  has  been  held,  upon 
the  theory  of  an  original,  primary  Liability,  that  the  liability 
attaches  to  persons  only  who    were  stockholders  at  the  time 

1  Divereey  v.  Smith,  in::  ill.  378.     It     Inn'  imposed  upon  the  officers  of  the 
will  in:  noted  that  the  liability  was    corporation. 


§568 


LIABILITY    OF    STOCKHOLDERS. 


629 


the  debt  was  contracted.1  Where  the  charter  of  a  corpo- 
ration provided  that  "each  of  the  stockholders  of  said  company 
shall  be  personally  liable  for  the  debts  of  said  company  to  an 
amount  equal  to  the  amount  of  the  capital  stock  held  by  such 
stockholder  and  no  more,"  it  was  held  that  stockholders  at  a 
time  when  a  debt  of  the  corporation  was  contracted,  and  those 
who  became  stockholders  before  the  debt  was  paid,  were  indi- 
vidually liable  for  the  debts.2  It  is  now  settled  in  Minnesota 
that  the  liability  attaches  to  those  who  own  the  stock  at  the  time 
the  action  to  enforce  the  liability  is  commenced.3  Under  the 
Michigan  statute  one  who  was  a  stockholder  in  an  insolvent 
corporation,  when  labor  was  performed  for  it,  is  liable  for  the 
debt4.  A  prior  bona  fide  transfer  of  the  shares  terminates  the 
statutory  liability,5  even  for  the  debts  contracted  while  he  was 
a  stockholder.6     Those  who  were  stockholders  when  the  debt 


1  Moss  v.  Oakley,  2  Hill  (N.  Y.)  265 ; 
reversed  in  5  Denio  (N.  Y.)  567,  where 
it  was  held  that  the  liability  attached 
to  those  who  were  stockholders  when 
the  suit  was  commenced.  Bnt  see 
Williams  v.  Hanna,  40  Ind.  535. 

2Gebhard  v.  Eastman,  7  Minn.  56, 
Gil.  40.  The  date  of  the  debt  is  im- 
material when  the  ownership  of  the 
stock  was  prior  thereto  and  continued 
until  after  an  action  was  brought 
against  the  corporation.  Barron  v. 
Burrill,  86  Maine  66.  As  to  the  lia- 
bility of  successive  owners  of  shares, 
under  a  statute  which  imposes  the 
liability  for  one  year  after  a  transfer 
of  the  shares,  see  Harper  v.  Carroll, 
66  Minn.  487. 

3  Olson  v.  State  Bank,  57  Minn.  552, 
59  N.  W.  Rep.  635;  First  Nat'l  Bank 
v.  Winona,  etc.,  Co.,  58  Minn.  167,  59 
N.  W.  Rep.  997.  In  Olson  v.  State 
Bank,  57  Minn.  552,  59  N.  W.  Rep. 
635,  the  court  said:  "Does  one 
who  acquires  stock  in  a  banking 
corporation  incur  the  statute  liability 
in  respect  to  corporate  debts  previ- 
ously contracted,  or  does  he  incur  it 
only  in  respect  to  debts  subsequently 


contracted?  The  decisions  of  the 
courts  in  the  different  states  seem  at 
variance,  the  greater  number  hold- 
ing that  those  who  own  the  stock 
when  the  remedy  is  sought  by  the 
creditors — that  is,  when  the  action  to 
enforce  the  liability  is  brought — are 
liable  in  respect  to  all  the  corporate 
debts,  no  matter  whether  contracted 
before  or  after  they  acquired  their 
stock.  The  decisions  in  each  state 
are  based  on  the  terms  of  the  statute 
in  each,  as  construed  by  the  court; 
and  as  the  terms  of  the  statutes  in  the 
different  states  vary,  but  little  aid  is 
afforded  by  the  decisions  in  other 
states."  It  is  not  material  when  the 
debt  was  contracted.  Maine,  etc.,  Co. 
v.  Southern,  etc.,  Co.  (Maine),  43  Atl. 
Rep.  24;  Rhode  Island,  etc.,  Co.  v. 
Moulton,  82  Fed.  Rep.  979. 

4Macomber  v.  Wright,  108  Mich. 
109, 65  N.  W.  Rep.  610 ;  Kamp  v.  Win- 
termute,  107  Mich.  635. 

5  §570,supra;  Van  Demark  v. Barons, 
52  Kan.  779;  Rochester,  etc.,  Co.  v. 
Raymond,  158  N.  Y.  576. 

6Middletown  Bank  v.  Magill,  5 
Conn.  28;    Dauchy  v.  Brown,  24  Vt. 


630  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  569 

was  contracted  and  are  stockholders  when  it  is  sought  to  be 
enforced,  are  liable,  but  not  those  who  became  such  after  the 
debt  was  contracted  and  transferred  the  shares  before  an  action 
was  brought  to  collect  the  debt.1  It  is  sometimes  provided  that 
the  stockholders  shall  remain  liable  for  one  year  after  the  date 
of  the  transfer  of  his  shares.  The  liability  is  then  confined  to 
such  debts  as  were  incurred  before  the  transfer.  The  novation 
is  complete  and  the  transferrer  released  at  the  end  of  the  year.2 

§  569.  Trustees,  pledgees  and  executors. — The  statutory 
liability  is  intended  to  rest  upon  the  owner  of  the  shares,  but  by 
reason  of  the  application  of  the  doctrine  of  estoppel,  it  is  some- 
times imposed  upon  trustees,  executors,  agents  and  persons 
holding  in  a  representative  capacity.  If  the  person  in  whose 
name  the  stock  stands  on  the  books  of  the  company  appears  to 
be  the  owner,  the  appearance  will  be  taken  as  the  fact  in  favor  of 
the  creditors  of  the  corporation.  Thus,  one  who  takes  stock  as 
collateral  security  for  a  debt,  and  has  it  transferred  to  him 
on  the  books  of  the  corporation,  is  liable  to  the  creditors  of 
the  corporation  as  a  stockholder.3  As  this  liability  is  based 
upon  estoppel  it  exists  only  when  there  are  facts  which  con- 
stitute an  estoppel.4     Thus,  a  pledgee  of  shares  is  not  liable  as 

197.     See    Mason    v.    Alexander,    44  ment  of  the  corporation  is  liable  as  a 

Ohio  St.  318,  7  N.  E.  Rep.  435;    Har-  present  stockholder.    Harper  v.  Car- 

pold  v.  Btobart,  46  Ohio  St.  397,  21  N.  roll,  66  Minn.  487. 

E.  Uep.  637;  Sayles  v.  Bates,  15  R.  I.  3Pauly  v.  State  Loan,  etc.,  Co.,  165 

;;  | g.  TJ.  S.  606;  State  v.  Bank  of  New  Eng- 

1  Sayles  v.  Bates,  15  R.  I.  34;   Bar-  land,  70  Minn.  398,  68  Am.  St.  Rep. 
rick  v.  Gifford,  47  Ohio  St.  180.  538,  annotated;  Nat'l  Com.  Bank  v. 

2  II arper  v.  Carroll,  (12  Minn.  152.  McDonnell,  92  Ala.  387;  National 
As  to  the  effect  of  transfer,  Bee  §  434,  Bank  v.  Case,  99  IT.  S.  628;  Goodwin 
supra)  Sprague  v.  Nat'l  Bank,  etc.,  v.  Sleeper,  67  Wis.  677;  Harper  v. 
172  ill.  L49;  Rhode  [aland,  etc.,  Co.  Carroll,  66  Minn.  487.  See  notes,  15 
v.  BIoulton,82  Fed.  Rep.979.  A  trans-  C.  C.  A.  133,  3  Am.  St.  Rep.  865,  and 
fer ma;  be  made  while  the  corpora-  68  Am.  St.  Rep.  542.  In  MrKim  v. 
fcion  is  insolvent  for  the  purpose  of  Glenn,  66  Md.  478,  a  broker  who  pur- 
escaping  liability.  Peter  v.  Onion,  chased  stock  for  a  client  in  his  own 
etc.,  Co.,  66  Ohio  St.  181.  Bui  see§  137,  name  was  held  personally  liable, 
and  Aultman's  Appeal, 98  Pa.  St.  606.  4  Welles  v.  Larrabee,  36  Fed.  Rep. 
One  who  assigns  stock  by  a  transfer  866. 

no1  registered  until  aftei  the  assign- 


§  570  LIABILITY    OF    STOCKHOLDERS.  631 

a  stockholder,  if  the  shares  have  not  been  transferred  to  him 
or  if  the  corporate  books  show  that  he  holds  the  stock  as  col- 
lateral.1 The  same  rule  governs  the  liability  of  trustees2 
and  executors.3  Although  a  person  holding  stock  in  such  a 
capacity  may  be  liable  to  the  extent  of  the  trust  estate/  he  is 
not  personally  liable  if  the  fact  that  he  is  not  the  beneficial 
owner  appears  on  the  corporate  books.  The  estate  of  a  de- 
ceased shareholder  is  liable  for  his  share  of  the  liabilities  of 
the  corporation,  to  the  same  extent  as  any  other  stockholder.5 
The  manner  of  enforcing  the  liability  will  depend  upon  the 
statutes  of  the  jurisdiction.  After  judgment  it  may  be  proved 
against  the  estate,6  but  before  judgment  it  is  a  "contingent 
claim  "  and  can  not  be  thus  proved.7 

§  570.  Unrecorded  transfers — Liability  of  transferrer  and 
transferee. — It  is  generally  stated  in  the  books  that  until  a 
transfer  is  recorded  in  the  transfer  books  of  the  corporation, 
the  transferee  is  not  chargeable  as  a  stockholder;  that  while 
he  is  bound  to  protect  and  indemnify  his  transferrer,  he  is  not 
liable  to  the  corporation  or  corporate  creditors,  and  that  the 
transferrer  is  not  released  from  liability  until  the  transfer  is 
duly  registered.8     But  "an  examination  of  the  authorities  will 

1  Anderson  v.  Warehouse  Co.,  Ill  4Sayles  v.  Bates,  15  R.  I.  342,  5  Atl. 
U.  S.  479;  Paulyv.  State  Loan,  etc.,     Rep.  497. 

Co.,  56  Fed.  Rep.  430,  58  Fed.  Rep.        5  Cochran  v.  Wiechers,   119  N.  Y. 

666,  7  C.  C.  A.  422 ;  affirmed  in  165  IT.  399,  7  L.  R.  A.  553 ;  New  England  Com. 

S.  606.     Welles  v.  Larrabee,  36  Fed.  Bank  v.  Newport  Steam  Factory,  6  R. 

Rep.  866;  First  Nat'l  Bank  v.  Hing-  I.  154,  75  Am.  Dec.  688.     See  §566, 

ham  Mfg.  Co.,  127  Mass.  563.  supra.      If    the    title    to    the   shares 

2  Kerr  v.  Urie,  86  Md.  72,  38  L.  R.  passes  to  the  legatee  he  also  takes  the 
A.  119.  liability.    Montgomery,  etc.,  Assn.  v. 

3  Welles  v.  Larrabee,  36  Fed,  Rep.  Robinson,  69  Ala.  413.  As  to  the  ex- 
866.  In  some  states  it  is  provided  by  tent  of  the  heirs'  liability,  see  Payson 
statute  that  trustees  and  executors  v.  Hadduck,  8  Biss.  (C.  C.)  293,  and 
shall    not    be    liable.     Provisions  of  cases  there  cited. 

National  Banking  Act,  Rev.  St.  IT.  S.,  6  Nolan  v.  Hazen,  44  Minn.  478. 

§   5152,    construed    In    re   Bingham,  7Hospes  v.  Northwestern,  etc.,  Co., 

10  N.  Y.  Supp.  325,  32  N.  Y.  St.  Rep.  48  Minn.  174,  15  L.  R.  A.  470. 

782 ;  Diven  v.  Lee,  36  N.  Y.  302.     Lia-  8  If  the  transfer  is  waived  by  the 

bility  of  estate  of  deceased  non-resi-  corporation  and  the  purchaser  of  the 

dent  stockholder.    Grand  Rapids  Sav.  shares  acts   as   a  stockholder,  he  is 

Bank  Appeal,  52  Mich.  557.  liable  as  such  to  creditors.     Upton  v. 


632  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  570 

prove  that  this  rule  has  not  always  been  rigidly  adhered  to,  but 
is  subject  to  numerous  exceptions  and  qualifications.  It  has, 
for  example,  been  frequently  held  that  where  the  corporation 
accepts  the  transferee  as  a  stockholder,  and  he  exercises  any  of 
the  rights  or  accepts  any  of  the  benefits  of  a  shareholder,  he 
will  be  liable  as  such,  although  no  transfer  has  been  made  on 
the  books  of  the  company.  It  has  also  been  held  that  where 
the  transferrer  has  done  all  he  was  required  to  do  in  the  prem- 
ises, but  that  through  the  negligence  or  fault  of  the  company 
no  transfer  was  entered  on  its  books,  the  transferrer  was  re- 
leased ;  applying  the  principle  that  a  party  can  not  take  advan- 
tage of  his  own  wrong,  and  that  in  equity  that  will  be  consid- 
ered done  which  ought  to  be  done."1 

The  owner  of  certain  shares  employed  an  auctioneer  to  sell 
them  at  public  auction  and  they  were  bid  off  by  a  purchaser 
who  paid  the  auctioneer  for  them  and  received  from  him  the 
certificates  of  stock  with  a  power  of  attorney  duly  executed  in 
blank.  The  purchaser  had  been  employed  by  the  president 
of  the  bank  to  make  the  purchase  for  a  customer  of  the  bank 
who  had  deposited  the  money  for  the  purpose  in  the  bank. 
The  certificate  and  power  of  attorney  was  delivered  to  the 
president,  but  no  formal  transfer  was  ever  made  on  the  books 
of  the  bank.  The  bank  became  insolvent,  and  after  a  receiver 
was  appointed,  an  action  was  brought  against  the  transferrer  to 
collect  an  assessment  under  the  statute.  It  was  held  that  the 
responsibility  of  the  transferrer  ceased  upon  the  surrender  of 
the  certificate  to  the  bank  and  the  delivery  to  its  president  of 
the  power  of  attorney  sufficient  to  effect  and  intended  to  effect, 
as  the  president  knew,  a  transfer  of  the  stock  on  the  books  of 
the  bank.2  But  "where  the  seller  delivers  the  stock  certificate 
and  power  of  attorney  to  the  buyer,  relying  upon  the  promise 

Burnbam,  3  Bias.  131  ;  Bell's  Appeal,  Minn.  .".07  (an  action  against  a  trans- 

115  Pa.  si.  88,  2  Am.  St.   Rep.  582;  feree  on  a  call),  citing  Whitney   v. 

Laing  v.    Barley,    L01    111.  591.    See  Butler,  118  TJ.  S.  655 ;  Ex  parte  Bagge, 

lacv.  Western,  etc.,  Co., 77 Iowa  13    Beav.  L62;    Young  v.  McKay,  50 

\';it'l  I'.ank  of  Fed.   Rep.  894 ;  Chouteau  Spring  Co. 

America,  L72  III.  1  19.  v.  Harris,  20  Mo.  382. 

'  1;  Northern,  etc.,  Co.,  61        'Whitney  v.  Butler,  lis  V.  S.  655. 


§  571  LIABILITY    OF    STOCKHOLDERS.  633 

of  the  latter  to  have  the  necessary  transfer  made,  or  where  the 
certificate  and  power  of  attorney  are  delivered  to  the  bank 
without  communicating  to  the  officers  the  name  of  the  buyer, 
the  seller  may  well  be  held  liable  as  a  shareholder  until,  at 
least,  he  shall  have  done  all  that  he  reasonably  can  do  to  effect 
a  transfer  on  the  stock  register." 

But  a  transfer  to  the  president  of  a  bank  as  vendee  of  the 
shares  is  not  sufficient  to  discharge  the  vendor  under  this  rule.1 
In  Ohio  it  is  held  that  the  seller  must,  at  his  peril,  see  that 
the  transfer  is  made  and   his  name  removed  from  the  books.2 

III.    The  Debts  for  Which  the  Stockholders  are  Liable. 

§  571.  The  debt  of  the  corporation — Release. — The  right  to 
proceed  against  a  stockholder  is  dependent  upon  the  existence 
of  a  debt  due  from  the  corporation  to  its  creditors.  In  Minne- 
sota it  was  held  that  the  release  of  the  debt  and  a  judgment  by 
a  court  discharging  the  debtor  pursuant  to  the  provisions  of 
the  insolvency  law,  released  and  discharged  the  stockholders 
from  the  personal  liability  imposed  by  the  constitution.3 
Shortly  after  this  decision  the  legislature  amended  the  insolv- 
ency law  by  providing  "that  the  release  of  any  debtor  under 
this  act  shall  not  operate  to  discharge  any  other  party  liable  as 
surety,  guarantor,  or  otherwise  for  the  same  debt,4  and  the 
court  held  that  the  word  "otherwise,"  as  here  used,  included 
stockholders  who  are  liable  for  the  debts  of  the  corporation.5 

§  572.  Nature  of  the  obligation. — The  imposed  liability  is 
generally  for  the  debts  of  the  corporation  contracted  or  existing 
at  a  designated  time.  The  word  debt  is  generally  construed 
to  apply  to  obligations  arising  upon  contract,  and  not  to  such 
as  result  from  the  torts  of  the  corporation.6     But  under  some 

1  Richmond  v.   Irons,  121  U.  S.  27.  4Laws  of  1889,  ch.  30,  §  1,  amend- 

2Harpold  v.    Stobart,  46  Ohio  St.  ing  ch.  148,  Laws  of  1881. 

397;  15  Am.  St.  Rep.  618.  5  Willis  v.   Mabon,  48  Minn.   140; 

3  Mohr  v.  Minn.,  etc.,  Co.,  40  Minn.  Tripp  v.  N.  W.  Nat'l  Bank,  41  Minn. 

343.     Insolvency  law  of  1881  is  appli-  400.  See  Aultman's  App..9SPa.  St,  500. 

cable  to  private  corporations.     Tripp  6  Child  v.  Boston,  etc.,  Works,  137 

v.  N.  W.  Nat'l  Bank,  41  Minn.  400.  Mass.   516,  50  Am.  Rep.  328;    Bohn 


634 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§572 


statutes  a  cause  of  action  arising  on  tort  is  treated  as  a  debt 
of  the  corporation.1  The  liability  extends  to  the  deficiency  of 
debts  secured  by  mortgages,  as  well  as  to  unsecured  debts.2  A 
debt  is  not  contracted  by  a  corporation  by  the  mere  making  of 
a  contract  for  goods,  before  a  delivery  of  the  goods  or  a  breach 
of  the  contract,  under  a  statute  making  stockholders  liable  for 
debts  contracted  before  the  filing  of  a  certificate.3  Indebted- 
ness maturing  after  the  dissolution  of  a  corporation,   which 


v.Brown,  33  Mich.  257;  Doolittle  v. 
Marsh,  11  Neb.  243.  In  Heacock  v. 
Sherman,  14  Wend.  (N.  Y.)  59,  it  was 
held  that  the  stockholders  of  an  in- 
corporated company  were  not  indi- 
vidually liable  for  damages  occasioned 
by  a  bridge  built  by  the  company  be- 
ing out  of  repair,  although  by  the 
terms  of  the  act  of  incorporation  they 
were  to  be  liable  for  "any  demands 
against  the  company,"  the  act  con- 
templating liability  only  for  damages 
arising  ex  contractu.. 

1  Flenniken  v.  Marshall,  43  S.  C.  80, 
28  L.  R.  A.  402.  In  Eider  v.  Fritchey, 
49  Ohio  St.  285,  an  action  to  subject 
the  stockholders  to  liability  for  a  judg- 
ment obtained  for  personal  injury 
was  successful.  The  constitution  pro- 
vided  that  "dues  from  corporations 
shall  be  secured  by  such  individ- 
ual liability  of  stockholders,"  etc. 
The  court  said:  "All  concede  that 
this  is  a  remedial  provision,  and  to 
hold  that  there  must  be  applied  to  it 
the  same  test  as  if  it  were  a  penal 
law,  is  to  hold  that  all  remedial 
laws  must  be  so  construed,  for  every 
remedial  law  must  of  necessity  be  in 
derogation  of  the  common  law.  *  *  * 
Ii  most  be  manifest  that  the  intent 
was  to  provide  thai  those  who  derive 
advantage  from  the  authority  of  the 
state  given  by  our  incorporation  laws 
shall  at  the  same  time  assume  re- 
Bponsibility  for  the  acts  of  the  arti- 
ficial creatures  which  they  have  called 


into  being,  affecting  the  rights  of  oth- 
ers. *  *  *  It  is  conceded  that  if  in 
a  cause  of  action  a  tort  can  be  treated 
as  a  'debt,'  the  liability  of  the  stock- 
holders for  it  would  follow.  The  af- 
firmation of  this  is  asserted  and  the 
following  authorities  are  cited  in  its 
support :  Carver  v.  Manufacturing  Co.', 
2  Story  432;  Milldam  Foundry  v.  Ho- 
vey,  21  Pick.  417;  Gray  v.  Bennett,  3 
Met.  522;  Smith  v.  Omans,  17  Wis. 
395.  To  the  contrary  of  this  coun- 
sel for  plaintiff  in  error  cite  Bohn  v. 
Brown,  33  Mich.  257;  Cable  v.  Mc- 
Cune,  26  Mo.  371 ;  Doolittle  v.  Marsh, 
11  Neb.  243;  Heacock  v.  Sherman,  14 
Wend.  (N.  Y.)  59;  Archer  v.  Rose,  3 
Brewster  264;  Child  v.  Iron  Works, 
137  Mass.  516 ;  Cook  Stock  and  Stock- 
holders, §  220;  Morawetz,§§608,  613; 
Nanson  v.  Jacobs  (Mo.),  6  S.  W.  Rep. 
246;  Evans  v.  Lewis,  30  Ohio  St.  11; 
Crouch  v.  Gridley,  6  Hill  250;  Kel- 
logg v.  Schuyler,  2  Denio  73,  and  Zim- 
mer  v.  Schleehauf,  115  Mass.  52. 
*  *  *  In  conclusion,  we  are  of  the 
opinion  that  the  word  'dues'  should 
receive  a  beneficial  construction,  one 
which  will  include  within  its  scope,  as 
well  a  demand  for  unliquidated  dam- 
ages for  a  tort,  as  a  claim  for  a  debt 
arising  upon  a  coni  ract." 

•'  Maine,  etc.,  Co.  v.  Southern,  etc., 
Co.  (Maine;,  43  All.  Rep.  24. 

•  Wing&  Evans  v.  Slater,  19  R.  I. 
697,  :;:<  L.  B.  A.  566. 


§  573  LIABILITY    OF    STOCKHOLDERS.  635 

grew  out  of  a  contingent  liability  existing  at  the  time  of  the 
dissolution,  is  within  a  statute1  which  imposes  a  liability  on 
stockholders  for  the  debts  of  the  corporation.2 

§  573.  Debts  due  laborers  and  employes. — Statutes  often  im- 
pose upon  the  shareholders  a  personal  liability  for  debts  due  to 
its  servants,  laborers,  employes  and  apprentices,  who  ''usually 
look  to  the  reward  of  their  day's  labor  or  services  for  im- 
mediate or  present  support,  from  whom  the  company  does  not 
expect  credit,  and  to  whom  its  future  ability  to  pay  is  of  no 
consequence. '  '3  Such  provisions  ordinarily  apply  only  to  those 
who  perform  manual  labor,4  and  do  not  include  such  employes 
as  foremen,  superintendents  and  other  officials.5  But  a  super- 
intendent, who  performs  manual  labor,  who  is  an  employe 
and  not  an  officer  of  the  corporation,  is  a  servant  within  the 
meaning  of  a  statute  which  imposes  an  individual  liability  for 
debts  due  clerks,  servants  and  laborers.6  An  attorney  at  law 
regularly  employed  on  a  salary  is  not  an  employe  within  a 
statute  referring  to  "laborers,  servants  or  employes."7  One 
who  makes  a  loan  to  a  corporation  to  enable  it  to  pay  its  work- 
men without  intending  to  acquire  the  rights  of  the  laborers  to 
a  preference  can  not  afterward  protect  himself  by  taking  an 
assignment  from  the  workmen.8  Such  statutes  impose  a  liabil- 
ity in  addition  to  what   remains  unpaid  upon  their  subscrip- 

1 1  Kan.  Gen.  St.  1889,  §§  32,  44.  Brockway  v.  Innes,  39  Mich.  47 ;  Dukes 

2Cottrell  v.  Manlove,  58  Kan.  405.  v.  Love,  97  Ind.  341.     See  Palmer  v. 

As  to  the  right  to  recover  costs  and  Van  Santvoord,  153  N.  Y.  612. 

receiver's    expenses,   see    Harper  v.  6  Sleeper  v.  Goodwin,  67  Wis.  577. 

Carroll,  66  Minn.  487.     As  to  liability  A  bookkeeper  is  not  within  the  statute. 

for  debts  when  the  stock  of  the  corpo-  Wakefield  v.  Fargo,  90  N.  Y.  213.     A 

ration  was  fraudulently  issued  as  fully  traveling  salesman  is  not  a  laborer. 

paid  up,   see  Wallace  v.  Carpenter,  Jones  v.  Avery,  50  Mich.  326.    A  per- 

etc,  Co.,  70  Minn.   321,  68  Am.  St.  son  employed  at  a  salary  by  a  mowing 

Rep.  530.  machine  company  to  go  from  place  to 

'Wakefield  v.  Fargo,  90  N.  Y.  213,  place  and  set  up  machines  and  to  sell 

217;  Moyer  V.Pennsylvania  Slate  Com-  and  solicit  sales  is  an  employe.     Pal- 

pany,  71  Pa.  St.  293;  Harris  v.  Nor-  mer  v.  Van  Santvoord,  153  N.  Y.  612. 

veil,  1  Abb.  N.  Cas.  127;  Sleeper  v.  7  Bristor  v.  Smith,  158  N.  Y.  157,  53 

Goodwin,  67  Wis.  577;   Short  v.  Med-  N.  E.  Rep.  42. 

berry,  29  Hun  39.  8  Re  Fair  Hope,  etc.,  Estate,  183  Pa. 

4  Adams  v.  Goodrich,  55  Ga.  233.  St.  96. 

5  Coffin  v.  Reynolds,  37  N.  Y.  640; 


636  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  574 

tions,1  and  the  member  is  not  relieved  from  this  individual 
liability  by  a  transfer  of  his  shares.2 

§  574.    Creditors  who  are  also  stockholders  and  officers. — 

The  statutory  liability  of  stockholders  may  be  enforced  for  the 
benefit  of  creditors  who  are  also  stockholders  and  directors  of 
the  corporation.  It  was  so  held  where  it  appeared  that  the  di- 
rectors and  officers  had  become  creditors  of  the  corporation  by 
loaning  it  money  for  the  purpose  of  carrying  on  its  business.3 
But  it  has  been  held  that  a  director  to  whom  the  corporation 
is  indebted  for  salary  is  not  a  creditor  within  the  contempla- 
tion of  such  a  statute.4 

IV.     Enforcement  of  the  Liability. 

§  575.  At  the  domicile  of  the  corporation. — The  manner  of 
enforcing  the  liability  of  stockholders  is  so  generally  regulated 
by  statute  as  to  make  it  impractical  to  consider  it  in  detail. 
In  some  states  the  creditor  is  authorized  to  bring  an  action  at 
law  against  an  individual  stockholder,  but  probably  the  most 
common  remedy  is  of  an  equitable  nature,  where  all  the  stock- 
holders and  creditors  are  brought  into  court  and  the  fund 
equitably  divided.5  The  tendency  is  toward  simplifying  the 
procedure,  and  providing  for  an  action  or  proceeding  by  the 
receiver  of  the  corporation.  The  recent  statutes  and  decisions 
of  the  state  under  consideration  must  be  examined.6 

§  576.  Remedy  against  the  corporation — Judgment. — Where 
the  liability  is  secondary,  it  is  necessary  that  the  creditor  shall 
exhaust  his  remedies  against  the  corporation  before  proceed- 

1  Milioy   v.    Spun-  Mountain,   etc.,  6  See  Booth  v.  Dear,  96  Wis.  516; 
Co.,  4.",  Mich.  231.  Harper  v.  Carrol],  66  Minn.  487. 

2  Jackson  v.   Meek,  87  Tenn.  69,  10  6For  an  illustration   of  what  it  is 
Am.  St.  Rep.  620.  possible  for  an  able   and    ingenious 

i  aid  v.  Minneapolis  Times  Co.,  court  to  <1<>  with  a  blind  and  cumbrous 
65  Minn.  249.  But  see  Potter  v.  Ma-  statute,  see  the  Minnesota  cases  con- 
chine  Co.,  127  Mass.  692.  etruingch.  76,  Gen.  Stat.  1878,  from 
•McDowall  v.  Bheehan,  129  N.  Y.  Allen  v.  Walsh,  25  Minn.  543,  to  Har- 
200.  As  to  his  remedy,  see  Tayer  v.  per  v.  Carroll,  66  Minn.  487.  Happily, 
Tool  Co.,  4  Gray  (Mass.)  75.  much  of  it  Is   swept   away   by  Gen. 

Laws  Minnesota  L899,  ch.  272. 


§577 


LIABILITY    OF    STOCKHOLDERS. 


637 


ing  to  enforce  the  statutory  liability  of  the  stockholders.1  In 
the  absence  of  a  statute  to  the  contrary,  a  judgment  against  the 
corporation  and  an  execution  thereon  returned  nulla  bona  is 
generally  held  to  be  a  prerequisite  to  the  right  to  proceed 
against  the  shareholder,2  and  this  is  sufficient  evidence  that  the 
remedy  against  the  corporation  has  been  exhausted.3  But  if  it 
appears  that  the  corporation  is  notoriously  insolvent,4  or  that 
there  are  no  corporate  assets  to  sequester,  and  the  only  relief 
obtainable  is  the  enforcement  of  the  statutory  liability  of  the 
stockholders,  an  action  for  that  purpose  may  be  brought  by  a 
simple  contract  creditor.5 

§  577.   Judgment  against  the  corporation — Conclusiveness. — 

It  may  be  taken  as  the  settled  law  that  a  judgment  against  a 
corporation  is  conclusive  upon  the  question  of  corporate  indebt- 
edness in  a  subsequent  action  against  a  stockholder  of  the  cor- 
poration.6   "It  has  been   repeatedly  held,"  says  Judge  Ald- 


1  Globe,  etc.,  Co.  v.  State  Bank,  41 
Neb.  175,  27  L.  R.  A.  854.  See  Booth 
v.  Dear,  96  Wis.  516;  Cook  Corp.,  §219. 

-National,  etc.,  Co.  v.  Ballou,  146 
U.  S.  517;  Swan,  etc.,  Co.  v.  Frank, 
148  U.  S.  603;  Fourth  Nat'l  Bank  v. 
Francklyn,  120  U.  S.  747;  Libby  v. 
Tobey,  82  Maine  397;  Fowler  v.  Lam- 
son,  146  111.  472 ;  Allen  v.  Arnold,  18  R. 
1. 809  ;  Remington  v. Bay  Co.,  140  Mass. 
494;  Sturges  v.  Vanderbilt,  73  N.  Y. 
384 ;  Rocky  Mt.  Bank  v.  Bliss,  89  N.  Y. 
338.  But  an  adjudication  in  bank- 
ruptcy will  render  a  judgment  against 
the  corporation  unnecessary.  Shell- 
ington  v.  Howland,  53  N.  Y.  371.  In 
Flash  v.  Conn,  109  U.  S.  371,  the  court 
said:  "The  object  of  section  24  was 
to  compel  the  creditor  to  exhaust 
the  assets  of  the  company  before  seek- 
ing to  enforce  the  liability  of  the 
stockholder.  When  the  declaration 
shows  that  this  was  done,  and  that  a 
literal  performance  of  the  condition 
would  have  been  vain  and  fruitless, 
the  performance  of  the  condition  may 


well  be  held  to  have  been  excused." 
9  Baines  v.  Babcock,  95  Cal.  581. 
The  return  of  an  execution  against 
the  corporation  "no  property  found" 
is  sufficient  to  justify  a  suit  against  a 
stockholder  under  Kan.  Gen.  St.  1897, 
ch.  66,  §  850,  and  in  the  absence  of 
fraud  on  the  part  of  the  sheriff  it  can 
not  be  challenged  by  a  stockholder. 
Tbompson  v.  Pfeiffer  (Kan.),  56  Pac. 
Rep.  763. 

4  Latimer  v.  Citizens'  State  Bank, 
102  Iowa  162,  71  N.  W.  Rep.  225;  Salt 
Lake,  etc.,  Co.  v.  Tintic,  etc.,  Co.,  13 
Utah  423,  45  Pac.  Rep.  200.  See  also 
Sleeper  v.  Goodwin,  67  Wis.  577; 
Hirshfeld  v.  Bopp,  145  N.  Y.  84. 

5  See  Minneapolis  Paper  Co.  v. 
Swinburne  Co.,  66  Minn.  378;  Sturte- 
vant-Larabee  Co.  v.  Mast,  etc.,  Co., 
66  Minn.  437. 

6  Holland  v.  Duluth,  etc.,  Co.,  65 
Minn.  324;  Slee  v.  Bloom,  20  Johns. 
(N.Y.)  669;  Farnum  v.  Ballard,  etc., 
Shop,  12  Cush.  (Mass.)  507;  Came 
v.  Brigham,  39  Maine  35 ;  Nichols  v. 


638  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  578 

rich,1  "and  the  great  weight  of  authority  is  that  a  judgment 
against  a  corporation  in  favor  of  a  creditor  without  notice  to  a 
stockholder,  conclusively  establishes  the  fact  of  indebtedness, 
while  in  a  comparatively  few  jurisdictions,  it  is  treated  as  prima 
facie  evidence  only."2 

§  578.  By  whom  the  liability  is  enforcible. — No  general 
rule  can  be  stated  as  to  who  must  enforce  the  statutory  liabil- 
ity of  stockholders.  If  the  matter  is  not  determined  by  the 
statute,  it  depends  upon  the  nature  of  the  liability  and  for 
whose  benefit  it  is  imposed.  If  the  liability  is  regarded  as 
an  asset  of  the  corporation,  it  passes  to  the  receiver  or  assignee 
in  insolvency  of  the  corporation,  and  must  be  enforced  by  him 
for  the  benefit  of  the  corporate  estate.3  The  liability  when 
contractual  is  sometimes  held  to  be  an  asset  of  the  corpora- 
tion. "If  the  defendant's  liability  under  the  statute  to  the 
creditors  of  the  corporation  in  which  he  is  a  stockholder  is  con- 
tractual— and  it  is  only  in  that  aspect  that  it  can  be  enforced 
at  all  outside  of  Kansas — then  it  was  like  any  other  claim,  an 
asset  for  the  payment  of  the  corporate  debts,  and  as  such  the 
right  to  sue  on  it  passed  to  the  receiver.  This  is  the  general 
rule,  so  far  as  we  are  aware,  and  is  so  manifestly  in  accord- 
Stevens  (Mo.),  27  S.  W.  Rep.  613;  one  of  proof  and  not  of  pleading. 
Schertz  v.  First  Nat'l  Bank,  47  111.  Am.,  etc.,  Co.  v.  Wood  worth,  79 
App.  124.     See  §§  556,  587.  Fed.  Rep.  951.   See  generally  Bank  v. 

1  Hale  v.  Hardon  (C.  C.  A.),  95  Fed.  Francklyn,  120  U.  S.  747;  Hawkins  v. 
Rep.  747.  Where  an  action  at  law  is  Glenn,  131  U.  S.  319;  Glenn  v.  Lig- 
brought  in  a  federal  court  in  New  gett,  135  U.S.  533;  McVicker  v.  Jones, 
York  to  charge  a  stockholder  in  a  70  Fed.  Rep.  754;  Rhodes  v.  Bank,  66 
Kansas  corporation  underthe  Kansas  Fed.  Rep.  512, 13  C.  C.  A.  612;  Bank 
statute  to  the  extent  of  hie  liability  v.  Rindge,  57  Fed.  Rep.  279;  Borland 
with  a  judgment  against  the  corpora-  v.  Haven,  37  Fed.  Rep.  394,  413; 
tion,  it  is  sufficienl  to  allege  the  re-  Glenn  v.  Springs,  26  Fed.  Rep.  494. 
■  v  .,f  the  judgment,  a  return  of  See  Btephensv.  Pox,  83N.  Y.  313. 

eution   unsatisfied,  without  aver-        "Sheafe  v.    Larimer,  79  Fed.  Rep. 
ring  the  original  debt,  as  Hie  Kansas    iiL'l  ;    Howarth  v.  Ellwanger,  86  Fed. 
te  makes  the  judgment  at  least     Rep.  54.  The  liability  can  not,  under 
umptive  evidence;  and  it    is  im-    §2933,  Ind.  R.  St.,  be  enforced  by  an 

material   that   the   New   York  courts    assign* f  the  corporation.     Runner 

in  similar  quire  the  original     v.  Dwiggins,  147  Ind.  238,  3(5  L.  R.  A. 

deht  to  he  pleaded,  as  the  question  is    645. 


§  578  LIABILITY    OF    STOCKHOLDERS.  639 

ance  with  justice,  as  well  as  convenience,  that  in  the  absence 
of  an  express  decision  of  the  supreme  court  of  Kansas  to  the 
contrary,  we  must  presume  that  such  is  the  law  of  that  state."1 
The  Massachusetts  court  says:2  "We  are  unable  to  assent  to 
the  decision  of  the  supreme  court  of  Pennsylvania  *  *  *  that 
the  liaoility  of  the  defendant  passed  to  the  receivers  of  the 
corporation  as  an  asset,  because  we  think  that  the  liability  as 
created  by  the  statute  of  Kansas  is  directly  to  the  creditors,  and 
can  not  be  enforced  by  receivers  in  their  own  name  or  in  the 
name  of  the  corporation."  Mr.  Cook  says  that  the  claim  against 
the  stockholders  "  is  not  to  be  numbered  among  the  assets  of 
the  corporation.  *  *  *  A  receiver  has  no  power  to  enforce  such 
a  liability."3  High  says:4  "The  authorities  are  not  wholly 
reconcilable  as  to  the  right  of  a  receiver  of  a  corporation  to 
maintain  an  action  in  behalf  of  its  creditors  to  recover  of 
shareholders  an  individual  liability  imposed  by  charter  or 
statute  upon  stockholders  for  the  protection  of  creditors."  In 
Illinois  it  is  said:5  "The  creditor  stands  on  an  independent 
platform  above  that  of  the  receiver,  having  no  concern  with 
the  corporation,  and  the  stockholder  is  bound  under  the  law  to 
answer  to  him.  The  stockholder  is  not  under  the  control  or 
in  the  power  of  the  receiver,  but  holds  a  fund,  so  to  speak, 
out  of  which  the  creditors  of  the  company  may  be  paid."  If 
the  liability  is  directly  to  the  creditors,  it  forms  no  part  of  the 
corporate  assets  and  can  not  be  enforced  by  the  corporation  or 
its  representative.6     Ordinarily,  when  the  action  is  brought  by 

1  dishing  v.  Perot,  175  Pa.  St.  66,  authorizing  him  to  collect  the  "rights 
34  L.  R.  A.  737.  and  credits"  of  the  assignor. 

2  Hancock  Nat'l  Bank  v.  Ellis,  172        4  Receivers,  §  317a. 

Mass.  39,  42  L.  R.  A.  396.     See  former        5Arenz   v.    Weir,   89  111.   25.      See 

decision  in  166  Mass.  414.    First  Nat'l  Wincock  v.  Turpin,  96  111.  135;  Mun- 

Bank  v.  Hingham,  etc.,  Co  ,  127  Mass.  ger  v.  Jacobson,  99  111.  349;  Jacobson 

563;    Chambei'lin    v.   Hugunot,    etc.,  v.  Allen,  20  Blatchf,  525;  Billings  v. 

Co.,  118  Mass.  532.  Robinson,   94   N.   Y.   415;    Pfohl    v. 

3  Corps.,  §  218.  In  Runner  v.  Dwig-  Simpson,  74  N.  Y.  137.  The  Nebraska 
gins,  147  Ind.  238,  36  L.  R.  A.  645,  it  court  not  only  imposes,  but  limits  the 
was  held  that  an  assignee  of  an  in-  liability. 

solvent  bank  can  not  enforce  the  lia-  6Van  Pelt  v.  Gardner,  54  Neb.  701; 
bility  under  Ind.  Rev.  St.  1894,  §  2908,     Olsen  v.   Cook,   57  Minn.   522;  Int. 


640 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§579 


a  creditor  against  the  stockholders,  it  must  be  for  the  benefit 
of  all  the  creditors,  and  all  the  stockholders  must  be  joined.1 

§  579.  Enforcement  in  foreign  jurisdictions. — The  decis- 
ions with  reference  to  the  right  to  enforce  the  statutory  liabil- 
ity of  stockholders  against  stockholders  who  reside  in  a  for- 
eign jurisdiction  are  in  a  very  unsatisfactory  condition.  It  is 
stated  in  general  terms  that  if  the  liability  sought  to  be  en- 
forced is  in  the  nature  of  contract,  and  is  not  opposed  to  the 
legislation  or  public  policy  of  the  state  in  which  it  is  sought 
to  enforce  it,  the  courts  of  such  state  will  entertain  jurisdic- 
tion. It  is  admitted  that  a  liability  which  is  penal  in  its  na- 
ture can  not  be  enforced  in  a  foreign  jurisdiction.  It  is  also 
generally  conceded  that  the  liability  imposed  by  constitutions 
and  statutes  for  the  debts  of  a  corporation  is  contractual,  and 


Trust  Co.  v.  Loan,  etc.,  Co.  (Minn.), 
65  N.  W.  Rep.  78.  In  re  People's,  etc., 
Co.,  56  Minn.  180;  Minneapolis,  etc., 
Co.  v.  City  Bank,  66  Minn.  441,  38  L. 
R.  A.  415;  Farnsworth  v.  Wood,  91 
N.  Y.  308.  See  Minneapolis,  etc.,  Co. 
v.  Swinburne  Co.,  66  Minn.  378; 
Strutevant-Larrabee  Co.  v.  Mast,  etc., 
Co.,  66  Minn.  437.  After  the  courts 
held  that  the  statutory  liability  of 
stockholders  in  a  bank  could  not  be 
enforced  by  the  receiver  of  the  bank, 
the  legislature  enacted  a  statute  au- 
thorizing such  proceedings.  See  Gen. 
Laws  1897,  ch.  341.  The  complicated 
and  uncertain  proceedings  provided 
by  ch.  76,  Gen.  Laws  Minn.,  1887, 
have  now,  at  least  in  part,  been  super- 
Beded  by  ch.  272,  Gen.  Laws  1899, 
which  provides  a  proceeding  similar 
to  thai  of  tin'  national  banking  act. 
The  action  against  the  stockholders 
may  be  prosecuted  by  the  receiver,  or 
if  he  fails  to  act,  by  a  creditor  for  the 
benefit  of  all  the  creditors. 

1  Barper  v.  Carroll,  66  Minn.  487,69 
N.  W.  Rep.  610;  Van  Peltv.  Gardner, 
51    Neb.  701.    Under  the   Minnesota 


statute  one  creditor  can  not  maintain 
an  independent  action  at  law  against 
a  single  stockholder.  Hanson  v.  Da- 
vidson (Minn.),  76N.W.  Rep.  254.  In 
Western  Nat'l  Bank  v.  Reckless  (G. 
C.  N.  J.),  96 Fed.  Rep.  70,  Mr.  Justice 
Gray  said:  "We  must  assume  the 
correctness  of  the  statement  in  the 
declaration,  in  consideration  of  the 
demurrer,  that  under  the  Kansas 
constitution  and  laws,  and  the  con- 
struction put  upon  them  by  the  court 
of  last  resort  in  that  state,  an  action 
at  law  by  a  single  judgment  creditor, 
lies  against  a  single  stockholder  to  en- 
force the  liability  created  and  pro- 
vided for  by  said  constitution  and 
laws.  The  correctness  of  this  state- 
ment is  moreover  established  by  an 
examination  of  the  said  provisions." 
See  Mech.  Sav.  Bank  v.  Fidelity, 
etc.,  Co.,  87  Fed.  Rep.  113;  Dexter  v. 
Edmands,  89  Fed.  Rep.  467.  By  a 
Kansas  statute  enacted  in  1899,  the 
right  of  action  is  now  in  the  receiver. 
Sit  Kisse berth  v.  Prescott,  95  Fed. 
Rep.  357. 


§  579 


LIABILITY    OF    STOCKHOLDERS. 


641 


therefore  enforcible  wherever  the  stockholder  can  be  found,  if 
there  exists  an  appropriate  remedy  in  such  jurisdiction.  But 
the  courts  of  many  of  the  states  have  been  zealous  to  find 
technical  difficulties  in  the  way  of  a  plaintiff  who  sought  to 
collect  his  claim,  and  by  a  narrow  and  illiberal  construction 
have  practically  deprived  the  creditors  of  a  portion  of  the  se- 
curity, on  the  faith  of  which  their  debts  were  contracted.  This 
has  been  particularly  true  of  Massachusetts,  New  York1  and 


1  The  New  York  court  of  appeals  is 
the  only  court  which  has  had  the 
courage  to  state  the  true  reasons  for 
the  apparent  judicial  determination 
to  protect  their  citizens  from  liability 
growing  out  of  their  foreign  invest- 
ments. In  Marshall  v.  Sherman,  148 
N.  Y.  9,  34  L.  R.  A.  757,  O'Brien,  J., 
said :  "There  is  still  another  aspect  of 
the  question  which  deserves  attention, 
and  it  must  be  viewed  in  the  light  of 
notorious  facts,  which,  though  not 
appearing  in  the  record,  are  matters 
of  current  history  and  common  knowl- 
edge, to  which  we  can  not  shut  our 
eyes.  Within  recent  years  numerous 
business  enterprises  have  been  pro- 
moted in  some  of  the  western  states, 
the  money  for  the  prosecution  of 
which  has  been  to  a  large  extent  bor- 
rowed here,  either  in  the  form  of  di- 
rect loans  upon  some  kind  of  security, 
or  by  inducing  many  of  our  citizens  to 
purchase  stock  in  corporations  organ- 
ized for  the  purpose  under  local  laws. 
Much  of  these  investments,  amount- 
ing to  a  vast  sum  in  the  aggregate,  has 
been  lost.  This  result  is  in  some  de- 
gree to  be  attributed  to  financial  de- 
pression, and  the  consequent  derange- 
ment of  business,  but  in  a  much  greater 
degree  to  the  gross  mismanagement 
and  dishonesty  of  the  managers  and 
promoters.  The  funds  thus  procured 
have  been  used  largely  in  furtherance 
of  local  and  private  interests,  and  in 
41 — Private  Corp. 


disregard  of  every  prudent  safeguard 
for  the  protection  of  the  investors, 
and  sometimes  in  defiance  of  every 
principle  of  common  honesty.  In 
some  cases,  when  the  managei*s  well 
knew  they  were  hopelessly  involved, 
they  continued  to  transact  business, 
borrowing  recklessly  and  pledging  the 
assets  in  their  possession  or  under 
their  control.  When  the  crash  came 
these  assets  were  sold  by  the  pledgees, 
and,  of  course,  sacrificed  in  many 
cases,  leaving  large  deficiencies,  which 
honest  and  prudent  management  could 
have  converted  into  a  surplus.  A 
careful  investigation  of  some  of  the 
disastrous  failures  of  loan,  investment, 
trust,  land  and  mortgage  companies, 
as  well  as  banks  and  other  corpo- 
rations, will  reveal  this  condition 
of  things.  It  will  not  be  difficult 
for  speculators  to  purchase  large 
claims  against  these  defunct  corpora- 
tions at  a  very  low  price  if  they  can 
be  readily  enforced  here  against 
stockholders  who  have  made  and  lost 
investments  in  the  stock."  Any  re- 
spect which  this  statement  is  entitled 
to  must  be  reflected  from  the  great 
court  from  which  it  emanated.  It 
amounts  to  saying  to  the  citizens  of 
New  York:  You  may  invest  your 
money  in  the  stock  of  non-resident 
corporations  under  a  contract  by 
which  you  shall  receive  the  benefits 
and  share  the  burdens  equally  with 


642 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  580 


New  Hampshire;  although  very  recently  the  supreme  court 
of  Massachusetts1  has  reversed  its  former  decisions  and  adopted 
a  rule  more  consonant  with  justice  and  the  comity  which 
should  exist  between  states  of  the  Union .  This  departure  is 
in  line  with  the  present  tendency  of  judicial  decisions,  partic- 
ularly in  the  federal  courts. 

§  580.  Proceedings  iii  the  federal  courts.— The  federal 
courts  have  been  much  more  inclined  to  enforce  the  statutory 
liability  of  stockholders  than  the  state  courts.  The  right  to  en- 
force such  liability  presents  a  question  of  general  law  on  which 
the  federal  courts  follow  their  own  precedents.2  Thus,  the  fed- 
eral court  refused  to  follow  the  decision  of  the  court  of  appeals 
of  New  York,  which  held  that  the  liability  under  the  Kansas 
statute  could  not  be  enforced  in  New  York.  ''The  declining  of 
jurisdiction  by  those  courts,"  said  Wheeler,  J.,3  "can  not,  how- 


your  associates.     If  all  goes  well,  and 
your  agents  and  managers  prove  pru- 
dent and  honest,  the  gain  is  yours. 
If  you  select  dishonest  or  incapable 
managers  of  your  business,  and  the 
enterprise  fails,  this  court,  although 
these  matters  are  not  pertinent  in  a 
case  where  a  party  is  seeking  to  en- 
force a  clear  legal  right,  will  see  that 
all  the  loss  shall  fall  upon  your  asso- 
ciates who  reside  in  the  foreign  state. 
The   foreign   state   will,    through    its 
comity,  see  that  you  secure  the  prof- 
its, if  there  are  any  ;  and  we  will  pro- 
tect you  against  the  "injustice"  of  be- 
ing required  to  pay  your  share  of  the 
losses.     In  commenting  upon  this  de- 
cision,  Judge    Aldrich,   in    Hale   v. 
Bardon,  95  Fed.  Rep.  747,  says:  "We 
can  not  adopt  this  view  for  the  reason 
that  in  judicial    proceedings,  except 
where  the  question  of  fraud  or  reck- 
less  management  is  made  an  issue, 
suet)  considerations  are  contrary  to 
principle,  in  the  direction  of  repudia- 
tion, subversive  of  judicial  right  and 
of  justice,  and   fraught   with   danger 
to  the  idea  of  permanent  and  uniform 


rule.  A  judicial  result  influenced  by 
such  considerations  can  stand  neither 
the  test  of  the  rule  of  right  nor  of  the 
requirements  of  prudence.  In  the 
next  decade  the  stockholders  may  re- 
side in  the  west  and  the  creditors  in 
the  east.  In  the  next  case,  the  cred- 
itors may  reside  in  the  east  as  well  as 
the  stockholders ;  or,  as  in  the  pres- 
ent case,  the  creditors  may  be  scat-* 
tered  over  many  states.  It  is  not  a 
question  where  the  pecuniary  inter- 
ests are,  but  a  question  of  right— a 
question  whether  an  unquestioned 
liability  shall  be  enforced  outside  of 
the  parent  forum  after  all  has  been 
done  there  that  can  be  done,  or 
whether  the  unquestionable  right 
shall  exist  without  a  remedy." 

1  Hancock  Nat'l  Bank  v.  Ellis,  166 
Mass.  414,  and  172  Mass.  39;  Stebbins 
v.  Scott,  172  Miss.  356. 

2 Texas,  etc.,  R.  Co.  v.  Cox,  145 
IT.  S.  593,  614 ;  Flash  v.  Conn,  109  U.  S. 
371. 

■Bank  v.  Whitman,  76  Fed.  Rep. 
697,  ")1  U.  S.  App.  536. 


§  580  LIABILITY    OF    STOCKHOLDERS.  643 

ever,  take  from  this  court  what  properly  belongs  to  it,  and  the 
decision  of  what  belongs  to  this  must  ultimately  be  determined 
by  the  supreme  court  of  the  United  States.  The  decisions  of 
that  court  must  be  followed  here,  as  understood."  From  the 
recent  federal  decisions  '  the  following  general  principles  may 
be  deduced.  First,  a  contractual  liability  imposed  upon  stock- 
holders by  the  laws  of  the  corporate  domicile  is  enforcible  in 
any  federal  court  wherein  jurisdiction  of  the  parties  can  be 
obtained.  Second,  the  nature  or  character  of  "the  liability  im- 
posed, whether  to  the  creditors  severally  and  individually  or 
in  common,  involves  the  interpretation  of  the  law  of  the  cor- 
porate domicile,  and  the  interpretation  by  the  courts  of  the 
domicile  will  be  accepted  by  the  federal  courts.  Third,  where 
the  laws  of  the  corporate  domicile  provide  a  remedy  for  the 
enforcement  of  the  right,  it  will  be  adopted  and  applied  by  the 
federal  court,  so  far  as  consistent  with  their  own  rules  of  pro- 
cedure. In  a  recent  case  in  the  court  of  appeals,2  it  was  said: 
"We  may  well  observe  at  the  outset  that  for  many  years  the 
steady  trend  of  federal  decision  has  been  in  the  direction  of 
upholding  and  enforcing  extraterritorially  this  class  of  liabili- 

1  Fourth  Nat'l  Bank  v.  Francklyn,  refer,  in  this  connection,  to  the  more 
120  U.  S.  747;  Flash  v.  Conn,  109  recent  cases  in  the  U.  S.  courts,  of 
U.  S.  371;  Rhodes  v.  Bank,  24  U.  S.  Rhodes  v.  Bank,  24  U.  S.  App.  607; 
App.  (7th  Cir.)  607,  66  Fed.  Rep.  512,  Whitman  v.  Bank,  28  C.  C.  A.  404; 
34  L.  R.  A.  742;  Whitman  v.  Bank,  Elkhart  Nat'l  Bank  v.  Northwestern, 
83  Fed.  Rep.  288,  28  C.  C.  A.  404  (2d  etc.,  Co.,  87  Fed.  Rep.  252;  Dexter  v. 
Cir.) ;  National  Bank  v.  Whitman,  Edmands,  89  Fed.  Rep.  467,  and  to 
76  Fed.  Rep.  697 ;  American,  etc.,  Co.  the  more  recent  decisions  of  the  state 
v.  Woodworth,  79  Fed.  Rep.  951,  82  courts,  as  showing  the  present  ten- 
Fed.  Rep.  269;  McVickar  v.  Jones,  70  dency  of  judicial  decisions  in  such 
Fed.  Rep.  954;  Bank  v.  Rindge,  57  jurisdictions.  Bagley  v.  Tyler,  43  Mo. 
Fed.  Rep.  279;  Hale  v.  Hardon,  95  App.  195;  Guerney  v.  Moore,  131  Mo. 
Fed.  Rep.  747  (U.  S.  App.,  1st  Cir.) ;  650;  Ferguson  v.  Sherman,  116  Cal. 
Brown  v.  Trail,  89  Fed.  Rep.  641.  169;  Cushing  v.  Perot,  175  Pa.  St.  66; 

2  Hale  v.  Hardon,  95  Fed.  Rep.  747.  Hancock  Nat'l  Bank  v.  Ellis,  172 
Judge  Aldrich  said:  "It  does  not  Mass.  39,  and  the  admirable  opinion 
seem  necessary  to  refer  to  the  numer-  of  Chief  Justice  Field  in  that  case, 
ous  decisions  of  the  supreme  court  and  to  the  exceedingly  well-reasoned 
and  those  of  the  various  circuit  courts  cases  of  Western  Nat'l  Bank  of  New 
of  appeal,  and  of  the  circuit  courts  so  York  v.  Lawrence  (Mich.),  76  N.  W. 
often  cited,  which  sustain  the  general  Rep.  105,  and  Bell  v.  Farwell,  176  111. 
proposition.  We  shall,  therefore,  only  489,  52  N.  E.  Rep.  346." 


644  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  581 

ties  according  to  the  fair  intendment  of  the  local  law  in  cases 
properly  within  the  provisions  thereof,  except  where  enforce- 
ment would  unreasonably  interfere  with  local  vested  creditor's 
interests  in  states  where  enforcement  is  sought  extraterri- 
torially  on  grounds  of  comity,  and  perhaps  in  some  cases, 
where  such  enforcement  would  offend  the  general  public  policy 
of  the  state,  while  among  the  courts  of  the  states  there  has 
been  a  diminishing  diversity  of  decisions  upon  questions  grow- 
ing out  of  such  statutory  liabilities."  The  federal  courts  sit- 
ting in  a  state  are  bound  by  a  valid  statute  of  the  state  which 
forbids  the  courts  of  the  state  to  entertain  actions  of  this  char- 
acter. But  such  a  statute  of  New  Jersey  was  held  unconstitu- 
tional in  so  far  as  it  applied  to  a  creditor  of  a  corporation  of 
a  foreign  state  who  was  given  by  its  laws  a  personal  right  of 
action  against  any  one  of  its  stockholders  for  the  collection  of 
his  debt.  The  creditor  had,  prior  to  the  passage  of  the  act, 
not  merely  as  a  matter  of  comity,  but  under  the  general  prin- 
ciples of  jurisprudence,  a  remedy  for  the  enforcement  of  his 
contract  in  the  courts  of  New  Jersey  of  which  he  was  deprived 
by  the  act.1 

§  581.  Decisions  in  various  states — Massachusetts. — Each 
state  pursues  what  it  regards  as  the  best  public  policy  in  the 
matter  of  enforcing  the  liability  imposed  upon  its  citizens  by  the 
laws  of  other  states.  It  is  admitted  in  all  cases  that  one  who 
becomes  a  member  of  a  foreign  corporation  subjects  himself  to 
the  laws  of  the  foreign  state  as  regards  his  rights  and  liabili- 
ties. The  enforcement  of  his  liabilities  must,  however,  be 
governed  by  the  laws  of  his  domicile  unless  personal  service  can 
be  obtained  upon  him  in  the  state  of  the  corporate  domicile.  The 
federal  courts  enforce  the  stockholders'  liability  in  cases  within 
their  jurisdiction,  and  there  is  a  tendency  in  the  same  direction 
on  the  part  of  the  state  courts.  The  nature  of  the  liability,  as 
determined  by  the  courts  of  the  state  of  the  corporate  domicile, 
will  generally  be  accepted  as  conclusive  by  the  courts  of  other 
states,  and  a  liability  declared  to  be  contractual  will  be  enforced 
whenever  jurisdiction  over  the  person  or  property  of  the  stock- 
1  Western   Nat'l    Banfc   v.  Reckless,  96  Fed.  Rep.  70. 


§  581  LIABILITY    OF    STOCKHOLDERS.  645 

holder  can  be  obtained  unless  some  question  of  procedure  is 
involved.  The  diversity  of  decisions  is  so  great  that  general 
rules  can  not  be  formulated,  and  the  question  must  be  deter= 
mined  by  a  careful  study  of  the  decisions  of  the  state  in  ques- 
tion. Some  of  the  states  which  have  been  most  strict  in  re- 
fusing a  remedy  to  the  foreign  creditor  against  the  domestic 
stockholder  have  recently  changed  front  and  come  into  line 
with  the  federal  courts.  Thus  in  a  comparatively  recent  case 
in  Massachusetts  the  court  said  that  "the  question  can  hardly 
be  considered  as  an  open  one  in  this  commonwealth.  This 
court  has  often  declined  to  exercise  jurisdiction  to  enforce  a 
liability  imposed  upon  stockholders  in  corporations  established 
in  other  states  under  statutes  of  these  states."1  The  decisions 
were  placed  upon  the  ground  that  "it  is  a  suit  against  a  foreign 
corporation  which  involves  the  relation  between  it  and  its  stock- 
holders and  in  which  complete  justice  can  only  be  done  by  the 
courts  of  the  jurisdiction  where  the  corporation  was  created."2 
But  in  a  later  case,  this  court  held  that  an  action  by  a 
creditor  to  enforce  the  liability  of  a  stockholder  under  the 
Kansas  statute,  is  transitory,  and  may  be  brought  in  any 
court  of  general  jurisdiction  over  similar  actions  in  any  state 
or  country,  where  service  can  be  made  according  to  the  law 
of  the  place.3  The  action  was  by  a  single  judgment  cred- 
itor against  a  single  stockholder.  In  the  course  of  an  admir- 
able decision,  Chief  Justice  Field  said:  "The  courts  of  Kansas, 
from  the  nature  of  the  question,  can  never  directly  decide  that 
the  liability  of  a  non-resident  stockholder  under  the  general 
statutes  of  Kansas  is  one  that  may  be  enforced  in  any  court  of 
general  jurisdiction  in  any  other  state  or  country  where  per- 

1  Bank  of  North  America  v.  Rindge,  Erickson  v.  Nesmith,  4  Allen  (Mass.) 

154  Mass.  203 ;  New  Haven  Nail  Co.  v.  233. 

Linden  Spring  Co.,  142  Mass.  349;  Post  2  Post  &  Co.  v.  Toledo,  etc.,  R.  Co., 

&  Co.  v.  Toledo,  etc.,  R.  Co.,  144  Mass.  144  Mass.  341,  59  Am.  Rep.  86. 

341,  59  Am.  Rep.  86;  Kansas,  etc.,  Co.  3  Hancock  Nat'l  Bank  v.  Ellis,  172 

v.  Topeka,  etc.,  R.  Co.,  135  Mass.  34,  46  Mass.  39,  42  L.  R.  A.  396,  55  Am.  St. 

Am.  Rep.  439;  Halsey  v.  McLean,  12  Rep.  414.     See,  also,  Aldrich  v.  An- 

Allen  (Mass.)  438,  90  Am.  Dec.  157  ;  chor,  etc.,  Coal  Co.,  24  Ore.  32,  41  Am, 

Penobscot,  etc.,  R.  Co.  v.  Bartlett,  12  St.  Rep.  831,  and  note. 
Gray  (Mass.)  244,  71  Am.  Dec.  753; 


646  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  581 

sonal  service  can  be  made  upon  the  stockholder.  Only  courts 
of  other  jurisdictions  can  decide  that  question.  The  courts  of 
Kansas  can  only  express  an  opinion  to  that  effect  if  they  enter- 
tain it  in  cases  before  them,  as  one  of  the  reasons  for  the  judg- 
ment they  render  in  those  cases.  That  opinion  the  supreme 
court  of  Kansas  has  expressed.1  *  *  *  The  courts  of  the 
United  States  inferior  to  the  supreme  court  have  uniformly 
held  that  the  liability  under  the  statutes  of  Kansas  which  we 
are  considering  can  be  enforced  against  a  stockholder  in  any 
state  or  district  where  he  can  properly  be  served  with  process.2 
These  decisions  are  in  accordance  with  the  principles  of  the  de- 
cisions of  the  supreme  court  of  the  United  States  with  reference 
to  statutes  of  other  states  somewhat  similar  to  those  of  Kansas.3 
The  decisions  of  state  courts  other  than  those  of  Kansas  are 
not  uniform  upon  the  questions  whether  the  statutory  liability 
of  a  stockholder  to  creditors  of  the  corporation  under  these  stat- 
utes of  Kansas  can  be  enforced  by  a  suit  against  the  stock- 
holder in  any  state  where  he  resides  and  can  be  served  with 
process."4  After  stating  the  rule  that  the  action  can  not  be 
maintained  where  the  foreign  statute  creates  as  pecial  remedy, 
the  court  said:  "When  the  liability  is  distinctly  imposed  by 
statute  upon  the  stockholders  severally,  it  would  be  unfortu- 
nate if  it  should  not  be  enforced  against  stockholders  not  resi- 
dent within  the  state  under  whose  laws  the  corporation  has  been 

'Howell  v.    Manglesdorf,  33  Kan.        s  Flash    v.  Conn,    109    TJ.    S.    371; 

194.  Huntington  v.  Attrill,  146  U.  S.  657. 

'  Whitman  v.  National  Bank,  51  U.        4  In  favor  of  the  doctrine  are  Guer- 

S.  App.  536,  83  Fed.  Rep.  288,  28  C.  C.  ney  v.  Moore,  131  Mo.  650;  Bagley  v. 

A.   404,   affirming   National   Bank  v.  Tyler,  43  Mo.  App.  195.  See  Ferguson 

Whitman,  76  Fed.  Rep.  697;    Brown  v.  Sherman,  116  Cal.  160,37  L.  R.  A. 

v.  Trail,  89  Fed.  Rep.  641 ;    American,  622;  Gushing  v.  Perot,  175  Pa.  St.  66, 

etc.,  Oo.  v.  Woodworth,  7!)  Fed.  Rep.  34  L.  R.  A.  737;  Bell  v.  Farwell,  176 

951,  82  Fed.  Rep.  269;    McVickar  v.  111.489.  Contra  are  Fowler  v.  Lam  son, 

Jones,  70  Fed.  Rep.  754;  Rhodesv.  U.  146  111.  472,  37  Am.  St.  Rep.  163,  and 

8.  Nat'l    Bank,  66  Fed.  Rep   512,  13  monographic  note;  Tuttle  v.  National 

C.  C.  A.  612,  34    L.  R.  A    712;    Bank,  Bank  of  the  Republic,  161  111.  497,  34 

etc.,  v.  Rindge,  57  Fed.  Rep.  279.     Sec  L.  R.  A.  750.    But  see  Bell  v.  Farwell, 

Auer  v.  Lombard,  33  U.  8.  App.  438,  176  111.  489,  and  Hancock  Nat'l  Bank 

72  Fed.  Rep.  209,  L9  C.  C.  A.  72;  Me-  v.  Farnuro  (II.  I.  App.  1898), 40  Atl. 

chanics'  Sav.  Bunk  v.  Fidelity,  p'c,  Rep.  341. 
Co.,87  Fed.  Rep.  113 


§  582  LIABILITY    OF    STOCKHOLDERS.  647 

established,  for  the  reason  that  due  process  could  not  be  served 
on  them  within  the  state,  and  the  courts  of  the  state  where 
they  reside  would  not  take  jurisdiction  of  suits  to  enforce  the 
liability.  It  certainly  concerns  the  due  administration  of  jus- 
tice that  non-resident  stockholders  should  be  compelled  by  pro- 
ceedings somewhere  to  perform  the  statutory  obligations  toward 
creditors  of  the  corporation  which  they  have  assumed  by  becom- 
ing stockholders.  *  *  *  The  courts  of  Kansas  hold  that 
the  action  must  be  against  the  stockholders  severally,  and  not 
jointly.  *  *  *  The  creditor  can  by  action  collect  the  amount 
of  his  judgment  remaining  unpaid  of  any  stockholder  'to  any 
extent  equal  to  the  amount  of  stock  by  him  or  her  owned,  to- 
gether with  any  amount  unpaid  thereon.'  The  stockholder  is 
discharged,  as  against  all  creditors  of  the  corporation,  when 
he  has  paid  the  debts  of  the  corporation  to  this  extent.  We  are 
unable  to  see  in  what  manner  the  enforcement  of  these  statutes 
by  the  courts  of  Massachusetts  against  stockholders  resident 
here,  at  the  instance  of  a  creditor  of  the  corporation,  does  any 
injustice  to  the  citizens  of  Massachusetts."  The  court  dis- 
sented from  the  view  of  the  Pennsylvania  court1  that  the  lia- 
bility passed  to  the  receiver  of  the  corporation  as  an  asset  and 
could  be  enforced  by  him. 

§  582 .    Decisions  in  New  Hampshire,  New  York  and  Illinois. — 

In  a  late  case  in  New  Hampshire  it  was  held  that  the  liability 
imposed  by  the  Kansas  constitution  and  statutes  could  not  be 
enforced  in  that  state.2  The  court  said:  "The  question  of  the 
enforcement  of  the  laws  of  a  foreign  state  is  not  a  question  of  com- 
ity to  that  state,  but  of  the  power  of  the  courts  of  the  former.  No 
court  has  any  authority  or  power  except  such  as  is  conferred  up- 
on it  by  the  organic  law  or  the  statutes  of  the  state  that  creates 
it. ' '  The  liability  was  held  to  be  "statutory ' '  and  not  contractual. 
"The  provision  of  the  Kansas  constitution  referred  to  is  plainly 
not  self-executing  and  of  itself  creates  no  liability  whatever. 
The  only  real  basis  of  the  plaintiff's  right  of  action,  legal, 
moral,  or  equitable,  is  the  fiat  of  the  Kansas  legislature,  for  if 

1  Cushing  v.  Perot,  175  Pa.  St.  66,  34       2  Grippin,  etc.,  Co.  v.  Laighton,  (N. 
L.  R.  A.  737.  H.),  44  Atl.  Rep.  538. 


648  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  582 

it  be  conceded  (contrary  to  the  fact  as  we  understand  it), 
what  the  courts  of  that  state  have  directly  held,  that  the  relation 
as  stockholder  to  creditors  is  contractual,  the  holding  is 
properly  to  be  regarded  as  a  decision  on  general  legal  princi- 
ples merely,  and  as  such  not  binding  upon  us.  *  *  * 
The  alleged  obligations  of  the  defendant  as  a  stockholder  of 
the  corporation  are  essentially  different  from  those  which 
arise  in  this  state  from  that  relation,  and  furthermore,  the 
plaintiffs  properly  concede  that  their  form  of  procedure  should 
have  been  by  an  action  at  law.  *  *  *  Not  only  are  the 
Kansas  statutes  relating  to  the  liability  of  the  stockholders 
and  its  enforcement  radically  different  in  theory  and  practice 
from  ours,  but  there  is  no  way  in  which  they  can  be  enforced 
here,  so  as  to  secure  substantial  justice  according  to  the  New 
Hampshire  understanding  and  interpretations  of  that  term. 
The  practical  difficulties  are  numerous,  patent  and  insuperable. ' ' 
New  York  also  refuses  to  allow  the  liability  imposed  by  the 
Kansas  statute  to  be  enforced  in  her  courts.1  A  creditor, 
after  obtaining  a  judgment  against  the  insolvent  corporation, 
and  receiving  part  payment  thereof  from  the  receiver  of  the 
corporation,  brought  an  action  at  law  against  a  stockholder 
residing  in  New  York  to  recover  the  balance.  The  com- 
plaint set  out  the  provisions  of  the  constitution  and  statutes 
of  Kansas  and  the  defendant  demurred.  It  was  held  that 
the  constitutional  provision  was  not  self-executing;  that  the 
statutory  liability  was  not  primary  and  contractual;  and  that 
the  liability  could  only  be  enforced  at  the  domicile  of  the  cor- 
poration by  the  remedy  provided  by  the  statute.  "If  under 
any  circumstances  the  action  could  be  maintained  in  this  ju- 
risdiction it  must  be  in  such  a  form  and  by  such  modes  of  pro- 
cedure as  like  liabilities  created  under  our  statutes  are  en- 
forced against  our  citizens.  *  *  *  It  is  quite  well  estab- 
lished that  in  a  case  like  this  an  action  at  law  by  a  single 
creditor  against  a  single  stockholder  for  the  recovery  of  a  spe- 
cific sum  of  money  can  not  be  maintained  in  our  courts,  un- 
der our  statutes   declaring  the   liability   of   stockholders.     In 

1  Marshall  v.  Sherman,  148  N.  Y.  9,  32  L.  R.  A.  757,  51  Am.  St.  Rep.  654. 


§  582  LIABILITY    OF    STOCKHOLDERS.  649 

such  cases  the  liability  must  be  enforced  in  equity  in  a  suit 
brought  by  and  in  behalf  of  all  the  creditors  against  all  the 
stockholders,  wherein  the  amount  of  the  liability  and  all  the 
equities  can  be  ascertained  and  adjusted.  *  *  *  It  would, 
perhaps,  be  impossible  to  state  the  principle  upon  which  the 
decision  should  rest  without  apparently  coming  in  conflict  with 
some  of  the  numerous  cases  on  the  subject  at  some  point.  The 
great  weight  of  authority,  as  will  be  seen,  is  against  the  right 
to  maintain  such  an  action."  A  later  case  in  New  York  grew 
out  of  an  attempt  to  enforce  the  liability  under  the  laws  of 
Washington.  The  court  of  the  corporate  domicile  adjudged 
the  corporation  insolvent,  appointed  a  receiver,  ascertained  the 
deficiency,  ordered  an  assessment  against  the  stockholders  and 
directed  the  receiver  to  collect  the  assessments  by  suits  in  foreign 
jurisdictions  where  personal  service  could  be  obtained  on  the 
stockholders.  The  receiver  represented  all  the  creditors,  and 
the  fund  resulting  from  the  enforcement  of  the  liability  was  for 
the  benefit  of  all  the  creditors  and  became  a  part  of  the  prop- 
erty in  the  hands  of  the  corporation.1  The  receiver  was  al- 
lowed to  maintain  an  action  in  New  York  against  a  resident 
stockholder.2 

Illinois  refused  to  enforce  the  same  constitutional  and  statu- 


1  See  Cole  v.  Satsop  R.  Co.,  9  Wash,  the  laws  of  that  state,  and  that  from 
487.  the  whole  structure  of  them  it  is  ap- 

2  Howarth  v.  Angle,  25  Misc.  Rep.  parent  that  they  were  intended  to 
(N.  Y.)  551.  Affirmed  in  39  App.  Div.  operate  and  be  enforced  only  within 
151, where  the  court  skid :  "The  learned  that  jurisdiction.  We  think  that  case 
counsel  for  appellant  calls  our  atten-  is  distinguishable  from  the  one  in 
tion  to  Marshall  v.  Sherman,  148  N.  Y.  hand.  In  the  case  in  hand  the  lia- 
9.  That  action  was  brought  by  a  cred-  bility  of  the  defendant  has  been  judi- 
itor  of  the  Miltonvale  State  Bank,  a  cially  ascertained  and  declared,  and 
corporation  organized  under  the  laws  the  receiver  represents  all  the  credit- 
of  Kansas,  and  the  questions  there  ors,  and  is  seeking  to  maintain  an 
considered  arose  upon  a  demurrer  action  against  the  defendant  upon  his 
to  the  sufficiency  of  the  complaint,  statutory  liability  as  stockholder  of 
In  the  course  of  the  opinion  delivered  the  insolvent  corporation.  The  course 
in  that  case,  it  was  said  that  the  stat-  pursued  by  the  receiver  is  like  the 
utes  of  Kansas  provided  for  a  special  course  provided  for  the  enforcement 
and  peculiar  remedy  against  the  stock-  of  liability  of  stockholders  in  this 
holders  of  a  corporation  created  under  state." 


650  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  583 

tory  provisions  on  similar  ground.  The  proceedings  were  in 
the  same  form  as  in  the  New  York  case.  It  was  held  that  the 
Kansas  statute  provided  a  special  remedy  for  the  enforcement 
of  the  liability,  and  that  comity  did  not  require  the  application 
of  this  remedy  in  another  state  which  had  a  different  and  in- 
consistent method  of  procedure.1  But  in  a  late  case,  where  the 
declaration  alleged  that  under  the  laws  of  Kansas  as  interpreted 
by  the  highest  court  of  that  state,  an  action  at  law  could  be 
maintained  by  a  single  creditor  against  a  single  stockholder, 
it  was  held  on  demurrer  that  an  action  can  be  maintained  in 
Illinois  without  first  proceeding  in  equity  in  Kansas.2  In  the 
former  case  the  court  had  determined  the  construction  to  be 
given  the  Kansas  statute  for  itself. 

In  Michigan  it  was  held  that  the  liability  under  the  same 
statute  is  individual  to  the  creditor,  is  transitory  and  enforcible 
whenever  service  can  be'had.3  In  Pennsylvania  it  was  said 
that  the  liability  under  the  same  statute  was  contractual  and 
passed  to  a  receiver  of  the  corporation  as  an  asset,  and  that  the 
right  to  sue  a  stockholder  in  that  state,  if  it  existed,  was  in  the 
receiver.4 

§  583.    Where  a  special  statutory  remedy  is  provided. — It  is 

the  settled  rule  that  a  special  remedy  for  the  enforcement  of 
the  liability  of  the  stockholder,  provided  by  the  laws  of  the 
state  of  the  corporate  domicile,  will  not  on  grounds  of  comity 
be  enforced  in  the  courts  of  another  state  which  has  a  different 
and  inconsistent  procedure  for  the  enforcement  of  such  liabil- 
ities, when  it  will  result  in  injustice  to  the  citizens  of  the  latter 
state.5  There  can  be  no  objection  to  this  general  rule,  if  "in- 
justice "  is  not  so  construed  as  to  apply  to  the  act  of  requiring 
the  citizens  of  such  state  to  comply  with  their  contract  obliga- 

1  Tuttle  v.  Nat'l  Bank  of  theRepub-  5May  v.  Black,  77  Wis.  101 ;  First 
lie,  161  111.  497.  Nat'l  Bank   v.   Gustin,   etc.,  Co.,   42 

2  Bell  v.  Farwell,  176  111.  489,  52  N.  Minn.  327,  6  L.  R.  A.  676,  18  Am.  St. 
E.  Rep.  346,  68  Am.  St.  Rep.  194.  Rep.  510;    Hancock    Nat'l   Bank   v. 

Bank  v.    Lawrence  (Mich.),  76  N.  Ellis,  172  Mass.  39,  42  L.  R.  A.  396; 

W.  Rep.  105.  Bank  v.  Rindge,  154  Mass.  203,  13  L„ 

'Cashing  v.  Perot,  175  Pa.  St.  66,  R.  A.  56;  Coffing  v.  Dodge,  167  Mass. 

34  L.  R.  A.  737.  231. 


§  584  LIABILITY    OF    STOCKHOLDERS.  651 

tions.  Where  it  was  sought  to  enforce  the  liability  under  the 
Kansas  constitution  in  Illinois  the  court  said:1  "In  this  case 
the  right  to  recover  rests  on  the  statute  of  the  state  of  Kansas 
alone,  as  the  constitutional  provision  is  not  self-enforcible, 
and  the  liability  is  only  attempted  to  be  made  resultant  from 
legislation  providing  a  special  remedy  and  by  the  construction 
placed  on  that  legislation  by  the  courts  of  that  state.  The 
statutes  of  the  state  of  Kansas  have  no  force  and  effect  in  an- 
other state,  and  the  enforcement  of  a  remedy  in  this  action  in 
this  state  depends  upon  our  express  or  tacit  assent,  which  is 
usually  expressed  as  the  comity  between  states.  The  extent  to 
which  this  principle  of  comity  may  proceed  is  subject  to  quali- 
fications and  restrictions  which,  in  almost  all  cases,  are  to  be 
determined  by  the  particular  sovereignty.  A  remedy  special  to  a 
particular  foreign  state  is  not  by  any  principle  of  comity  in- 
forcible  here,  and  must  be  applied  within  the  jurisdiction  of 
the  domicile  of  the  corporation.  *  *  *  Each  state  deter- 
mines its  method  of  procedure  in  its  courts  and  their  jurisdic- 
tions. In  this  there  is  neither  injustice  nor  hostility  to  a  sister 
state.  But  it  would  be  hostile  to  every  principle  of  sovereignty 
to  be  compelled  to  import  into  this  state  the  peculiar  remedies 
and  various  special  methods  of  procedure  invented  by  the  leg- 
islation of  the  various  states.  This  principle  has  been  vari- 
ously recognized . ' '  This  rule  was  recently  applied  in  California 2 
in  an  action  brought  to  enforce  the  liability  imposed  by  the 
statutes  of  Illinois,  which  made  a  transferrer  of  shares  liable 
for  the  debts  of  the  corporation  to  the  extent  of  the  amount  un- 
paid on  the  stock  and  provided  a  special  remedy  for  collecting 
the  debt  by  way  of  garnishment. 

§  584.    Where  no  statutory  remedy  is  provided. — When  the 
legislature  creating  a  corporation  declares  that  the  stockhold- 

JTuttle  v.  National  Bank  of  the  Re-  39  Mich.  594;  Barrick  v.  Gifford,  47 

public,  161  111.  497,  34  L.  R.  A.  750,  Ohio  St.  180;  Smith  v.  Huckabee,  53 

citing  Young  v.  Farwell,  139  111.  326;  Ala.   191 ;  Terry  v.   Little,  101  IT.  S. 

Patterson  v.  Lynde,  112  111.  196;  May  216;  National  Tube  Works  v.  Ballou, 

v.  Black,  77  Wis.  101 ;  Nirnick  v.  Min-  146  U.  S.  517. 

go,  etc.,  Co.,  25  W.  Va.  184;    Allen  v.  2  Russell  v.  Pacific  R.  Co.,  113  Cal. 

Walsh,  25  Minn.  543;  Peck  v.  Miller,  258,  34  L.  R.  A.  747. 


652  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  585 

ers  therein  shall  be  individually  liable  for  the  debts  of  the  cor- 
poration under  certain  circumstances,  but  fails  to  provide  a 
method  of  procedure  by  which  the  liability  shall  be  enforced, 
it  is  generally  held  that  it  can  be  enforced  in  another  state, 
according  to  the  procedure  of  the  forum.  In  California  it 
was  recently  said,  in  considering  an  Illinois  statute:1  "It  is 
contended  that  the  statute  "merely  creates  a  liability  which  is 
in  the  nature  of  a  contract  liability  and  which  is  enforcible 
wherever  the  stockholder  can  be  found.  The  general  rule  upon 
this  subject  is  very  well  established.  Where  a  statute  creates  a 
right  and  prescribes  a  remedy  for  its  enforcement,  that  remedy 
is  exclusive.  Where  a  liability  is  created  which  is  not  penal, 
and  no  remedy  is  prescribed,  the  liability  may  be  enforced 
wherever  the  person  is  found.  The  procedure  will,  however, 
be  entirely  governed  by  the  law  of  the  forum.  If  the  law 
creating  a  liability  provides  for  a  particular  mode  of  enforcing 
it,  the  mode  limits  the  liability.  If  it  be  a  contract  the  par- 
ties here  contracted  with  the  understanding  that  they  can  be 
held  liable  in  no  other  way,2  and  such  a  liability  can  not  be 
enforced  in  another  state."3 

§  585.  Ancillary  proceedings. — Where  the  statutes  of  the 
corporate  domicile  provide  for  proceedings  of  an  equitable 
nature  for  the  determination  and  enforcement  of  the  statutory 
liability  of  stockholders,  it  is  generally  held  that  the  remedy  is 
exclusive,  and  that  no  proceedings  can  be  maintained  against 
the  stockholders  resident  in  a  foreign  jurisdiction.  But  in  a 
recent,  case,  the  United  States  Court  of  Appeals  in  the  First 
Circuit  approves  a  proceeding  which  is  very  satisfactory,  and, 
if  adhered  to,  will  render  it  comparatively  easy  to  enforce  such 

1  Russell  v.  Pacific  R.  Co.,  113  Cal.    36  Am.   Rep.  643;    Erickson  v.  Nes- 

34    L.   B.   A.  747.     But  see  Mar-  mith,  4  Allen  (Mass.)  233.    See  Hodg- 

sh;ill  v.  Sherman,  148  N.  Y.  9.  son  v.Cheever,  8  Mo.  App.318;  Paine 

2  Fourth  Nat'l  Bank  v.  Francklyn,  v.  Stewart,  33  Conn.  516;  Aldrich  v. 
120  f.  S.  747.  Anchor,  etc.,  Co..  24  Ore.  32;   Bice  v. 

•Young  v.    Farwell,    139   111.  320;  Merrimac,  etc.,Co.,56N.  H.  114.  But 

Banh  v.  Bindge,  L54  Mans.  203,  13  L.  see  Hancock   Nat']  Bank  v.  Ellis,  172 

R.  A.  56;  Fowler  v.  Lamson,  L46  III.  Mass.  3'.),  and  Bell  v.  Farwell,  176111. 

472;  Jessup  v.  Carnegie,  80  N.  V.  ill,  489. 


§  585  LIABILITY    OF    STOCKHOLDERS.  653 

liability  in  the  federal  courts.  Under  the  self-executing  pro- 
vision of  the  Minnesota  constitution,  it  is  held  by  the  courts  of 
the  state  that  the  liability  is  contractual,  and  that  the  cumber- 
some method  provided  for  its  enforcement  is  of  an  equitable 
nature.  In  proceedings  under  the  statutes,  a  receiver  was 
appointed  to  enforce  the  judgments  entered  against  the  stock- 
holders, with  authority  to  proceed  against  the  non-resident 
stockholders  not  served  in  the  original  proceeding.  This  re- 
ceiver was  distinct  from  the  receiver  in  the  general  insolvency 
proceedings.  An  action  was  commenced  in  the  United  States 
District  Court  in  Pennsylvania  by  one  of  the  creditors  who  had 
obtained  judgment  against  the  corporation  in  Minnesota  in  the 
sequestration  proceedings.  The  corporation  and  all  the  stock- 
holders residing  in  Pennsylvania  were  made  defendants,  but 
the  action  was  dismissed  on  the  ground  that  the  corporation 
was  a  necessary  defendant,  and  that  the  court  had  no  jurisdic- 
tion over  it.  The  decision  was  affirmed  by  the  court  of  appeals, 
which,  however,  intimated  an  auxiliary  bill  might  be  the 
proper  remedy  in  another  jurisdiction.1 

An  action  at  law  was  also  commenced  by  the  receiver  in  the 
United  States  Circuit  Court  for  Massachusetts  against  the 
stockholders  within  the  jurisdiction  of  that  court.  It  was 
brought  on  the  theory  that  the  stock  liability  created  by  the 
statute  was  in  the  nature  of  a  trust  fund  primarily  confided  to 
the  court  of  the  jurisdiction  of  the  corporate  domicile;  and 
that  that  court  alone  had  jurisdiction  to  entertain  the  pro- 
ceedings necessary  to  determine  the  necessity  for  and  the 
extent  to  which  the  fund  should  be  resorted  to  by  creditors. 
Such  an  ancillary  proceeding  has  no  equitable  features  and  was 
hence  brought  at  law  in  the  name  of  the  receiver.2  In  this 
instance  the  court  of  the  corporate  domicile  had  said  :3  "As 
the  amount  and  the  par  value  of  the  stock  issued  and  out- 
standing is  a  matter  of  record,  and  readily    proven  in  any 

1  Elkhart  Nat'l  Bank  v.  Northwest-  209 ;  Alderson  v.  Dole,  74  Fed.  Rep. 
em,  etc.,  Co.,  87  Fed.  Rep.  252.  29. 

2  See  Auer  v.  Lombard,  72  Fed.  Rep.        3  Hanson    v.    Davison  (Minn.),  76 

N.  W.  Rep.  254. 


654  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  585 

action,  there  is  nothing  to  prevent  the  prosecution,  after  such 
decree  is  entered,  of  an  ancillary  action  in  another  jurisdiction 
by  the  receiver  appointed  to  collect  and  distribute  the  funds 
arising  from  the  stockholder's  liability  in  the  general  action,  or 
by  any  other  party  or  person  who  may  be  appointed  by  the 
court  for  the  purpose,  against  any  stockholder  who  is  not  made 
a  party  to  the  original  action,  to  collect  from  him  the  amount 
of  his  liability  on  account  of  the  debts  of  the  corporation  for 
the  benefit  of  all  the  creditors." 

It  was  held  by  the  court  of  appeals  of  the  first  circuit  that 
the  non-resident  stockholders  were  bound  by  the  action  of  the 
Minnesota  court,  and  that  the  plaintiff  in  his  capacity  as  re- 
ceiver for  the  creditors,  might,  in  aid  of  the  proceedings  in 
Minnesota,  maintain  an  action  at  law  for  such  purpose  in  an- 
other jurisdiction.  In  an  elaborate  decision,  marked  by  great 
breadth  of  thought,  Judge  Aldrich  said,1  with  reference  to  the 
conclusiveness  of  the  proceedings  in  the  Minnesota  court: 
"While  we  consider  the  cases2  authorities  to  the  extent  that  the 
stockholders  are  bound  by  the  action  of  the  corporation,  or  its 
successors  in  the  exercise  of  corporate  powers  essential  to  the 
collection  of  debts,  in  respect  to  corporate  matters,  like  requir- 
ing the  payment  of  unpaid  subscriptions  to  stock,  which  are 
part  of  the  assets,  and  as  to  ascertainments  in  which  the  corpo- 
ration is  interested,  like  the  ascertainment  of  the  indebtedness 
of  the  corporation,  we  do  not  think  they  go  to  the  length  claimed 
by  the  plaintiff  in  this  case,  for  the  reason,  as  has  already  be*en 
said,  the  individual  liability  is  not  an  asset  of  the  corporation. 
Indeed,  the  Minnesota  court  did  not  undertake  to  render  judg- 
ment upon  the  non-resident  stockholders'  liability,  nor  against 
the  Minnesota  stockholders  upon  their  individual  liability, 
otherwise  than  upon  service,  which  is  prerequisite  to  judg- 
ments in  personam."3 

1  Hale  v.  Hardon  (C.  C.  A.),  95 Fed.  (Minn.),  76  N.  W.  Rep.  254;  Reile  v. 

Rep.  7 17.    Bee  §  587.  Rundle,  103  U.  S.  222. 

•Hawkins  v.  Glenn,  L31  U.S.319;  "Pennoyer  v.  Neff,  95  U.    8.714; 

The  Great   West.  Tel.  Co.  v.  Purdy,  Hekking  v.  Pfaff,  91  Fed.  Rep.  60,  50 

162   U.  S.   329;    Hanson    v.  Davison  U.S.  App.  484. 


§  586  LIABILITY    OF    STOCKHOLDERS.  655 

§  586.   Original  proceedings  in  court  of  corporate  domicile. — 

Where  the  law  of  the  corporate  domicile  provides  an  equitable 
proceeding  for  the  enforcement  of  the  stockholders'  liability, 
and  contemplates  the  creation  of  a  fund  out  of  which  the  cred- 
itors are  to  be  paid,  the  courts  of  the  corporate  domicile  must 
determine  the  questions  which  arise  before  it  can  be  known 
whether  it  will  be  necessary  to  call  upon  the  stockholders.  In 
an  Illinois  case,  where  a  creditor  brought  an  action  at  law  to 
enforce  the  liability  imposed  by  the  constitution  of  Kansas, 
it  was  held  that  the  action  could  not  be  maintained.1  The  court 
said :  '  'The  important  question  to  be  here  determined  is  whether 
the  courts  of  this  state  will,  in  any  form,  take  jurisdiction  of  a 
question  arising  as  to  the  respective  relations  of  creditors  and 
stockholders  of  a  corporation  of  another  state,  where  a  special 
remedy  is  provided  by  statute,  before  there  is  a  determination 
by  the  courts  of  such  state  of  the  just  proportion  of  the  corporate 
indebtedness  to  be  borne  by  solvent  stockholders  of  such  corpo- 
ration. No  decree  of  the  courts  of  this  state  could  result  in  tak- 
ing an  account  and  dissolving  a  corporation  of  another  state. 
It  is  for  the  courts  of  that  state  to  enter  a  decree  stating  the  ac- 
count, winding  up  the  affairs  of  the  corporation,  and  determin- 
ing the  relation  of  the  stockholders,  creditors  and  corporation 
to  each  other.  When  that  question  has  been  determined  by  the 
courts  of  that  state,  then,  if  it  becomes  necessary,  the  creditors, 
stockholders  and  the  corporation,  or  its  representative,  may,  as 
against  stockholders  who  are  domiciled  here,  appeal  to  the  courts 
of  this  state,  and  have,  as  against  such  domiciled  stockholders, 
adequate  relief." 

In  a  recent  case  in  Wyoming  the  court  said:2  "Until  the 
courts  in  Utah,  in  some  appropriate  proceeding,  shall  have 
judicially  ascertained,  and  by  decree  determined,  the  amount 
of  the  deficiency  for  which  the  stockholders  are  responsible,  it 

1  Tuttle  v.  National  Bank  of  the  Re-    N.  W.   Rep.  254;  National   Bank  v. 
public,  161  111.  497,  34  L.   R.  A.  750.     Say  ward,  86  Fed.  Rep.  45. 
See  also  Young  v.  Farwell,  139  111.        2  McLaughlin  v.  O'Neill  (Wyo.),  51 
326;  Hanson  v.  Davison  (Minn.),  76    Pac.  Rep.  243-250.    An  action  by  the 

receiver. 


656  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  587 

is  not  perceived  how  any  recovery  can  be  had  in  this  state,  or 
any  other,  against  a  single  stockholder." 

In  Massachusetts  the  court  said:1  "This  court  does  not  take 
jurisdiction  of  a  suit  to  enforce  the  liability  of  stockholders  in 
a  foreign  corporation,  not  because  it  would  be  a  suit  to  enforce 
a  penalty  or  a  suit  opposed  to  the  policy  of  our  laws,  but  be- 
cause it  is  a  suit  against  a  foreign  corporation,  which  involves 
the  relation  between  it  and  its  stockholders,  and  in  which  com- 
plete justice  can  only  be  done  by  the  courts  of  the  jurisdiction 
where  the  corporation  was  created.  *  *  *  If  an  assess- 
ment is  to  be  laid  upon  the  members  or  stockholders,  or  a  con- 
tribution enforced  from  them,  according  to  the  law  of  the  state 
under  which  the  corporation  is  created,  the  courts  of  that  state 
alone  can  afford  complete  and  effectual  judicial  relief." 

§  587.  Conclusiveness  of  the  decree  of  the  court  of  the 
domicile. — The  decree  of  the  court  of  the  corporate  domicile 
determining  the  relation  between  the  corporation  and  its 
stockholders  and  creditors,  the  amount  of  the  corporate  debts, 
and  the  necessity  for  and  the  amount  of  the  assessment,  unless 
impeached  for  fraud,  is  conclusive  and  binding  upon  foreign 
stockholders  who  were  not  served  with  process  within  the  juris- 
diction and  did  not  appear  in  the  proceedings.  The  stock- 
holders are  represented  by  the  corporation  in  the  action,  and 
the  judgment  is  in  effect  against  the  stockholders  in  their  cor- 
porate capacity.  In  principle  there  is  no  difference  in  this  re- 
spect between  an  action  to  enforce  an  unpaid  subscription  and 
one  to  enforce  a  stockholder's  liability.2 

§  588.  Rights  of  receiver  in  a  foreign  jurisdiction. — Although 
under  the  laws  of  the  corporate  domicile  it  may  be  established 
that  the  receiver  is  the  proper  person  to  enforce  the  stockholder's 
liability,  when  he  goes  into  the  foreign  jurisdiction  he  is  liable 
to  be  confronted  by  the  rule  that  a  receiver  can  not  main- 
tain an  action  in  a  jurisdiction  other  than  that  of  the  court  by 

1  Post  &  Co.  v.  Railroad,  Ut  Mass.  W.  Rep.  254;  Hale  v.  Hardon,95  Fed. 
341.    Sec  §  582,  supra.  Rep.  747.    See  §  556,  supra. 

'Hanson  v.  Davison  (Minn.), 76 N. 


§  588  LIABILITY    OF    STOCKHOLDERS.  657 

which  he  was  appointed.  This  rule  is  generally  said  to  be  es- 
tablished and  has  recently  been  enforced  for  the  purpose  of 
preventing  the  enforcement  of  stockholders'  liability.1  Mr. 
High  states  the  general  rule,  but  says:2  "  It  is  thus  apparent 
that  the  exceptions  to  the  rule  denying  to  receivers  any  extra- 
territorial right  of  action  have  become  as  well  recognized  as 
the  rule  itself,  and  the  tendency  of  the  courts  is  constantly  to- 
ward an  enlarged  and  more  liberal  policy  in  this  regard.  It  is 
believed  that  the  doctrine  will  ultimately  be  established  giving 
to  receivers  the  same  rights  of  action  in  all  the  states  of  the 
Union  with  which  they  are  invested  in  the  state  or  jurisdic- 
tion in  which  they  are  appointed."  A  more  recent  writer 
says:3  "  The  tendency  of  courts  is  in  the  direction  of  a  liberal 
extension  of  the  doctrine  of  interstate  comity,  and  is  against  a 
narrow  and  provincial  policy  which  would  deny  proper  effect 
to  judicial  proceedings  of  sister  states  simply  because  they  are 
foreign  and  not  domestic."  The  exception  referred  to  leaves 
the  rule  that  a  receiver  will  he  permitted  to  maintain  an  ac- 
tion in  a  foreign  state  when  it  will  not  interfere  with  the  rights 
and  privileges  of  the  citizens  of  the  state  or  contravene  the 
policy  of  the  laivs  of  that  state.  It  remains  somewhat  a  mat- 
ter of  favor  discretionary  with  the  court  whose  aid  is  invoked. 
As  said  in  Alabama:4  "In  the  absence  of  statutory  regula- 
tions, the  appointment  and  title  of  a  receiver  may  be  recog- 
nized and  he  may  sue  in  the  courts  of  another  state,  unless 
such  suit  works  injustice  or  detriment  to  the  citizens  thereof, 
or  contravenes  the  policy  of  its   laws."     The  same  rule5  pre- 

1  Wyman  v.  Eaton,  107  Iowa  214,  43  99  N.  Y.  433 ;  Dyer  v.  Power,  39  N.  Y. 
L.  R.  A.  695.  The  rule  was  first  es-  St.  Rep.  136;  Story  v.  Furman,  25 
tablished  by  Booth  v.  Clark,  17  How.  N.  Y.  214 ;  Runk  v.  St.  John,  29  Barb. 
(XL  S.)321.  See  comment  upon  this  585;  Pugh  v.  Hurtt,  52  How.  (Pr.)  22; 
case  in  Hale  v.  Hardon,  95  Fed.  Rep.  Peters  v.  Foster,  10  N.  Y.  Supp.  389; 
747.  Barclay  v.   Quicksilver,   etc.,   Co.,  6 

2  Receivers,  §  241.  Lans.  25.     In  Howarth  v.  Angle,  25 

3  Smith  Receivers,  §  169.  Misc.  Rep.  (N.  Y.)  551   (39  App.  Div. 

4  Boulware  v.  Davis,  90  Ala.  207.  151),  it  was  held  that  where  the  court 

5  Stoddard  v.  Linn,  159  N.  Y.  265;  of  a  foreign  state  in  which  a  corpora- 
Toronto  Gen.  T.  Co.  v.  C,  B.  &  Q.  R.  tion  was  organized,  has  declared  the 
Co.,  123  N.  Y.  37  ;  Matter  of  Waite,  corporation  insolvent,  appointed  a  re- 

42— Private  Cokp. 


658 


THE    LAW    OF    PRIVATE    CORPORATIONS. 


§  589 


vails  in  New  York  and  in  most  of  the  states,1  as  well  as  in  the 
federal  courts.2 

V.     Miscellaneous  Rights  and  Defenses. 

§  589.  The  right  of  set-off. — In  actions  brought  by  or  on 
behalf  of  all  the  creditors  of  a  corporation  to  enforce  the  com- 
mon law  liability  of  its  stockholders,  the  stockholder  can  not, 
unless  permitted  by  statute,  avail  himself  of  a  counter  claim 
or  set-off  he  may  have  against  the  corporation.3     If  the  liabil- 


ceiver,  and  determined  his  right  to 
sue,  and  the  liability  of  the  stock- 
holders, and  has  directed  an  assess- 
ment for  the  deficiency  to  be  levied 
upon  them ;  and  the  assessment  has 
been  levied,  and  the  receiver  has 
been  directed  by  the  foreign  court  to 
sue  such  stockholders  as  have  re- 
fused to  pay  the  assessment,  he,  as 
receiver,  may,  where  no  rights  of  do- 
mestic stockholders  are  concerned, 
maintain  an  action  in  the  courts  of 
New  York  against  the  resident  stock- 
holders to  recover  the  unpaid  assess- 
ment; and  their  liability  is  to  be 
determined  by  the  law  of  the  state 
under  which  they  became  stockhold- 
holders.  In  distinguishing  the  case 
of  Marshall  v.  Sherman,  148  N.  Y.  9, 
the  court  said:  "The  stockholders' 
liability  created  by  the  statute  of 
Kansas  can  not  in  any  event  be  en- 
forced by  an  action  at  law  by  a  single 
creditor  against  a  single  stockholder 
for  the  recovery  of  a  specific  sum  of 
money  in  the  state  of  New  York,  in 
which  state  the  stockholders' statutory 
liability  can  be  enforced  only  by  a 
suit  in  equity,  brought  by  or  in  behalf 
of  all  the  creditors  against  the  stock- 
holders, wherein  the  a  mount  of  the  lia- 
bility can  be  ascertained  and  adjusted. 
Here  the  liability  of  each  of  the  de- 
fendants has  been  ascertained  and 
adjusted,  and  the  action  is  by  the  re- 
ceiver representing  all  the  stockhold- 


ers, and  the  only  party  under  the 
laws  of  the  state  of  Washington  who 
can  maintain  an  action  against  the 
defendants  upon  their  statutory  lia- 
bility as  stockholders  in  the  insolvent 
corporation."  Under  the  Washington 
statute  the  liability  can  be  enforced 
only  in  equity.  See  Wilson  v.  Book, 
13  Wash.  676. 

1  Bagby  v.  A.  M.  &  0.  R.  Co.,  86  Pa. 
St.  291  ;  Metzner  v.  Bauer,  98  Ind.  425 ; 
Cooke  v.  Town  of  Orange,  48  Conn. 
401 ;  Lycoming,  etc.,  Co.  v.  Wright, 
55  Vt.  526. 

2  Peck  v.  Elliott  (C.  C.  A.),  79  Fed. 
Rep.  10;  Schultz  v.  Insurance  Co.,  77 
Fed.  Rep.  375  (C.  C.  A.),  80  Fed.  Rep. 
337;  Kennedy  v.  Gibson,  8  Wall.  (U. 
S.)  498;  Keyser  v.  Hitz,  133  U.  S.  138 ; 
Casey  v.  Galli,  94  IT.  S.  673.  For 
the  different  kinds  of  receivers,  see 
Hale  v.  Hardon,  95  Fed.  Rep.  747; 
Relfe  v.  Rundle,  103  U.  S.  222;  Davis 
v.  Gray,  16  Wall.  203,  209. 

3  Thompson  v.  Reno  Sav.  Bank,  19 
Nev.  103;  3  Am.  St.  Rep.  797,  aim. 
In  re  Empire  City  Bank,  18  N.  Y.  199; 
Bissit  v.  Kentucky  River  Nav.  Co.,  15 
Fed.  Rep.  353;  Wheeler  v.  Millar,  90 
N.  Y.353;  Tama  Water  Power  Co.  v. 
Hopkins,  79  Iowa  653;  Shickle  v. 
Watts,  94  Mo.  110;  Mathis  v.  Prid- 
ham  (Tex.  L894),20  S.  \V.  Rep.  L015; 
Singer,  etc.,  Co.  v.  Given, 61  Iowa  93; 
Boulton  Carbon  Co.  v.  Mills.  78  Iowa 
1W;  Thebua  v.  Smiley.  Ill)  111.  316. 


§  589  LIABILITY    OF    STOCKHOLDERS.  659 

ity  is  on  a  contract  of  subscription  he  must  pay  what  is  due 
and  share  ratably  with  the  other  creditors.  Where  it  was 
attempted  to  offset  a  debt  against  such  a  liability  the  court 
said:  "The  debt  which  appellant  owed  for  his  stock  was  a 
trust  fund  devoted  to  the  payment  of  all  the  creditors  of  the 
company.  As  soon  as  the  company  became  insolvent,  and  this 
fact  became  known  to  the  appellant,  the  right  of  set-off  for 
an  ordinary  debt  to  its  full  amount  ceased.  It  became  a  fund 
belonging  equally  in  equity  to  all  the  creditors,  and  could  not 
be  appropriated  by  the  debtor  to  the  exclusive  payment  of  his 
own  claim."1  But  the  creditors  can  not,  after  insolvency,  in 
the  absence  of  fraud,  question  a  set-off  which  was  allowed  by 
the  corporation  while  it  was  a  going  concern.2  Whether  the 
stockholder  can  set  off  a  claim  against  the  corporation  in  a 
proceeding  to  enforce  his  additional  or  strictly  statutory  liabil- 
ity, depends  upon  the  nature  of  the  liability  created  by  the 
particular  statute.  If  it  is  of  such  a  nature  that  any  cred- 
itor can  maintain  an  independent  action  against  any  stock- 
holder to  enforce  a  several  and  original  liability,  the  stock- 
holder may  set  off  debts  due  him  from  the  corporation.3  If 
the  stockholder  purchases  debts  against  the  corporation,  after 
he  knows  of  its  insolvency,  he  can  have  only  the  amount  he 
paid  therefor  set  off  against  his  liability.4  But  if  the  object 
of  the  statute  is  to  create  a  fund  from  which  the  creditors  are 
to  be  paid  ratably,  the  shareholder  must  "contribute  his  pro- 
portion thereto,  and  then  come  in  with  other  creditors  in  the 
distribution  of  the  corporate  assets."5     The  demands  of  the 

1  Sawyer  v.  Hoag,  17  Wall.  (U.  S.)  4  Thompson  v.  Meisser,  108  111.  359; 
610.  But  see  Saving  Bank  v.  Butch-  Balchv.  Wilson,  25  Minn.  299;  Bulk- 
ers',  etc.,  Bank,  130  Mo.  155.  ley  v.  Whitcomb,   121  N.  Y.   107.  In 

2  Goodwin  v.  McGehee,  15  Ala.  232;  Abbey  v.  Long,  44  Kan.  688,  it  was 
Thompson  v.  Meisser,  108  111.  359;  held  that  they  could  be  set  off  for 
Paine  v.  Central  Vermont  R.  Co.,  118  their  face  value. 

IT.  S.  152.  5In  re  Empire  City  Bank,  18  N.  Y. 

sCoquard  v.   Prendergast,   35   Mo.  199;    Thompson  v.  Meisser,    108  111. 

App.  237;  Wheeler  v.Millar,  90  N.Y.  359;   Weber  v.  Fickey,   47   Md.  196; 

353;  Jerman  v.  Benton,  79  Mo.  148;  Witters  v.  Sowles,  32  Fed.  Rep.  130; 

Boyd  v.  Hall,  56  Ga.  563;  Thompson  Thebus  v.  Smiley,  110  111.  316. 
v.  Meisser,  108  111.  359. 


660  THE    LAW    CF    PRIVATE    CORPORATIONS.  §  590 

stockholders  individually  can  not  be  interposed  as  equitable 
set-offs  to  a  demand  against  the  corporation,  although  the  cor- 
poration is  insolvent.1 

§  590.  Statute  of  limitations. — The  nature  of  the  liability 
necessarily  determines  the  application  of  the  statute  of  limita- 
tions. Where  the  liability  is  primary  and  the  obligation  rests 
upon  the  stockholder  from  the  time  the  debt  is  contracted  the 
statute  of  limitations  begins  to  run  at  the  time  the  debt  be- 
comes due.2  But  where  the  obligation  is  in  the  nature  of  a 
surety,  or  is  made  dependent  upon  the  insolvency  of  the  cor- 
poration, the  statute  begins  to  run  from  the  time  this  is  deter- 
mined. If  the  liability  is  penal  in  its  nature,  as  that  imposed 
by  a  statute  upon  directors  who  violate  its  provisions,3  it  is  gov- 
erned by  the  section  of  the  statute  of  limitations  relating  to  pen- 
alties and  forfeitures.4  The  statutory  limitation  of  six  years 
upon  a  liability  created  by  statute  other  than  that  upon  a  pen- 
alty or  forfeiture,  applies  to  the  double  liability  of  stockholders 
for  the  debts  of  corporations.5 

The  statute  does  not  begin  to  run  until  the  creditor  acquires 
the  right  to  sue  the  stockholder.  Hence,  when  it  is  necessary 
to  acquire  judgment  against  the  corporation  the  statute  begins 
to  run  from  the  time  of  the  return  of  an  execution  unsatisfied.6 
It  was  recently  held  in  New  York  that  the  statute  did  not  be- 
gin to  run  as  against  a  foreign  receiver  in  favor  of  a  resident 
stockholder  until  the  assets  had  been  marshalled  and  the  de- 
ficiency ascertained.7 

'Gallagher    v.   Germania    Brewing  6  Taylor  v.  Bowker,  111  U.  S.  110; 

Co.,  63  Minn.  214.  Younglove  v.  Lime  Co.,  49  Ohio  St. 

2  Schalucky   v.   Field,  124  111.  617;  663. 

Hyman  v.  Coleman,  82  Cal.  650.  7  Howarth  v.  Angle,  25  Misc.  Rep. 

8  Patterson  v.  Stewart,  41  Minn.  84.  (N.  Y.)  551.     Whether  the  liability  ia 

4  Merchants'  Nat'l   Bank  v.  North-  governed  by  the  statute  of  the  corpo- 

western,  etc.,  Co.,  48  Minn.  349;  Mer-  rate  domicile  or  of  the  lex  fori,  see 

chants'  Bank  v.  Bliss,  35  N.  Y.  412;  Hobbs  v.  Nat'l  Bank  of  Com.,  96  Fed. 

Wiles  v.  Suydam,  64  X.  Y.  173.  Rep.  396. 

'•  Merchants'  Nat'l    Bank  v.  North- 
western, etc.,  Co.,  48  Minn.  349. 


§  591  LIABILITY    OF    STOCKHOLDERS.  661 

§  591.  Contribution  among  stockholders.— Where  the  stat- 
utory liability  is  joint  and  several  and  in  the  nature  of  con- 
tract, a  stockholder  who  is  required  to  pay  more  than  his  pro- 
portion is  entitled  to  contribution  from  the  other  stockholders.1 
There  can  be  no  contribution  if  the  liability  is  penal.2  Unless 
otherwise  provided  by  statute,  the  remedy  is  by  a  suit  in 
equity.3 

1  Harper  v.  Carroll,  66  Minn.  487 ;        2  Sayles  v.  Brown,  40  Fed.  8. 
Wincock  v.  Turpin,  96  111.  135 ;  Allen       3  O'Reilly  v.  Bard,  105  Pa.  St.  569. 
v.  Fairbanks,  40  Fed.   188,  45  Fed. 
445. 


CHAPTER  21. 


INSOLVENCY    AND    DISSOLUTION. 


§592. 
593. 
594. 

595. 
596. 
597. 
598. 
599. 

600. 


Manner  of  dissolution. 

Impairment  of  contracts. 

Expiration  of  term  of  exist- 
ence. 

Dissolution  by  legislative  act. 

Surrender  of  charter. 

Forfeiture  of  charter. 

Loss  of  integral  part. 

Statutory  methods  of  dissolu- 
tion—By the  state. 

Voluntary  liquidation. 


§601. 


602 


603. 
604. 
605. 

606. 


Statutory  provisions  for  a  tem- 
porary continuance  of  the 
corporation. 

Insolvency,  sale  or  loss  of  prop- 
erty— Abandonment  of  busi- 
ness. 

Powers  of  a  court  of  equity. 

Proceedings  by  state. 

Effect  of  dissolution,  generally. 

Effect  upon  corporate  debts 
and  assets. 


§  592.  Manner  of  dissolution. — The  dissolution  of  a  corpora- 
tion is  that  condition  of  law  and  fact  which  ends  the  capacity 
of  the  body  corporate  to  act  as  such  and  necessitates  a  final 
liquidation  and  extinguishment  of  all  the  legal  relations  subsist- 
ing in  respect  of  the  corporate  enterprise.2  A  dissolution  may 
be  effected  (1)  by  the  expiration  of  the  statutory  period  of  its 
existence,  (2)  an  act  of  the  legislature  under  a  reserved  power 
to  repeal,  (3)  the  surrender  of  the  charter  with  the  consent  of 
the  state,  (4)  the  forfeiture  of  the  charter  for  misuse  or  non- 
use  of  its  powers,  (5)  the  loss  of  an  integral  part,  without 
whose  existence  the  functions  of  the  corporation  can  not  be 
exercised,  and  (6)  compliance  with  whatever  statutory  require- 
ments may  exist  in  order  to  effect  a  voluntary  dissolution.3 

Proprietors,  etc.,  9  R.  I.  590;  Mer- 
chants' &  P. Line  v.Wagner,71  Ala.581. 

a  Taylor  Priv.  Corp.,  §429. 

3  2  Kyd  Corp.,  447;  2  Kent  Com. 
(13th  ed.),  306 ;  1  Bl.  Com.,  485 ;  Angell 
&  Ames  Corp.,  p.  501 ;  Oakes  v.  Hill, 
14  Pick.  (Mass.)  442.  See  generally 
notes  to  7  Am.  St.  Rep.  684,  717;  57 


'See  Wil^us'  Cases,  particularly 
Boston  Glass  Mfg.  Co.  v.  Langdon,  24 
Pick.  (Mass.)  49;  Higgins  v.  Down- 
ward, 8  Houst.  (Del.)  227;  Louisville 
Banking  Co.  v.  Eisenman,  94  Ky.  83; 
Bradley  v.  Reppell,  133  Mo.  545; 
Brooklyn  Steam  T.  Co.  v.  Brooklyn, 
78  N.  5T.524;  McGintyv.  Athol  It. Co., 
155  Mass.  183;  Philips  v.  Wickham, 
1  Paige  Ch.  (N.  Y.)  690;  Mechanics' 
Bank  v.  Heard,  37  Ga.  401  ;   Wilson  v. 

(662) 


Am.  St.  Hep.  76;  12  Am.  Dec.  239;  40 
Am.  Dec.  737;  99  Am.  Dec.  336. 


§  593  INSOLVENCY    AND    DISSOLUTION.  663 

§  593.  Impairment  of  contracts. — Parties  deal  with  corpo- 
rations subject  to  the  possibility  of  losses  arising  from  their 
dissolution,1  and  the  fact  that  a  forfeiture  of  the  charter  will 
impair  outstanding  contracts  does  not  affect  the  power  of  the 
court  to  decree  such  forfeiture.2  Laws  authorizing  the  disso- 
lution of  corporations  ''enter  directly  into  the  contract,  and  as 
corporations  have  the  power  to  dissolve  themselves  or  consent 
to  a  forfeiture  of  corporate  franchises,  all  persons  must  be  re- 
garded as  having  contracted  upon  the  hypothesis  of  the  exist- 
ence and  possible  exercise  of  this  power."3  A  court  of  equity 
will  not,  in  the  absence  of  fraud,  at  the  instance  of  creditors 
who  have  levied  an  attachment  on  the  property  of  the  corpora- 
tion, restrain  the  stockholders  from  dissolving  the  corporation.4 
But  a  dissolution  does  not  destroy  the  obligation  of  the  com- 
pany's contracts,  as  the  equitable  rights  of  creditors  survive 
the  act  of  dissolution  and  attach  to  the  assets  and  property  of 
the  corporation  in  the  hands  of  its  liquidators.5 

§  594.  Expiration  of  term  of  existence. — The  original  idea 
of  a  corporation  involved  perpetuity,  but  under  modern  statutes 
the  life  of  a  corporation  is  universally  limited  to  a  term  of 
years  with  possibly  a  provision  for  renewal.  By  the  weight 
of  authority  a  corporation  is  ipso  facto  dissolved  by  the  expira- 
tion of  this  period,6  although  there  are  some  decisions  to  the 
effect  that  it  continues  to  exist  as  a  de  facto  corporation  and 
that  its  exercise  of  corporate  franchises  can  be  questioned  only 
by  the  state  in  direct  proceedings.7 

1  Read  v.  Frankfort  Bank,  23  Maine  tinguishing  Fisk  v.  Railroad  Co.,  10 
318.     As  to  the  remedy  after  dissolu-     Blatchf.  518. 

tion,  see  Schlieder  v.  Dielman  (La.),  5  People  v.   O'Brien,   111  N.  Y.   1; 

10  So.  Rep.  934.  Morawetz  Priv.  Corp.,  II,  §  1035 ;  Cur- 

2  Mamma  v.  Potomac  Co.,  8  Pet.  (U.  ran  v.  Arkansas,  15  How.  (U.  S.)  304. 
S.)  281;  Wash.,  etc.,  Co.  v.  State,  19  6§  597,  infra.  Bradley  v.  Reppell, 
Md.  239.  133  Mo.  545,  54  Am.  St.  R.  685,  32  S.W. 

3  State  v.  Gaslight  Co.,  5  Rob.  (La.)  Rep.  645,  Wilgus'  Cases;  Sturges  v. 
539;  Schlieder  v.  Dielman  (La.  1892),  Vanderbilt,  73  N.  Y.  384. 

10  So.  Rep.  934;  Railroad  Co.  v.  State,  7  May  be  sued  for  a  tort  after  its 

29  Ala.  573;  Green's  Brice  Ultra  Vires,  charter  has  expired.     Miller  v.  Coal 

§§138,435.  Co.,  31  W.  Va.  836.     See  Bushnell  v. 

4  Cleveland  City,  etc.,  Co.  v.  Taylor  Machine  Co.,  138  111.  67.  As  to  the 
Bros.,  etc.,  Co.,  54  Fed.  Rep.  85,  dis-  term  of  existence,    see   §70,   supra; 


664  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  595 

§  595.  Dissolution  by  legislative  act. — In  the  United  States 
a  corporation  can  not  be  dissolved  by  an  act  of  the  legislature 
without  the  consent  of  the  corporators,  unless  the  power  was 
reserved  at  the  time  the  charter  was  granted.1  A  repeal  of  the 
charter  pursuant  to  an  unconditional  power  reserved  by  the 
state  is  effective  without  a  judicial  decree  when  it  clearly  ap- 
pears from  the  statute  that  such  was  the  legislative  intent.2 
Where  the  dissolution  is  to  take  place  upon  the  happening  of 
some  contingency,  the  legislature  may  provide  that  the  disso- 
lution shall  result  without  a  judicial  decree.3  But  unless  such 
clearly  appears  to  have  been  the  legislative  intent,  a  decree  of 
forfeiture  is  necessary.4  "The  better  opinion  would  seem  to 
be  that  for  most  purposes  the  happening  of  the  contingency 
upon  which  the  corporation  is  to  cease  should  also  be  judicially 
declared."5  Generally  this  is  necessary.6  "Upon  the  absolute 
repeal  of  a  charter  by  the  legislature  acting  within  the  limits 
of  constitutional  authority  the  corporation  ceases  to  exist  and 
no  judgment  can  afterwards  be  rendered  against  it  in  an  action 
at  law.7  But  such  repeal  does  not  impair  the  obligation  of 
contracts  made  by  the  corporation  with  other  parties  during 
its  existence,  or  prevent  its  creditors  or  stockholders  from  as- 
serting their  rights  against  its  property  in  a  court  of  chancery 
in  accordance  with  the  reasonable  regulations  of  the  legislature 
or  with  the  general  principles  and  practice  of  equity."8 

§  596.  Surrender  of  charter, — A  corporation  may  be  dis- 
solved by  the  voluntary  surrender  of  the  charter  and  its  accept- 
ance by  the  state.  As  said  by  the  supreme  court  of  Massa- 
chusetts: "Charters  are  in  many  respects  compacts  between 
the  government  and  the  corporators.     And  as  the  former  can 

State  v.  Hannibal,  etc.,  Road  Co.,  138  5 Taylor  Pri v.    Corp.,    §432;    Flint 

Mo.  332,  36  L.  R.  A.  457.  &    Fentonville    Plank    Road    Co.   v. 

1  §99,  supra.  Bruffett  v.  Great  West-  Woodhull,  25  Mich.  99,  Wilgus'  Cases. 

ern  R.  Co.,  25  111.  310.  "Kincaid    v.    Dwindle,   59   N.    Y. 

*  Sturges  v.  Vanderbilt,    73  N.  Y.  548;  Moore  v.  Schoppert,  22  W.  Va. 

884;  Terry  v.  Merchants',  etc.,  Bank,  282. 

86  Ga.  177.  7  §  593.  Marion,  etc.,  Co.  v.  Perry, 

3  In  re  Brooklyn,  etc.,  R.  Co.,  75  71  Fed.  Rep.  426,  41  IT.  S.  App.  L4,  33 

N.  V.  335.  L.  R.  A.  252. 

•LaGrange,  etc.,  R.  Co.  v.  Rainey,  8  Tin >rnton  v.  Railroad  Co.,  123  Mass. 

7  Coldw.  (Term.)  420.  32. 


§  597  INSOLVENCY    AND    DISSOLUTION.  665 

not  deprive  the  latter  of  their  franchise  in  violation  of  the 
compact,  so  the  latter  can  not  put  an  end  to  the  compact  with- 
out the  consent  of  the  former.  It  is  equally  obligatory  on 
both  parties.  The  surrender  of  a  charter  can  only  be  made  by 
some  formal  solemn  act  of  the  corporation;  and  it  will  be  of 
no  avail  until  accepted  by  the  government.  There  must  be 
the  same  agreement  of  the  parties  to  dissolve  that  there  was 
to  form  a  contract.  It  is  the  acceptance  which  gives  efficacy 
to  the  surrender."1  But,  as  said  by  Mr.  Taylor:2  "The  pres- 
ent applicability  of  the  preceding  citations  to  stock  corpora- 
tions is  somewhat  doubtful.  Formerly  corporations  usually 
received  special  charters;  but  now  stock  corporations  at  least 
are  almost  universally  organized  under  general  enabling  acts. 
A  mode  of  dissolution  is  ordinarily  provided;  and  if  no  such 
provision  exists,  the  most  experienced  legal  adviser  might  be 
puzzled  to  advise  how  an  acceptance  of  the  surrender  of  fran- 
chises could  be  brought  about  unless  by  lobbying  a  special  bill 
through  the  legislature.  Besides,  the  idea  of  the  necessity  of 
the  acceptance  of  a  surrender  of  franchises  on  the  part  of  the 
authority  granting  them  seems  intimately  connected  with  the 
old  doctrine,  now  certainly  a  thing  of  the  past,  that  on  the  dis- 
solution of  a  corporation  all  its  debts  were  extinguished.  There 
seems  to  be  no  valid  reason  why  an  ordinary  stock  corporation, 
charged  with  the  performance  of  no  public  duty,  should  not  be 
allowed  to  close  up  its  business  at  any  time  and  dissolve."3 

§  597.  Forfeiture  of  charter.4 — The  grant  of  a  corporate  privi- 
lege or  franchise  is  always  subject  to  the  implied  condition 
that  it  will  not  be  abused.5     When  the  corporation  has  done 

1  Boston,  etc.,   Co.  v.  Langdon,  24    chants'  &  P.  Line  v.  Wagner,  71  Ala. 
Pick.  (Mass.)  49,  Wilgus'  Cases ;  Town    581,  Wilgus'  Cases. 
v.  Bank,  2  Doug.  (Mich.)  530.     See        3  Holmes,  etc.,  Co.  v.  Holmes,  etc., 
Mylreav.  Railroad  Co. (Wis.), 67  N.W.    Co.,  127  N.  Y.  252. 
Pep. 1138.  The  franchise  can  not  be  sur-        4See  Wilgus'  Cases,  The  State  and 
rendered  by  the  officers  of  the  corpora-    the  Corporation. 

tion.  Jones  v.  Bank  of  Leadville,  10  5Chicago,  etc.,  Co.  v.  Needles,  113 
Colo.  464.  See  opinion  of  counsel,  as  U.S.  574.  When  a  corporation  violates 
to  the  surrender  of  the  Connecticut  the  provisions  of  its  act  of  incorpora- 
charter,  in  1  Trumbull's  Hist,  of  tion,  or  any  other  law  binding  upon  it, 
Conn.  407.  and  so  misuses  its  franchise  in  mat- 

3 Taylor  Priv.   Corp.,   §  434;   Mer-    ters  which  concern  the  essence  of  the 


666  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  597 

some  act  or  omission  which  is  expressly  made  a  cause  of  for- 
feiture, or  the  violation  of  the  law  of  its  existence  is  of  such 
a  nature  as  to  injuriously  affect  the  public  interests,  the  state 
will,  in  a  proper  proceeding  brought  for  the  purpose,  deprive 
the  corporation  of  its  charter.1  But  leave  will  not  be  granted 
to  institute  such  a  proceeding  where  the  corporation  is  solvent 
and  carrying  out  the  purposes  of  its  creation,  unless  there  is  a 
clear  and  willful  abuse  or  non-use  of  its  franchise.2  As  a 
general  rule,  in  the  absence  of  a  legislative  statement  to  the 
contrary,  a  forfeiture  can  be  effected  only  by  the  judgment  of  a 
proper  tribunal  in  proceedings  brought  by  the  state  to  enforce 
the  forfeiture.3  It  does  not  result  ipso  facto  from  acts  or  neg- 
lect which  will  justify  the  forfeiture.4  Where  a  penalty  is 
prescribed  for  an  act  it  is  generally  held  to  be  the  only  pun- 
ishment intended  by  the  legislature  and  a  forfeiture  will  not 
be  declared.5  The  state  may  waive  the  forfeiture,  but  only 
through  the  action  of  the  legislature.6  Mere  neglect  of  the  of- 
ficers of  a  corporation  to  have  its  property  listed  for  taxation 
is  not  sufficient  ground  for  a  forfeiture  of  its  charter.7 

A  deliberate  attempt  by  a  corporation  to  evade  an  important 
provision  of  the  insurance  law  of  the  state  is  ground  for  a  for- 
feiture.8 The  mere  non-residence  of  the  officers,  directors  and 
stockholders  of  a  domestic  corporation  is  not,  in  the  absence  of 
a  statute  requiring  residence,  a  ground  for  the  forfeiture  of  its 
franchise.9  But  the  fact  that  a  corporation  has  removed  its 
contract  between  it  and  the  state,  so  ville,  etc.,  Co.,  92  Wis.  496,  32  L.  R. 
that  it  no  longer  fulfills  the  purposes  A.  391;  Spartanburg  v.  Spartanburg, 
for  which  it  was  created,  the  state  has  etc.,  R.  Co.,  51  S.  C.  129;  Leese  v. 
an  interest  in  restraining  the  fur-  Atchison,  etc.,  R.  Co.,  24  Neb.  143, 
ther  exercise  of  its  corporate  powers,  8  Am.  St.  Rep.  179. 
ami  may  maintain  an  action  for  the  4  Parker  v.  Bethel,  etc., Co.,  9GTenn. 
appointment  of  a  receiver.  State  v.  252,  31  L.  R.  A.  70(5. 
American,  etc.,  Assn.,  64  Minn.  349.  'State  v. Real  Estate Bank,5Ark. 595 

1  Mat. •v.oiHTlin, etc., Assn., 350hio  6  Dern  v.  Salt  Lake  City  R.  Co. 
St    258.  (Utah),  56  Par.  Rep.  556;   People  v. 

2state  v.  Minnesota,  etc.,  Co.,  40  Phoenix  Bank,  24  Wend.  (N.  Y.)  431. 
Minn.  213;  People  v.  Chicago,  etc.,  'North,  etc.,  Co.  v.  People,  147  111. 
I     change,    170  111.  556,  39  L.  R.  A.     234,  24  L.  R.  A.  462. 

People  v.   N.  R.,  etc.,  Co.,   121        "International     Fiat.    Alliance    v. 
K.  v.  583.  Stat.',  86  M'l.  550. 

'See  §  94,  Buprd;    State  v.  Janes-       9 North, etc., Co. v.  People,  147 111.234. 


§  597  {INSOLVENCY    AND    DISSOLUTION.  667 

principal  place  of  business  and  all  of  its  agencies  out  of  the 
state  of  its  creation,  in  contravention  of  the  public  policy  of 
the  state  as  shown  by  its  general  system  of  legislation,  is  a 
sufficient  ground  for  forfeiting  its  charter.  A  charge  against 
a  corporation  of  falsely  and  fraudulently  posing  as  a  domestic 
corporation  when  it  has  in  fact  removed  to  a  foreign  state  is 
not  proven  by  the  fact  that  the  local  office  is  not  at  all  times 
open  and  the  books  there,  if  the  corporate  property  is  within 
the  state  and  the  officers  and  books  are  at  the  office  as  fre- 
quently as  required  by  the  business.  The  mere  fact  that  the 
books  have  been  kept  most  of  the  time  in  a  foreign  state  con- 
trary to  the  statute  is  not  a  sufficient  ground  of  forfeiture,  if 
the  places  of  location  are  both  near  the  boundary  line  and  the 
books  have  been  produced  at  the  general  office  whenever  any- 
one entitled  to  see  them  wished  for  them.1  A  statute  which 
provides  that  the  secretary  and  treasurer  of  every  domestic  cor- 
poration shall  reside,  have  their  place  of  business  and  keep  the 
books  of  the  corporations  within  the  state  is  not  complied  with 
by  the  residence  within  the  state  of  a  person  who  is  nominally 
secretary  and  treasurer,  while  the  corporate  business  is  trans- 
acted in  another  state.2  Mere  non-user3  and  the  sole  owner- 
ship of  all  the  stock  by  one  person  will  not  cause  a  dissolution 
without  a  judicial  decree.4  An  act  by  a  corporation  tending  to 
cause  injury  to  the  public  by  affecting  the  welfare  of  the  peo- 
ple is  an  abuse  of  its  franchise  for  which  the  charter  may  be 
forfeited  on  an  information  in  the  nature  of  quo  warranto.5 

1  Simmons  v.  Norfolk,  etc.,  Co.,  C.  353.  Forfeiture  for  non-user  or 
113  N.  C.  147;  22  L.  R.  A.  677.  otherwise  is  a  question  between  the 

2  State  v.  Park.  &  Nelson  L.  Co.,  58  state  and  the  corporation,  and  can  not 
Minn.  330.  he  raised  by  a  private  litigant.     Peti- 

3  That  a  corporation  is  not  ipso  facto  tion  of  Philadelphia,  etc.,  R.  Co.,  187 
dissolved  by  an  act  of  non-user  or  mis-  Pa.  St.  123 ;  Coquard  v.  National,  etc., 
user,  which  is  a  cause  of  forfeiture,     Co.,  171  111.  480. 

see    State    v.    Spartanburg,   etc.,    R.  4  Parker    v.    Bethel,    etc.,   Co.,   96 

Co.  (S.  C),  28  S.  E.  Rep.  145;  State  Tenn.  252. 

v.  Atchison,  etc.,  R.  Co.,  24  Neb.  143,  5  People    v.   Chicago,    etc.,   Exch., 

8  Am.  St.  Rep.  164 ;  Atchison,  etc.,  R.  170  111.  556,  39  L.  R.  A.  373.    The  un- 

Co.v.Nave,  38  Kan. 744,  5  Am.  St.  Rep.  lawful   granting  of  a   diploma  by  a 

800.     Non-user  of  one  of  several  priv-  school  of  osteopathy,  in  good  faith  un- 

ileges  is   not  ground   for   forfeiture,  der  legal  advice,  is  not  a  ground  for 

Wadesboro,  etc.,  Co.  v.  Burns,  114  N.  the  forfeiture  of  its  charter.    Corpora- 


668  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  597 

Thus,  the  charter  of  a  water-works  company  will  be  annulled 
if,  instead  of  furnishing  pure  wholesome  well  water,  as  re- 
quired by  its  charter  and  contract,  it,  during  four  droughts  in 
two  years,  supplies  impure  river  water  and  refuses  for  insuffi- 
cient reasons  to  sink  additional  wells.  The  fact  that  all  water 
supply  will  cease  if  the  charter  is  vacated,  and  that  after  suit 
is  commenced  the  company  offers  to  sink  the  required  wells, 
will  not  prevent  the  decree  being  entered.1 

The  exercise  of  franchises  and  privileges  not  granted  by  law 
may  be  a  serious  usurpation  and  encroachment  which  when  it 
injures  or  puts  in  hazard  the  rights  of  any  person  will  justify 
the  forfeiture  of  its  charter.2  An  insurance  company  may  forfeit 
its  charter  by  deliberately  exceeding  the  amount  it  is  allowed 
by  law  to  insure  on  one  life.3  A  statute  which  authorizes  an 
injunction  to  restrain  the  exercise  of  franchises  and  privileges, 
or  the  transaction  of  unauthorized  business  by  a  corporation 
does  not  exclude  the  remedy  by  proceedings  to  forfeit  the  char- 
ter.4 The  right  of  the  state  to  declare  the  forfeiture  of  the 
charter  of  a  waterworks  company  for  breach  of  duty  imposed 
by  the  charter  is  not  taken  away  by  a  provision  in  a  contract 
between  the  company  and  the  city  that  the  city  may  rescind 
the  contract  if  the  company  fails  to  observe  its  conditions.5 
Long  delay  in  moving  for  a  forfeiture,  and  active  compulsion 
upon  the  company  by  requiring  it  to  extend  its  operations,  is  a 
waiver  of  the  right  to  forfeit  the  franchise  of  a  water  company 
for  neglecting  to  keep  accurate  accounts  of  the  cost  of  construc- 
tion as  required  by  the  ordinance  which  authorizes  the  con- 
struction of  the  works,  and   provides  for  the  purchase  of  the 

tions  are  political  trustees,  and  their  4  International   Frat.   All.  v.  State, 

charters  will  not  be  forfeited  for  either  8G  Md.  550,  40  L.  R.  A.  187.     An  ac- 

acts  of  omission  or  commission  done  tion   may  be  brought  by  the    attor- 

in  good  faith.  State  v.  National  School  ney-general  in  the  name  of  the  state, 

of  Osteopathy,  76  Mo.  App.  439.  under  the  Wisconsin  statutes,  to  va- 

1  Capital,  etc.,  Co.  v.  State,  105  Ala.  cate  the  charter  of  a  street-railway 

40G,  29  L.  R.  A.  743.  corporation  for  failure  to  exercise  its 

'Hartnetl  v.  I 'lumbers'  Sup.  Assn.,  franchise.  Wright  v.  Milwaukee,  etc., 

169  Mass.  229,  38  L.  B.  A.  L94.  Co.,  95  Wis.  29,86  L.  R.  A.  47. 

'International    Prat.   All.  v.  State,  "Capital  City,  etc.,    Co.  v.   State, 

■St;  Md.  550,  40  L.  R.  A.  J 87.  105  Ala.  406,  29  L.  R.  A.  743. 


§  598  INSOLVENCY    AND    DISSOLUTION.  669 

plant  by  the  city  under  certain  conditions.1  Findings  that  a 
corporation  has  for  a  long  time  failed  to  complete  the  work  for 
which  it  was  created;  that  its  members  have  ceased  to  have  an 
interest  in  the  management  of  its  business  or  the  completion 
of  its  work,  and  that  a  judicious  sale  of  its  property  would  greatly 
advance  the  work  already  done  will  justify  an  order  of  disso- 
lution.2 

§  598.  Loss  of  integral  part.3 — The  dissolution  of  a  corpora- 
tion by  the  loss  of  an  integral  part  can  very  rarely  occur  in 
modern  times.  The  rule  that  a  corporation  is  dissolved  by  the 
death  of  all  its  members  has  no  application  to  modern  business 
corporations.  Their  shares  pass  by  assignment,  bequest  or 
descent,  and  must  always  be  the  property  of  some  person  who 
is  necessarily  a  member  of  the  corporation.4  But  if  all  the 
members  of  a  non-stock  corporation  die  or  withdraw,  and  there 
is  no  method  by  which  their  places  can  be  filled,  the  corpora- 
tion is  dissolved.5  But  it  is  not  dissolved  by  the  failure  to  elect 
officers  where  a  method  is  provided  for  filling  vacancies.6  The 
common  law  rule  is  thus  stated  by  Chancellor  Kent:7  "A  cor- 
poration may  also  be  dissolved  when  an  integral  part  of  the 
corporation  is  gone,  without  whose  existence  the  functions  of 
the  corporation  can  not  be  exercised,  and  when  the  corporation 
has  no  means  of  supplying  that  integral  part  and  has  become 
incapable  of  action.  The  incorporation  becomes  then  virtually 
dead  or  extinguished." 

§  599.  Statutory  method  of  dissolution  by  the  state. — Stat- 
utes now   generally  provide  methods   for  the  dissolution  and 

1  State  v.  Janesville,   etc.,   Co.,  92    poration.  Richards  v.  Minnesota,  etc., 
Wis.  496.  Bank  (Minn.),  77  N.  W.  Rep.  822. 

2  State  v.  Cannon  River,  etc.,  Assn.,        3See  Wilgus'  Cases. 

67   Minn.  14.     A   corporation  organ-  4  Boston,  etc.,   Co.  v.  Langdon,  24 

ized  as  a  savings  bank  under  Minne-  Pick.  (Mass.)  49,  Wilgus'  Cases. 

sota  Laws,   1867,   chapter  23,  which  5  Lehigh,  etc.,  Co.  v.  Lehigh,  etc., 

paid  its  depositors,  sold  its  assets  and  Co.,  4  Rawle  (Pa.)  9;  Russell  v.  Mc- 

good-will,   and    did   no   business   for  Lellan,  14  Pick.  (Mass.)  63. 

sixteen  years,  and  then  under  Laws  6  Parker  v.  Bethel,  etc.,  Co.,  96  Tenn. 

1889,  chapter  233,  changed  its   name  252. 

and  place  of  business,  and  exercised  7  2  Kent's  Com.  (13th  ed.),  309.  See 

its  corporate  powers  without  objection  1  Rolle  Abr.  514. 

by  the  state,  is  at  least  a  de  facto  cor- 


670  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  GOO 

winding  up  of  corporations.  It  may  be  either  at  the  instance 
of  stockholders  or  of  the  state.  Thus,  in  Minnesota,  an  action 
may  be  brought  by  the  attorney-general  in  the  name  of  the  state 
for  the  purpose  of  vacating  the  charter  or  annulling  the  exist- 
ence of  a  corporation  other  than  municipal,  whenever  such  cor- 
poration (1)  offends  against  any  of  the  provisions  of  the  act  or 
acts  creating,  altering  or  renewing  such  corporation;  or  (2)  vio- 
lates the  provisions  of  any  law  by  which  such  corporation  for- 
feits its  charter  by  abuse  of  its  powers;  or  (3)  whenever  it  has 
forfeited  its  privileges  or  franchises  by  failure  to  exercise  its 
powers;  or  (4)  whenever  it  has  done  or  omitted  to  do  any  act 
which  amounts  to  a  surrender  of  its  corporate  rights,  privi- 
leges and  franchises;  or  (5)  whenever  it  exercises  a  franchise 
or  privilege  not  conferred  upon  it  by  law.  The  statute  also 
provides  for  vacating  or  annulling  the  act  of  incorporation 
when  it  appears  that  it  was  obtained  through  some  fraudulent 
suggestion  or  concealment  of  a  material  fact.1 

§  600.  Voluntary  liquidation. — It  is  a  well-settled  rule  that, 
in  the  absence  of  a  statutory  provision,  the  shareholders  in  a 
private  business  corporation  can  not  extinguish  its  charter  or 
dissolve  it,  and  that  a  court  of  equity  can  not  dissolve  it  at 
their  instance.  The  majority  of  the  stockholders  may  discon- 
tinue the  business,  but  this  will  not  ordinarily  effect  a  dissolu- 
tion until  followed  by  a  decree  of  a  court  of  competent  jurisdic- 
tion.2 But  in  some  states  it  is  provided  that  when  a  majority 
in  number  or  interest  of  the  members3  desire  to  close  the  busi- 
ness and  wind  up  the  corporation,  they  may  apply  by  a  peti- 
tion to  the  proper  court  of  the  county  where  the  corporation 
has  its  principal  place  of  business,  setting  forth  in  substance 
the  grounds  of  their  application;  and  the  court,  after  such  no- 
tice, as  it  deems  proper  to  all  parties  interested,  may  proceed  to 
hear  (lie  matter,  and,  for  reasonable  cause,  adjudge  a  dissolu- 
tion of  the  corporation.     A  corporation  so  dissolved  is  deemed 

l8ee  Gen.  St.  Minn.  1878,  ch.  79,  be  instituted  by  stockholders  holding 

§§1,2.  not  less  than  one-third  interest.    See 

2§  ikil',  Treadwell  v.  Salisbury,  etc.,  Weigand  v.  Alliance,  etc.,  Co.,  44  W. 

Co.,  7  Gray  (Mass.)  393,  104.  Va.  133. 

3  A   suit  seeking  a  dissolution  may 


§  601  INSOLVENCY    AND    DISSOLUTION.  671 

and  held  extinct  in  all  respects  as  if  the  charter  had  expired 
by  its  own  limitation. 

§  601.  Statutory  provisions  for  a  temporary  continuance  of 
corporation. — It  is  now  generally  provided  by  statute  that  a 
corporation  shall  continue  for  a  certain  period  after  its  formal 
dissolution  for  the  purpose  of  winding  up  its  business.1  The 
proceedings  under  such  a  statute  are  governed  entirely  by  the 
statute.2  The  majority  of  the  stockholders  during  this  period 
can  not  sell  the  corporate  property  to  a  new  corporation  of 
which  they  are  directors  and  stockholders,  at  a  valuation  de- 
termined by  themselves,  against  the  will  of  the  minority  and 
compel  the  minority  to  accept  either  stock  in  the  new  corpora- 
tion or  pay  on  the  basis  of  the  estimated  value  of  the  property. 
Minority  stockholders  are  entitled  to  have  the  property  sold.3 
A  national  bank  continues  to  exist  after  the  expiration  of  the 
statutory  period  of  its  existence,  as  a  legal  person  capable  of 
suing  and  being  sued,  until  its  affairs  are  fully  settled.4 

§  602.  Insolvency,  sale  or  loss  of  property — Abandonment  of 
business.5 — The  legal  existence  of  a  corporation  is  not  affected 
by  its  insolvency,  as  the  possession  of  property  is  not  necessary 
to  corporate  existence.6  "If  their  property  is  impaired  or 
wholly  gone,  this  seems  to  be  no  reason,  before  such  surrender 
or  forfeiture,  to  prevent  the  members  from  furnishing  renewed 
capital  and  then  proceeding  to  use  the  corporate  power."7  A 
corporation  is  not  dissolved  by  the  mere  disposal  of  all  of  its 

xFor  illustrations,  see  State  v.  Fo-  Spratt  v.  Livingston,  32  Fla.«507,  22 
garty,  105  Iowa  32;   Miller  v.  New-    L.  R.  A.  453. 

burg,  etc.,  Co.,  31  W.  Va.  836;   Am.        3  Mason  v.  Mining  Co.,  133  U.  S.  50. 
Surety  Co.  v.  Great,  etc.,  Co.  (N.  J.),        4  Farmers'   Nat'l   Bank    v.   Backus 
43   Atl.  Rep.  579;    Singer  v.  Talcot,     (Minn.),  77  N.  W.  Rep.  142. 
etc.,  Co.,  176  111.  48.  5See  Wilgus'  Cases. 

2  As  to  these  statutes,  see  Hanan  v.  6  Moseby  v.  Burrow,  52  Tex.  396; 
Sage,  58  Fed.  Rep.  651;  Life  Assn.  v.  National  Bank  v.  Insurance  Co.,  104 
Fassett,  102  111.  315;  Bowe  v.  Minn.,     U.  S.  54. 

etc.,  Co.,  44  Minn.  460;  Cooper  v.  7Coburn  v.  Boston,  etc.,  Co.,  10 
Oriental  Sav.  Assn.,  100  Pa.  St.  402;  Gray  (Mass.)  243;  Boston,  etc.,  Co.  v. 
Wright  v.  Nostrand,  94  N.  Y.  31 ;  Her-  Langdon,  24  Pick.  (Mass.)  49,  Wilgus' 
ring  v.  N.  Y.,  etc.,  R.  Co.,  105  N.  Y.  Cases;  Reichwald  v.  Hotel  Co.,  106 
340 ;  Nelson  v.  Hubbard,  96  Ala.  238 ;  111.  439 ;  Auburn,  etc.,  Co.  v.  Sylvester, 
Foster  v.   Bank,  16   Mass.  245.     See    68  Hun  (N.  Y.)  401. 


672  THE    LAW    OF    PRIVATE    CORPORATIONS.  §  603 

property,1  or  by  the  fact  that  one  member  has  acquired  all  the 
stock,2  or  that  its  shares  are  held  by  a  less  number  of  persons 
than  the  law  requires  for  the  organization  of  a  corporation,3  or 
by  the  burning  of  the  mill,  to  operate  which  the  corporation  was 
organized.4  The  sale  of  all  the  property  may  have  the  effect  of 
terminating  the  business  for  which  the  corporation  was  organ- 
ized, but  it  does  not  dissolve  it.5  Such  a  sale  no  more  dissolves 
the  corporation  than  would  the  giving  of  a  mortgage  that  might 
ultimately  result  in  all  the  property  being  taken  from  the  cor- 
poration. The  corporation  still  exists,  and  is  properly  made 
a  party  to  an  action  as  an  existing  corporation.  A  corpora- 
tion is  not  dissolved  by  an  assignment  for  the  benefit  of  credit- 
ors,6 the  appointment  of  a  receiver,"  or  the  discontinuance  of 
business.8 

§  603.  Powers  of  a  court  of  equity, — As  a  general  rule  a 
court  of  equity  has  no  power,  unless  it  is  conferred  by  statute, 
to  decree  the  dissolution  of  a  corporation  by  forfeiture  of  its 
franchises,  either  at  the  suit  of  an  individual  or  at  the  suit  of 
the  state,  as  there  is  an  adequate  remedy  at  law  by  quo  war- 
ranto.9    "  General  jurisdiction  of  suits  against  corporations  no 

1  See  Louisville,  etc.,  Co.  v.  Kauf-  corporation,  see  Bartholomew  v.  Der- 
man  (Ky.),  48  S.  W.  Rep.  434 ;  James  by  Rubber  Co.,  69  Conn.  521,  61  Am. 
v.  Western,  etc.,  Co.,  121  N.  C.  523;  St.  Rep.  57,  and  note;  Benbow  v. 
Weigand  v.  Alliance,  etc.,  Co.,  44  W.  Cook,  115  N.  C.  324,  44  Am.  St.  Rep. 
Va.  133.  457.     §485,  supra. 

2  Louisville,  etc.,  Co. v.Eisenman,  94  6  Town  v.  Bank,  2  Doug.  (Mich.) 
Ky.  83,  Wilgus'  Cases.  It  remains  a  530;  State  v.  Butler,  86  Tenn.  614. 
corporation  aggregate,  but  the  fran-  7  Kincaid  v.  Dwindle,  59  N.Y.  548; 
chise  is  suspended  until  the  shares  are  State  v.  District  Court  (Mont.),  56 
transferred,  when  corporation  may  Pac.  Rep.  219;  Moseby  v.  Burrow,  52 
continue  its  business  in  the  corporate  Tex.  396. 

name.     Button  v.  Hoffman,  61  Wis.  8  Saline  National  Bank  v.  Prescott 

20.     But  see  Swift  v.  Smith,  etc.,  Co.,  (Kan.),  57  Pac.  Rep.  12;   Brandt  v. 

r,r>  Md.  428.  Benedict,  17  N.  Y.  93;  Slee  v.  Bloom,  5 

8Parkerv.Bethel,etc.,Co.,96Tenn.  Johns.   Ch.    (N.  Y.)  366,   19  Johns. 

252.  (N.  Y.)  456. 

4  In  re  Belton,  47  La.  Ann.  1614,  30  9  Republican,  etc.,  Co.  v.  Brown,  58 

L.  R.  A.  648.  Fed.  Rep.  644,  19  IT.  S.  App.  203.  24 

6 Price  v.  ITolcomb,  89  Iowa  123,  56  L.  R.  A.  776;  Wallace  v.  Pierce- W'al- 

N.  W.  Rep.  107;  Bump  v.  Butler  Co.,  lace,  etc.,  Co.,  101  Iowa  313,  38  L.  R. 

93  Fed.  Rep.  290.    As  to  power  of  the  A.  122;  Folger  v. Columbian,  etc.,  Co., 

majority  to  sell  all  the  property  of  the  99  Mass.  267;  Strong  v.  McCagg,  55 


§  603  INSOLVENCY   AND    DISSOLUTION.  673 

more  implies  a  power  to  destroy  a  corporation  at  the  suit  of  an 
individual  than  jurisdiction  of  private  suits  against  individ- 
uals authorizes  the  court  to  entertain  a  prosecution  for  crime, 
to  pass  sentence  of  death,  and  to  issue  a  warrant  for  execution. 
The  only  modes  of  dissolving  a  corporation  known  to  the  com- 
mon law  were,  by  the  death  of  all  its  members,  by  act  of  the 
legislature,  by  a  surrender  of  the  charter,  accepted  by  the  gov- 
ernment, or  by  forfeiture  of  the  franchise,  which  could  only 
take  effect  upon  a  judgment  of  a  competent  tribunal  on  a  pro- 
ceeding in  behalf  of  the  state  ;  and  neither  a  court  of  law  nor 
a  court  of  equity  had  jurisdiction  to  decree  a  forfeiture  of  the 
charter  or  dissolution  of  the  corporation  at  the  suit  of  an  indi- 
vidual."1 "Equity  may  properly,"  says  Mr.  High,  "com- 
pel officers  of  corporations  to  account  for  any  breach  of  trust 
in  their  official  capacity;  yet  in  the  absence  of  statutes  extend- 
ing its  jurisdiction,  it  will  usually  decline  to  assume  control 
over  the  management  of  the  affairs  of  a  corporation  upon  a 
bill  *  *  *  alleging  fraud,  mismanagement  and  collusion  on 
the  part  of  the  corporate  authorities,  since  such  interference 
would  necessarily  result  in  the  dissolution  of  the  corporation, 
and  the  court  would  thus  accomplish  indirectly  what  it  has  no 
power  to  do  directly.  The  remedial  power  exercised  by  courts 
of  equity  in  such  cases  ordinarily  extends  no  further  than  the 
granting  of  an  injunction  against  any  special  misconduct  on 
the  part  of  the  corporate  officers;  and  although  the  facts  shown 
may  be  sufficient  foundation  for  such  an  injunction,  the  court 
will  not  enlarge  its  jurisdiction  by  taking  the  affairs  of  the 
corporation  out  of  the  management  of  its  own  officers  and 
placing  them  in  the  hands  of  a  receiver."2     But  a  court  of 

Wis.  624;  Bliven  v.  Peru,  etc.,  Co.,  9  80  N.  Y.  599;   Hitch  v.  Hawley,  132 

Abb.  N.  Cas.  205;  Mason  v.  Supreme  N.  Y.  212. 

Court,  77  Md.  483;  Oakes  v.  Hill,  14  1  Folger  v.  Columbian,  etc.,  Co.,  99 

Pick.  442;  Hunt  v.  Le  Grand,  etc.,  Co.,  Mass.  267;  Boston,  etc.,  Co.  v.  Lang- 

143  111.  118;  Supreme  Sitting,  etc.,  v.  den,  24  Pick.  49.     See  Texas,  etc.,  Co. 

Baker,  134  Ind.  293.    For  the  English  v.  Starrow,  92  Fed.  Rep.  5. 

rule  see  In  re  Lloyd  Generale  Italiano,  2  High  on  Receivers,  §  238.   See  Re- 

L.  R.  29  Ch.  Div.  219;  Hardonv.  New-  publican   Mountain  Silver  Mines  v. 

ton,  14  Blatchf.  376;  Hodges  v.  Screw  Brown,  7  C.  C.  A.  412,  58  Fed.  Rep. 

Co.,  3  R.  I.  9;  Denike  v.  Cement  Co.,  644,  and  cases  there  cited.   A  court  of 
43— Private  Corp. 


674  THE    LAW   OF    PRIVATE    CORPORATIONS.  §  604 

equity  may,  in  order  to  give  complete  relief  from  frauds  prac- 
ticed through  a  corporate  organization,  and,  if  necessary,  will, 
dissolve  the  corporation.1 

§  604.  Proceedings  by  state. — No  one  can  take  advantage 
of  a  breach  of  the  conditions  on  which  a  corporation  was 
granted  its  franchises  for  the  purpose  of  depriving  it  of  such 
franchises  but  the  state  by  which  it  was  created,2  unless  au- 
thorized to  do  so  by  statute.3  A  number  of  persons  who  were 
members  of  the  defendant  corporation  obtained  a  rule  requir- 
ing the  corporation  to  show  cause  why  an  information  in  the 
nature  of  a  quo  warranto  should  not  be  filed  against  it,  for  the 
purpose  of  dissolving  it  and  procuring  an  adjudication  that  its 
corporate  powers  were  void.  The  statute  under  which  the 
corporation  had  been  formed  "required  the  holders  of  stock  to 
pay  fifty  per  cent,  of  their  subscriptions  within  sixty  days 
after  the  first  meeting  of  the  company,  and  that  no  insurance 
on  any  one  risk  should  be  made  for  a  larger  sum  than  ten  per 
cent,  of  the  capital  stock  actually  paid  in."   The  complainants 

one  state  may  appoint  a  receiver  for  a  not  be  properly  handled  by  the  gen- 
corporation  organized  in  another  state,  eral  receiver.  See  In  re  Jarvis,  etc., 
and  doing  business  within  its  own  Co.,  11  Law  Times  Rep.  373. 
territory  and  having  property  there.  l  Miner  v.  Belle  Isle  Ice  Co.,  93  Mich. 
This  may  be  done  although  the  courts  97,  Wilgus'  Cases, 
in  the  home  state  of  the  corporation  2  Elizabethtown,  etc.,  Co.  v.  Green, 
may  have  placed  its  affairs  in  the  46  N.J.  Eq.  118;  State  v.  Curtis,  35 
hands  of  a  receiver.  The  receiver  ap-  Conn.  374,  Wilgus'  Cases;  Heard  v. 
pointed  in  the  foreign  state  will  be  Talbot,  7  Gray  (Mass.)  113;  Toledo, 
regarded  as  ancillary  or  auxiliary  to  etc.,  R.  Co.  v.  Johnson,  49  Mich.  148; 
the  receiver  appointed  in  the  statf  Greenbrier,  etc.,  Co.  v.  Ward,  30  W. 
to  which  the  corporation  owes  its  crea  Va.  43  ;  Renick  v.  Bank,  13  Ohio  Rep. 
tion.  See  Holbrook  v.  Ford,  153  111.  298;  Boston,  etc.,  Co.  v.  Langdon,  24 
633,  27  L.  R.  A.  324;  Hunt  v.  Colum-  Pick.  49,  Wilgus'  Cases.  The  fact  that 
bian,  etc.,  Co.,  55  Maine  290,  92  Am.  a  suit  by  the  attorney-general  to  annul 
Dec.  592;  Lewis  v.  American  Sav.  and  the  existence  of  a  corporation  as  an 
Loan  Assn.,  98  Wis.  203;  In  re  Mathe-  illegal  combination  to  regulate  the 
son  Brothers,  Limited,  L.R.  27  Ch.Div.  price  of  a  commodity  was  instituted 
225.  Although  a  court  has  jurisdiction  on  the  petition  of  another  such  corpo- 
to  appoint  an  ancillary  receiver  to  take  ration  is  immaterial.  People  v.  Milk 
control  of  the  assets  of  u  foreign  corpo-  Exchange,  145  N.  Y.  267,  27  L.  R.  A. 
ration  within  its  jurisdiction,  it  should  437. 

be    exercised     only    when    there    is  :<  State  v.  Webb,  97  Ala.  Ill,  Wilgus' 

reason  to  believe  that  the  assets  will  Cases. 


§  605  INSOLVENCY    AND    DISSOLUTION.  675 

alleged  that  the  defendant  corporation  had  violated  both  pro- 
visions of  the  statute.  Chief  Justice  Parsons  said:1  "We  have 
not  inquired  into  the  truth  of  these  allegations,  as  we  are  sat- 
isfied that  in  this  case  such  inquiry  would  be  immaterial,  be- 
cause this  rule  is  not  moved  for  in  behalf  of  the  common- 
wealth. *  *  *  An  information  for  the  purpose  of  dissolving 
the  corporation  or  of  seizing  its  franchises  can  not  be  prose- 
cuted but  by  the  authority  of  the  commonwealth.  *  *  * 
For  the  commonwealth  may  waive  any  breaches  of  any  condi- 
tion, expressed  or  implied,  on  which  the  corporation  was  cre- 
ated; and  we  can  not  give  judgment  for  the  seizure  by  the 
commonwealth  of  the  franchises  of  any  corporation,  unless 
the  commonwealth  be  a  party  in  interest  to  the  suit,  and  thus 
assenting  to  the  judgment."  The  proceeding  is  now  generally 
regulated  by  statute.  At  common  law  the  proceeding  to  enforce 
a  forfeiture  of  corporate  franchises  might  be  by  scire  facias,  or 
by  quo  warranto.  The  former  was  used  when  there  was  a 
legal  corporation  which  was  abusing  its  powers,  and  the  latter 
when  there  was  no  legal  incorporation  and  a  mere  assumption 
of  power.2 

§  605.  Effect  of  dissolution,  generally. — Upon  the  dissolution 
of  a  corporation  it  is  dead,  and  loses  all  power  to  act,  and  its 
affairs  must  be  wound  up  by  an  officer  appointed  for  the  pur- 
pose. Thereafter  it  can  neither  institute  nor  defend  a  suit,3  and 
a  judgment  entered  against  it  is  a  nullity.4     All  pending  suits 

1  Commonwealth  v.Union,  etc.,  Co.,  maintain  or  defend   suits  relating  to 
5  Mass.  230.  the  settlement  of  its  business. 

2  2   Kent.   Com.,   313;    Wheeler  v.  4  Marion,  etc.,  Co.  v.  Perry,  74  Fed. 
Pullman,  etc.,  Co.,  143  111.  197.  Rep.  425,  41  U.  S.  App.  14,  33  L.  R.  A. 

3  Saltmarsh  v.  Planters,  etc.,  Bank,  252;  Thornton  v.  Marginal,   etc.,    R. 

17  Ala.  761;  Muscatine,  etc.,  v.  Funck,  Co.,  123  Mass.  32;  Dobson  v.  Simon- 

18  Iowa  469;  City  Ins.  Co.  v.  Bank,  ton,  86  N.  C.  492;  Krutz  v.  Town  Co., 
68  111.  348;  Boston,  etc.,  Co.  v.  Lang-  20  Kan.  397.  Scire  facias  to  review  a 
don,  24  Pick.  49,  Wilgus'  Cases.  In  judgment  recovered  as  a  corporation 
Decree  v.  Hankinson  (C.  C.  A.),  92  can  not  be  maintained  after  its  dis- 
Fed.  Rep.  49,  reversing  84  Fed.  Rep.  solution.  Mumma  v.  Potomac  Co.,  8 
876,  it  was  held  that  the  dissolution  of  Pet.  (U.  S.)  281.  Can  not  be  proceeded 
a  corporation  by  the  forfeiture  of  its  against  unless  specially  authorized  by 
charter  does  not  deprive  it  of  the  statute.  Combes  v.  Keyes,  89  Wis. 
power  to  convey  its  property   or  to  297,  27  L.  R.  A.  369. 


676  THE   LAW   OF   PRIVATE    CORPORATIONS.  §  606 

are  abated,1  but  the  dissolution  of  a  defendant  corporation  after 
an  action  on  contract  has  been  submitted  and  taken  under  ad- 
visement by  the  court  will  not  abate  the  action,  as  the  court 
will  date  the  findings  and  enter  judgment  as  of  the  time  when 
the  action  was  submitted.2  The  forfeiture  of  the  charter  will 
not  prevent  the  sale  of  its  property  under  a  levy  of  an  execu- 
tion made  before  the  dissolution.3  A  statute  making  void  a 
judgment  confessed  by  a  corporation  after  a  petition  has  been 
filed  for  its  dissolution  will  not  affect  the  control  of  the  prop- 
erty attached  according  to  the  laws  of  another  state  under  the 
judgment.4 

§  606.   Effect  of  dissolution  upon  corporate  debts  and  assets. 

— The  property  and  property-rights  of  a  corporation  are  not 
under  the  present  law  destroyed  by  the  expiration  of  the  cor- 
porate charter.5  By  the  common  law  rule,  upon  the  dissolu- 
tion of  a  corporation  its  real  estate  reverted  to  the  grantor,  its 
personal  property  went  to  the  sovereign,  and  its  debts  were 
extinguished.6  "According  to  the  old  settled  law  of  the  land," 
says  Chancellor  Kent,7  "where  there  is  no  special  statute 
provision  to  the  contrary,  upon  the  civil  death  of  a  corpora- 
tion all  of  its  real  estate  remaining  unsold  reverts  back  to  the 
original  grantor  and  his  heirs.  The  debts  to  and  from  the 
corporation  are  all  extinguished.  Nei'ther  the  stockholders  nor 
the  directors  or  trustees  of  the  corporation  can  recover  those 
debts  or  be  charged  with  them  in  their  natural  capacity.  All  the 

1  Nat'l  Bank  v.  Colby,  21  Wall.  (IT.  Fed.  Rep.  49.    This  is  without  refer- 

S.)   609;  McCulloch   v.  Norwood,  58  ence  to  the  matter  of  a  preference. 
N.  Y.  562;  Thornton  v.  Marginal,  etc.,        4Com.  Nat'l  Bank  v.  Motherwell, 

R.  Co.,  123  Mass. 32.  Effect  of  consoli-  etc.,  Co.,  95  Tenn.  172,  29  L.  R.  A. 

dation,  Evans  v.  Interstate,  etc.,  R.  164. 
Co.,  106  Mo.  594.  5  People  v.  O'Brien,  111  N.  Y.  1,  7 

2Shakman   v.   U.  S.,  etc.,   Co.,  92  Am.  St.  Rep.  684,  and  note;  Fleitas  v. 

Wis.  366,  32  L.  R.  A.  383.     In  Stein-  New  Orleans  (La.),  24  So.  Rep.  623. 
houer  v.  Colmar  (Colo.  App.),  55  Pac.        6  Angell  &  Ames  Corp.,  §  779;  Life 

Rep.  291,  it  was  held,  under  Tien.  St.,  Assn.  v.   Fassett,  102  111.  315;  Com- 

§  270,  that  a  judgment  could  be  en-  mercial  Bank  v.  Lockwood,  2  Harr. 

tered  after  dissolution  if  the  cause  of  (Del.)  8. 
action  arose  before  the  dissolution.  7  Kent  Com.  (13  ed.),  307;   11  Kyd. 

8Boyd  v.  Ilankinson  (C.  C.  A.),  92  Corp.,  516;  Co.  Litt.  136. 


§  606  INSOLVENCY    AND    DISSOLUTION.  677 

personal  estate  of  the  corporation  vests  in  the  people  as  succeed- 
ing to  this  right  and  prerogative  of  the  crown  at  common  law. " 
But  this  rule  is  no  longer  applicable  to  business  corporations, 
and  the  courts  of  equity  will  see  that  the  assets  of  a  corpora- 
tion are  collected  and  applied  to  the  payment  of  its  debts  and 
any  surplus  distributed  among  stockholders.1     It  still  applies, 
however,  upon  the  dissolution  of  a  corporation  which  has  no 
stockholders  and  no  debts,  such  as  a  mutual  insurance  com- 
pany, and   to  religious  and  charitable   corporations.2     Thus, 
upon  the  dissolution  of  the  corporation  known  as  the  Church 
of  Jesus  Christ  of  Latter  Day  Saints,  it  was  held  that  the  prop- 
erty of  the  corporation  escheated  to  the  United  States.  The  court 
said,3  that  "when  a  business  corporation  instituted  for  the 
purposes  of  gain  or  private  interest  is  dissolved,  the  modern 
doctrine  is,  that  its  property  after  the  payment  of  its  debts 
equitably  belongs  to  its  stockholders.     But  this  doctrine  has 
never  been  extended  to  public  or  charitable  corporations.     As 
to  these  the  ancient  established  rule  remains,   namely,   that 
when  a  corporation  is  dissolved,  its  personal  property,  like  that 
of  a  man  dying  without  heirs,  ceases  to  be  the  subject  of  pri- 
vate ownership,  and  becomes  subject  to   the  disposal  of  the 
sovereign  authority;  whilst  its  real  estate  reverts  or  escheats  to 
the  grantor  or  donor,  unless  some  other  course  of  devolution 
has  been  directed  by  positive  law,  though  still  subject,  as  we 
shall  hereafter  see,  to  the  charitable  use."     The  property  of 
the  corporation  devolved  upon  the  United  States,  subject  to  be 
disposed  of  according  to  the  principles  applicable  to  property 
devoted  to  religious  and  charitable  uses,  the  real  estate  being 
also  subject  to  a  condition  of  forfeiture  and  escheat  contained 
in  the  act  of  congress. 

1  Wheeler  v.  Pullman,  etc.,  Co.,  143  porated  military  company,  which  has 
111.  197;  Heman  v.  Britton,  88  Mo.  been  disbanded  by  order  of  the  gov- 
549;  Asheville  Div.  v.  Aston,  92  N.  C.  ernor  for  non-compliance  with  the 
578;  Hightower  v.  Thornton,  8  Ga.  law,  see  Cummings  v.  Hollis  (Ga.),33 
486;  Wilson  v.  Leary,  120  N.  Car.  90,  S.  E.  Rep.  919. 

58  Am.  St.  Rep.  778.  »  Late  Corp.   of    Church    of    Jesus 

2  Titcombv.  Insurance  Co.,  79  Maine  Christ  v.  United  States,  136  U.  S.  1, 
315.    As  to  the  property  of  an  incor-    Wilgus'  Cases. 


INDEX 


[Beferences  are  to  Sections.'] 

A 

ABANDONMENT, 

dissolution  by,  602. 

ACCEPTANCE, 

of  charter,  25. 

of  amendment  to  charter,  103,  487. 

ACCUMULATIVE  DIVIDENDS, 

nature  of,  314. 

ACQUIESCENCE, 

estoppel  by,  86. 

in  ultra  vires  acts,  220. 

in  fraud,  323. 

effect  of  on  corporate  acts,  429. 

See  Delay  ;  Laches. 
ACTIONS, 

by  and  against  foreign  corporations,  273-282. 
to  enforce  stock  subscription,  382. 
by  stockholder  to  recover  dividends,  406. 
how  dissolution  affects,  605. 

ACTIONS  BY  STOCKHOLDERS, 
against  third  persons,  420. 
protection  of  collective  rights,  420. 
when  stockholder  may  sue,  421. 
conditions  precedent  to  right  of  action,  422. 
illustrations  of,  423-426. 
rights  of  transferees,  417. 
discretionary  power,  428. 
acquiescence,  429. 
parties  to  the  suit,  430. 
right  to  restrain  ultra  vires  acts,  431. 
control  by  the  majority,  432. 
limitations  on  the  power  of  the  majority,  433. 

(679) 


680  INDEX. 

[References  are  to  Sections.'] 

ADJOURNED  MEETINGS, 

power  to  hold,  468. 

See  Meetings. 
ADMINISTRATORS, 

right  to  vote  stock,  471. 

ADOPTION, 

contract  of  promoter,  59. 

AGENTS, 

by-laws  limiting  power  of,  155. 

corporations  act  through,  170. 

liability  for  torts  of,  234. 

acts  beyond  authority  of,  234. 

service  on  those  of  foreign  corporation,  276. 

designating  to  accept  service  of  process,  280. 

liability  for  fraud  of,  323,  369. 

subscribing  to  stock  through,  347. 

authority  of  in  taking  subscriptions,  371. 

effect  of  refusal  to  act,  422. 

how  appointed,  494. 

directors  ratifying  acts  of,  499,  509. 

relation  to  the  corporation,  502. 

liability  for  torts  of,  508. 

liability  where  they  act  willfully,  508. 

liability  for  ultra  vires  acts  of,  510. 

personal  liability  of,  511. 

when  directors  are  not,  528  re. 

notice  to,  534. 

when  incorporators  liable  as,  547. 

See  Officers  and  Agents. 
ALIEN, 

as  director,  498. 

ALIENATION  OF  PROPERTY, 

limitation  upon  right  of,  187. 

AMALGAMATION, 

See  Consolidation. 
AMENDMENT, 

of  corporate  charter,  99,  100. 

acceptance  of,  103. 

must  not  create  new  charter,  104. 

offer  of,  105. 

remedy  for  illegal  to  charter,  106. 

power  of  majority  to  accept  to  charter,  106  n,  486,  487. 

of  by-laws,  159. 

minority  may  object  to,  486. 


INDEX.  681 


[Beferences  are  to  Sections.] 
AMENDMENT—  Continued. 

injunction  against  acceptance  of,  487. 
acceptance  of  immaterial,  488. 
right  to  accept  beneficial,  489. 

AMOUNT  OF  STOCK, 

of  capital  stock,  302. 
necessary  to  be  subscribed,  354. 

ANNUAL  REPORT, 

failure  of  directors  to  file,  522. 

See  Report. 

ARTICLES  OF  INCORPORATION, 

essentials  of,  36,  38,  39,  41. 
signing  and  filing,  39. 
filing  and  publication  of,  42. 
as  evidence,  50. 
effect  of  signatures,  ^50. 

ASSESSMENTS, 

to  pay  preliminary  expenses,  354  n. 

lien  on  shares  for,  457. 

suit  to  enforce,  555. 

conclusiveness  of  decree  making,  556,  557. 

See  Calls. 
ASSETS  AND  DEBTS, 

decree  determining,  556. 
how  dissolution  affects,  606. 

ASSIGNEE, 

corporation  acting  as,  37  n. 

ASSIGNMENT  FOR  CREDITORS, 

power  of  corporation  to  make,  189. 

ASSIGNMENT  OF  SHARES, 

See  Transfer  of  Shares. 

ATTACHING  CREDITORS, 

transfer  of  shares  of  stock  to,  442. 

ATTACHMENT, 

of  shares,  effect  of,  442. 

when  transfer  of  stock  precedes,  442. 

ATTORNEY, 

authority  of  president  to  employ,  529. 


682  INDEX. 

[References  are  to  Section*.] 
ATTORNEY-GENERAL, 

quo  warranto  proceedings  by,  93. 
asking  forfeiture  of  charter,  597. 

AUTHORITY, 

board  of  directors  delegating,  501. 
liability  where  officers  exceed,  511. 

See  Powers. 

AUXILIARY  PROCEEDINGS, 

in  enforcing  stockholders'  liability,  585. 

B 

BANKING  CORPORATIONS, 

congress  creating,  28. 

BELIEF, 

expressions  of  do  not  amount  to  fraud,  374. 

BENEFITS, 

accepting  under  promoter's  contract,  60. 

effect  on  defense  of  ultra  vires,  218  n. 

estoppel  by  retention  of,  219. 

liability  for  those  received  under  illegal  contracts,  227. 

BONA  FIDE  HOLDER, 

of  over-issued  negotiable  paper,  184. 
of  fraudulently  issued  stock,  321. 
of  stock,  rights  of,  324. 

BONA  FIDE  PURCHASER, 

of  shares  of  stock,  332. 
creditor  is  not,  442. 

BONDHOLDERS, 

right  to  vote  at  corporate  meetings,  472. 

BONDS, 

power  of  railway  company  to  guaranty,  180. 

BONUS  STOCK, 

validity  of,  335,  336. 

BOOKS, 

right  to  inspect,  393. 
transfer  of  stock  on,  440. 

BREACH  OF  TRUST, 

in  transfer  of  shares,  liability,  455. 


INDEX.  683 

[References  are  to  Sections.] 


BURDEN  OF  PROOF, 

as  to  compliance  with  foreign  statute,  272. 
to  disprove  fraud,  504. 

BUSINESS, 

in  which  corporation  may  engage,  139. 
what  constitutes,  266. 
power  of  majority  to  wind  up,  485. 
effect  of  abandonment  of,  602. 

BY-LAWS, 

definition,  144. 

resolution  distinguished  from,  144  n. 

power  to  make,  145. 

subjects  of,  145  n. 

who  has  power  to  make,  146. 

manner  of  adoption,  147. 

must  conform  to  charter,  148. 

must  not  be  repugnant  to  law  of  land,  149. 

violating  public  policy,  150. 

regulating  bringing  of  suits,  150  n. 

must  be  reasonable,  151. 

must  be  general,  152. 

effect  on  insurance  contracts,  153. 

effect  on  officers  and  members,  153. 

notice  of,  153  n. 

effect  on  third  persons,  154. 

limiting  powers  of  agents,  155. 

rules  and  regulations  published  by  corporations,  156. 

imposing  forfeiture,  157. 

expulsion  of  members,  158. 

amendment,  repeal  and  waiver,  159. 

how  restrictions  in  affect  contracts,  214. 

effect  on  members,  293. 

as  to  amount  of  capital  stock,  302. 

prohibiting  transfers  of  shares,  validity,  436. 

regulating  transfers  of  shares,  437,  438. 

validity,  439. 

prescribing  manner  of  transferring  stock,  444. 

creating  lien  on  shares,  457. 

regulating  corporate  meetings,  464. 

fixing  place  of  corporate  meetings,  465. 

regulating  manner  of  conducting  meetings,  469. 

giving  bondholders  right  to  vote,  472. 

conferring  right  to  vote  by  proxy,  473. 

determining  quorum,  482  n. 

as  to  directors'  meetings,  496. 


684  INDEX. 

[Beferences  are  to  Sections.] 
BY-LAWS—  Continued. 

prescribing  qualifications  of  directors,  498. 
conferring  powers  upon  officers,  528. 
fixing  compensation  of  officers,  535. 
officers  charged  with  notice  of,  536. 

c 

CALLED  MEETINGS, 

when  and  how  may  be  held,  464. 

CALLS, 

on  stock  subscriptions,  383. 
how  to  be  made,  383. 
uniformity  in,  384. 
demand,  384. 
lien  on  shares  for,  457. 
liability  of  transferee  for,  458. 

CAPITAL, 

defined,  299. 

distinguished  from  capital  stock,  300  n. 

essential  to  securement  of  franchise,  352. 

effect  of  subscriptions  in  excess  of,  361. 

distributing  among  stockholders,  402. 

right  of  remainder-man  to,  418. 

as  trust  fund  for  creditors,  485. 

liability  for  that  wrongfully  distributed,  551. 

CAPITAL  STOCK, 

stating  amount  in  articles  of  incorporation,  41. 

subscriptions  to  as  condition  precedent,  43. 

taxation  of,  112,  117. 

what  it  represents,  113  n. 

membership  in  corporation  having,  284. 

capital  defined,  299. 

capital  stock  defined,  300. 

distinguished  from  capital,  300  n. 

shares  of  stock,  301. 

amount  of,  302. 

dividend  stock,  303. 

stock  certificates,  304. 

non-negotiable  instruments,  305. 

different  kinds  of  stock,  306. 

preferred  stock,  307,  308. 

status  of  holders  ol  preferred  stock,  312. 

rights  of  holders  of  preferred  stock,  313. 

accumulative  dividends,  314. 


INDEX.  685 


[References  are  to  Sections.] 
CAPITAL  STOCK—  Continued. 
nature  of,  315,  319. 
as  trust  fund,  317. 
fraudulently  issued  stock,  320,  327. 
watered  stock,  328,  342. 
payment  for  in  property,  340. 
directors  can  not  increase,  499. 
profits  not  a  part  of,  551. 

CARE, 

degree  of  required  of  officers,  513. 

CERTIFICATE  OF  STOCK, 
seal  unnecessary,  143  n. 
issue  of  new  one,  253. 
defined,  304. 

not  negotiable  instrument,  305. 
estoppel  by  recital  in,  322. 
liability  on  forged,  324. 
issued  to  secretary,  validity,  325. 
denying  those  fraudulently  issued,  325  n. 
recital  that  paid  up,  332. 
effect  of  recitals  in,  332. 
when  tender  of  required,  356. 
surrender  on  transfer  of  shares,  441. 
issuing  new  one  on  transfer  of  stock,  444. 
surrender  on  transfer  of  shares,  447. 
indorsement  of,  449. 
not  negotiable  instrument,  450. 
rights  of  purchaser  of  stolen,  450. 
transfer  of  in  breach  of  trust,  455. 

See  Transfer  op  Shares. 

CHARITABLE  CORPORATIONS, 

definition  and  nature  of,  19. 
CHARTER, 

source  of,  6,  7. 

acceptance  of,  25. 

granting  to  non-residents,  73  n. 

attacking  by  quo  warranto,  93. 

forfeiture  and  repeal,  94. 

legislature  repealing,  94. 

defined,  95. 

as  a  contract,  96,  97. 

contracts  contained  in,  98. 

right  to  repeal  or  amend,  99,  100. 

effect  of  repeal  of,  102. 


686  INDEX. 

[Beferences  are  to  Sections.] 
CHARTER— Continued. 

contracts  survive  repeal  of,  102. 

accepting  amendment  to,  103. 

amendment  does  not  create  new  one,  104. 

remedy  for  illegal  amendment  to,  106. 

construction  of,  111. 

authority  to  transfer,  127. 

constitutional  protection,  130. 

construction  of,  134. 

when  liberally  construed,  139. 

by-laws  to  conform  to,  148. 

conferring  authority  to  consolidate,  195. 

acts  not  authorized  by,  259. 

fixing  amount  of  capital  stock,  302. 

subscriptions  before  grant  of,  352. 

fixing  amount  of  stock  to  be  subscribed,  354. 

subscriptions  necessary  to  obtain,  364. 

regulating  corporate  meetings,  464. 

conferring  right  to  vote  by  proxy,  473. 

power  to  alter  or  amend,  486. 

power  of  majority  to  accept  amendments  to,  486,  487. 

immaterial  amendments  and  alterations,  488. 

right  of  majority  to  accept  beneficial  amendments,  489. 

liability  of  officers  for  violating,  521. 

conferring  powers  upon  officers,  528. 

fixing  compensation  of  officers,  535. 

suing  for  tort,  after  expiration  of,  594  n. 

surrender  of,  596. 

attorney-general  asking  forfeiture  of,  597. 

See  Articles  of  Incorporation. 
CITIZENSHIP, 

of  corporation,  8,  63-68. 

constitutional  law,  65. 

effect  of  license  on,  67. 

how  affected  by  place  of  doing  business,  67. 

as  affecting  suits,  274  n. 

CIVIL  CORPORATIONS, 

visitorial  power  over,  90. 

CLAIMS, 

directors  purchasing  against  corporation,  502. 

CLUBS, 

expulsion  from,  294,  294  n. 

courts  reviewing  proceedings  of  expulsion  from,  298. 
See  Non-Stock  Corporations. 


INDEX. 


687 


[References  are  to  Sections."] 
COLLATERAL  ATTACK, 

on  corporate  existence,  70. 
on  de  facto  corporation,  71. 
on  right  to  exercise  a  franchise,  78. 

COMBINATIONS, 

legality,  177  n. 

See  Trusts. 
COMITY, 

recognizing  foreign  corporations,  240,  247. 
rule  of  between  the  states,  254-260. 
private  international  law  based  on,  254  n. 

COMMERCIAL  PAPER, 

power  to  indorse  and  guarantee,  180. 
certificate  of  stock  is  not,  305,  450. 

COMMISSION, 

promoter  not  to  receive,  53. 

COMMON  DIRECTORS, 

contracts  between  corporations  having,  506,  507. 

COMMON  LAW, 

as  to  subscription  to  stock,  43  n. 

COMMON  LAW  LIABILITY  OF  STOCKHOLDERS, 

in  general,  538. 

liability  to  corporation  measured  by  the  contract  of  subscription,  539. 

acts  prior  to  incorporation,  540. 

the  incorporation  of  a  partnership  business,  541. 

debts  contracted  before  distribution  of  stock,  542. 

liability  resulting  from  illegal  or  defective  incorporation,  543. 

liability  as  partners,  544. 

conflicting  theories  and  decisions,  545. 

the  tendency  of  the  decisions,  546. 

where  there  is  not  even  a  de  facto  corporation,  547. 

"one  man"  corporations,  548,  549. 

corporations  organized  to  do  business  exclusively  in  another  state,  550. 

liability  for  capital  wrongly  distributed,  551. 

liability  upon  shares  issued  below  par,  552. 

fraudulent  acts,  553. 

enforcement,  defenses,  554. 

enforcement  of  liability  in  a  foreign  jurisdiction,  555. 

decree  determining  assets  and  debts  and  making  assessments,  556. 

conclusiveness  of  decree,  557. 

COMPENSATION, 

of  officers  and  agents,  535. 


688  INDEX. 

[Beferences  are  to  Sections."] 
COMPETITION, 

validity  of  contracts  to  prevent,  174. 

CONDITIONAL  SALE, 

right  to  dividends  on,  413. 

CONDITIONAL  SUBSCRIPTIONS 

nature  of,  352. 

CONDITIONS, 

in  grant  of  franchise,  121. 
imposing  on  foreign  companies,  262. 
penalty  for  failing  to  comply  with,  269. 
estoppel  to  allege  non-compliance  with,  271. 
complying  with  before  becoming  a  member,  288. 
subscription  on,  352. 

how  secret  affect  stock  subscriptions,  353. 
delivery  of  subscription  contract  on,  357. 
performance  of  those  to  subscription,  358. 
waiver  of  that  in  subscription,  358,  374. 
upon  which  records  may  be  inspected,  394. 
effect  of  on  subscription,  554. 

CONDITIONS  PRECEDENT, 

to  organization  of  corporation,  40. 

subscriptions  as,  43. 

to  consolidation,  195. 

effect  of  failure  to  comply  with  in  making  contracts,  270. 

to  right  of  action  by  stockholders,  422. 

CONDITIONS  SUBSEQUENT, 

in  subscriptions,  359. 

CONFLICT  OF  LAWS, 

effect  on  contracts,  244. 

CONGRESS, 

power  to  create  corporations,  28. 
control  over  interstate  commerce,  114. 
control  over  telegraph  companies,  118. 

CONSIDERATION, 

recovering  that  paid  on  ultra  vires  contract,  209. 

for  agreement  to  take  stock,  344. 

for  stock  subscription,  349. 

where  stockholder  limits  liability,  560  n. 

CONSOLIDATED  CORPORATION, 
taxation  <>f,  l  19a. 
rights  of  creditors  against,  198  n. 


INDEX.  689 

[.References  are  to  Sections."} 


CONSOLIDATION, 

authority  for,  34. 

effect  on  exemption  from  taxation,  119a. 

power  of,  195. 

effect  of,  196. 

powers  and  privileges  after,  197. 

how  affects  exemption  from  taxation,  197. 

effect  on  franchises,  etc.,  198. 

liabilities  of  new  corporation,  198. 

CONSPIRACY, 

liability  for,  234. 

CONSTITUTIONAL  LAW, 

creation  of  corporations,  32,  33. 
corporate  citizenship,  65. 
corporation  as  person,  68. 
obligation  of  contracts,  96,  97. 
Dartmouth  college  case,  97. 
statutes  affecting  the  remedy,  110. 
protecting  franchise  or  charter,  130. 
rights  of  corporations,  246. 
removal  of  causes,  264. 
payment  for  shares  of  stock,  342. 
liability  of  stockholders,  563. 

See  Unconstitutional  Statutb. 

CONSTITUTIONAL  RIGHTS, 

waiver  of  by  foreign  corporation,  264. 

CONSTRUCTION, 

of  corporate  grants,  111. 
of  corporate  charters,  134. 

CONSTRUCTION  BONDS, 

validity  of,  336. 

CONTEMPT  OF  COURT, 

punishing  corporations  for,  238. 

CONTRACT, 

stockholders'  binding  the  corporation,  10. 
as  evidence  of  corporate  existence,  50  n. 
personal  liability  of  promoters  on,  55. 
corporate  liability  on  promoter's,  58. 
adopting  that  of  promoter,  59. 
accepting  benefits  under  that  of  promoter,  60. 
extent  of  liability  on  that  of  promoter,  61. 
44— Private  Corp. 


690  INDEX. 

[References  are  to  Sections.] 

CONTR  A.CT—  Continued. 

between  corporation  and  state,  89. 

charter  as,  96. 

contained  in  corporate  charter,  98. 

how  dissolution  of  corporation  affects,  101. 

surviving  repeal  of  charter,  102. 

in  excess  of  corporate  powers,  134. 

power  to  make,  169. 

when  ultra  vires,  169. 

when  need  not  be  under  seal,  170. 

when  corporation  bound  by  implied,  170. 

formalities  to  be  observed  in  making,  171. 

against  public  policy,  172. 

validity  of  those  to  prevent  competition,  174. 

validity  of  that  granting  special  privileges,  175. 

validity  of  trust  agreements,  177,  178. 

validity  of  those  by  trusts,  179. 

ultra  vires,  201. 

validity  of  that  not  to  perform  duties,  201. 

when  ultra  vires,  202. 

reasons  for  the  rule  of  ultra  vires,  203. 

effect  of  performance  of  ultra  vires,  205. 

presumption  of  validity  of,  211. 

limitations  upon  authority  of  corporate  officers,  213. 

restrictions  contained  in  by-laws,  214. 

malum  in  se,  223. 

against  public  policy,  224. 

prohibited  by  statutes,  225,  226. 

effect  of  informalities  in  executing,  229. 

effect  of  conflict  of  laws,  244. 

power  to  make  in  foreign  state,  247. 

effect  where  contrary  to  law  of  forum,  256. 

validity  of  those  made  out  of  state,  267. 

effect  of  statutory  requirements  on,  268. 

enforcing  that  with  foreign  corporation,  268  n. 

validity  where  statute  not  complied  with,  269. 

subscription  to  stock  as,  343,  344. 

nature  of  that  for  stock,  344. 

married  woman's,  346. 

form  of  for  stock,  348. 

how  premature  by  corporation  affects  subscription,  368. 

how  fraud  affects  contract  of  subscription,  369. 

merely  voidable  for  fraud,  371. 

regulating  transfer  of  shares,  438. 

as  to  transfer  of  shares,  validity,  438. 

by  corporation  with  its  officers,  503. 

when  officer  may  make  with  corporation,  504. 


INDEX.  691 

[Beferences  are  to  Sections."] 
CONTRACT—  Continued. 

repudiating  that  with  officer,  505. 

between  corporations  having  common  officers  or  directors,  606. 

ratification  of  voidable,  507. 

liability  of  officers  on,  519. 

authority  of  president  to  make,  529. 

secretary  no  inherent  power  to  make,  531. 

made  by  de  facto  officers,  533. 

fixing  liability  of  stockholder,  539. 

subscription,  defenses  to,  554. 

limiting  liability  of  stockholders  by,  560. 

when  stockholder's  liability  dependent  on,  564. 

impairment  of  by  dissolution,  593. 

CONTRIBUTION, 

among  stockholders,  591. 

CONVERSION  OF  SHARES, 

measure  of  damages  for,  460. 

CONVEYANCES, 

power  to  disturb,  102  n. 

CORPORATE  ACTS, 
out  of  state,  248. 
effect  of  acquiescence  in,  429. 

CORPORATE  CAPACITY, 

is  a  franchise,  120. 

CORPORATE  CREDITORS, 

when  officers  not  liable  to,  527. 

CORPORATE  DOMICILE, 

enforcing  stockholders'  liability  in,  586. 

CORPORATE  ELECTIONS, 

See  Elections. 

CORPORATE   ENTERPRISE, 

change  by  amendments  to  charter,  486. 

CORPORATE  EXISTENCE, 
proof  of,  49,  50. 
how  to  raise  question  of,  70. 
estoppel  to  question,  71,  81  n,  88. 
denying  in  actions  on  stock  subscriptions,  84. 
limit  of,  142. 
fraud  in  assuming,  546. 
property  not  essential  to,  602. 


692  INDEX.       . 

[References  are  to  Sections.'] 
CORPORATE  FRANCHISE, 
ratifying  claim  of,  29. 

See  Franchises  and  Privileges. 

CORPORATE  GRANTS, 
construction  of,  111. 

CORPORATE  MEETINGS  AND  ELECTIONS, 

where  to  hold,  247. 

in  general,  463. 

called  meetings,  464. 

the  place  of  meeting,  465. 

regular  and  special  meetings,  466. 

notice  of  corporate  meetings,  467. 

adjourned  meetings,  468. 

manner  of  conducting  meetings,  469. 

records,  evidence,  470. 

who  entitled  to  vote,  471. 

right  of  bondholders  to  vote,  472. 

voting  by  proxy,  473. 

personal  interest  of  stockholder,  474. 

motive  governing  vote,  474. 

voting  trusts  and  agreements,  475-477. 

the  Shepaug  voting  trust  cases,  478. 

specific  performance  of  voting  trust  contract,  479. 

number  of  votes  by  each  stockholder,  480. 

cumulative  voting,  481. 

the  majority  and  quorum,  482. 

powers  of  majority  to  manage  the  corporation,  483. 

rights  of  the  minority,  484. 

power  of  majority  to  wind  up  business,  485. 

power  of  majority  to  accept  amendments,  486,  487. 

immaterial  amendments  and  alterations,  488. 

material  beneficial  amendments,  489. 

presumption  of  regularity  of  elections,  490. 

inspectors  of  elections,  491. 

illegal  votes,  492. 

control  of  courts  over  corporate  elections,  493. 

CORPORATE  NAME, 
designation  of,  47. 
change  of,  47. 
protection  of,  48. 
injunction  to  protect,  48. 
discretion  of  corporate  officer  as  to,  48. 


INDEX.  693 


[Beferences  are  to  Sections."] 
CORPORATE  OFFICERS, 

limitations  upon  authority  of,  213. 

service  on  one  temporarily  in  the  state,  277. 

liability  for  fraud  in  transfer  of  stock,  450. 

See  Officers  and  Agents. 

CORPORATE  POWERS, 
enumeration  of,  4. 
source  and  limits  of,  133  n. 
notice  of,  212. 

what  ones  notice  to  be  taken  of,  215. 
effect  of  irregularities  in  exercise  of,  228. 
to  be  exercised  at  regular  meetings,  463. 
See  Powers. 

CORPORATE  PROPERTY, 

situs  as  affecting  taxation,  113. 
taxation  of,  117. 
rights  of  stockholders  in,  392. 
duty  of  directors  to  protect,  401. 
right  to  restrain  sale  of,  537. 

CORPORATE  RECORDS, 

knowledge  of  contents  of,  516. 

CORPORATE  RIGHTS, 

under  Roman  law,  4n. 

duty  of  corporation  to  protect,  420. 

CORPORATE  SEAL, 

secretary  as  custodian  of,  531. 

CORPORATION, 

defined,  2. 

origin  of,  3. 

powers  of,  4. 

classes  of,  11. 

created  by  congress,  28. 

citizenship  of,  63-68. 

as  a  person,  68,  89  n. 

franchise  of  being  a,  123. 

service  of  process  on,  276,  277. 

as  subscriber  to  stock,  346. 

releasing  subscriber,  386. 

liability  for  transferring  shares  in  breach  of  trust,  466. 

lien  on  shares,  457. 

contracting  with  its  officers,  503. 

when  officer  may  deal  with,  504. 


694  INDEX. 

{^References  are  to  Sections.] 
CORPORATION—  Continued. 

right  of  director  to  deal  with,  504. 

repudiating  contract  with  officer,  505. 

voting  stock  held  by  it,  471. 

bona  fide  intent  to  form,  liability  of  members,  546. 

when  one  man  may  form,  548. 

when  no  personal  liability  against  stockholders,  561. 

when  stockholders  bound  by  judgment  against,  577. 

CORPORATION  AGGREGATE, 
defined,  16. 

CORPORATION  SOLE, 
defined,  16. 

CORPORATORS, 

number  of,  547. 

counter  claim  against  liability  of  stockholder,  589. 

COURSE  OF  EMPLOYMENT, 

effect  of  notice  acquired  in,  534. 

COURTS, 

reviewing  expulsion  proceedings,  298. 
power  to  control  corporate  elections,  493. 

CREATION  AND  ORGANIZATION  OF  CORPORATIONS, 

generally,  21. 

by  what  authority,  22. 

essentials  of  legal  incorporation,  23. 

agreement  between  incorporators,  24. 

acceptance  of  the  grant,  25. 

delegation  of  power  to  charter  corporations,  26. 

delegation  of  ministerial  duties,  27. 

power  of  congress  to  create  corporations,  28. 

ratification  of  claim  of  corporate  franchise,  29. 

corporation  by  prescription,  30. 

creation  by  implication,  31. 

methods  of  legislative  action,  32. 

constitutional  limitations,  33. 

by  consolidation,  34. 

under  general  laws,  35n,  50. 

in  general,  35. 

general  requirements,  36. 

purposes  for  which  corporations  may  be  organized,  37. 

substantial  compliance  with  statutory  requirements,  38. 

illustrations,  39. 

conditions  precedent  to  organization  of  corporation  de  jure,  40. 

articles  of  incorporation,  41. 


INDEX. 

[Beferences  are  to  Sections."] 
CREATION  AND  ORGANIZATION  OF  CORPORATIONS-Contfntud. 
filing  and  publishing  articles,  42. 

subscription  for  capital  stock  aa  condition  precedent,  43. 
date  of  incorporation,  44. 
who  may  be  incorporators,  45. 
number  of  incorporators,  46. 
protection  of  corporate  name,  48. 
proof  of  incorporation,  49. 
promoters,  51n,  62. 

CREDITORS, 

rights  where  corporation  dissolved,  101. 

right  to  require  calls  to  be  made,  183. 

powers  to  make  assignment  for,  189. 

preferring  stockholder  as,  189. 

fraud  on,  192. 

liability  of  consolidated  company  to,  198. 

how  affected  by  discharge  in  insolvency,  246. 

interest  in  capital  of  corporation,  317. 

when  they  have  no  lien,  318. 

how  affected  by  watered  stock,  330. 

rights  against  watered  stock,  334. 

when  stockholders  liable  to,  341. 

right  to  rely  on  subscriptions,  352. 

right  to  reach  subscriptions  on  insolvency,  377,  378. 

shareholder  as,  404,  458. 

attaching  shares  of  stock,  441, 442 

is  not  bona  fide  purchaser,  442. 

transfer  of  shares  in  fraud  of,  443 

estoppel  by  attending  corporate  meeting,  465. 

capital  as  trust  fund  for,  485. 

may  take  advantage  of  fraud,  503. 

when  directors  personally  liable  to,  522. 

when  officers  not  liable  to,  527. 

can  not  control  management,  537. 

attacking  fraudulent  conveyances,  537. 

liability  of  stockholders  for  benefit  of,  538. 

when  not  bound  by  release  of  stockholder,  539. 

when  estopped  from  proceeding  against  stockholders,  545. 

right  to  bill  in  equity,  554  n. 

proceeding  by  creditor's  bill,  555. 

waiving  rights  against  stockholders,  560.        * 

rights  of  against  stockholders,  562. 

receiver  representing,  562. 

rights  of  where  stockholders  and  officers,  563. 

enforcing  liability  of  stockholders,  578. 


695 


<396  INDEX. 

[Beferences  are  to  Sections."] 
CRIME, 

punishing  corporation  for,  236. 
involves  intent,  237. 

procedure  in  prosecuting  corporation  for,  239. 
See  Torts  and  Crimes. 

CUMULATIVE  VOTING, 
when  allowed,  481. 

D 

DAMAGES, 

subscription  obtained  by  fraud,  56. 

caused  by  fraudulent  prospectus,  57. 

liability  for  punitive,  235. 

caused  by  fraud  in  issuing  stock,  323. 

on  stock  subscription,  345. 

for  refusal  to  take  stock,  366. 

failure  to  permit  inspection  of  books,  396. 

transfer  of  shares  on  forged  power  of  attorney,  452. 

for  wrongful  refusal  to  transfer  stock,  459,  460. 

for  refusal  to  register  stock,  462. 

corporation  suing  director  for,  525. 

DARTMOUTH  COLLEGE  CASE, 
nature  and  effect  of,  97. 

DE  FACTO  CORPORATION, 

consolidated  company  as,  34  n. 

when  results,  41  n. 

when  there  is,  69. 

state  attacking,  70  n. 

collateral  attack  on,  71. 

definition,  72. 

necessity  for  valid  law,  73. 

good  faith  attempt  to  organize,  74. 

user  of  franchise,  75. 

organization  under  unconstitutional  statute,  76. 

fraudulent  organization,  79. 

powers  of,  80. 

estoppel  to  deny  existence  of,  87. 

power  to  make  contracts,  169  n. 

liable  as  partners,  544. 

liability  of  members  where  there  is  not,  547. 

DE  FACTO  OFFICERS, 

power  and  authority  of  533. 


INDEX.  697 


[References  are  to  Sections.'] 
DE  JURE  CORPORATION, 
when  there  is,  69. 

DEATH, 

effect  on  stock  subscription,  365. 

DEBTS, 

power  to  contract,  182  n. 

after  consolidation,  195  n. 

liability  of  consolidated  company  for,  198. 

capital  stock  pledged  for,  317. 

collecting  subscriptions  to  pay,  389a. 

lien  on  shares  for,  457. 

when  officers  liable  for,  522. 

when  stockholder  liable  for,  539. 

before  distribution  of  stock,  liability  on,  542. 

liability  for  in  "  one  man  "  corporation,  548. 

when  officers  liable  for,  565. 

for  which  stockholders  are  liable,  571,  et  seq. 

denned,  572. 

liability  for  those  to  laborers  and  employes,  573. 

how  dissolution  affects,  606. 

DECEIT, 

corporate  liability  for,  234  n. 

DECEPTION, 

service  of  process  obtained  by,  281. 

DECLARATIONS, 

effect  of  stockholders',  8. 

DECREE, 

making  assessment,  effect  of,  556,  557c 

DEED, 

presumption  as  to  authority  for  execution,  495. 

DEFECTIVE  INCORPORATION, 
liability  resulting  from,  543. 

DEFENSE, 

ultra  vires  as,  207,  215  n. 
estoppel  to  assert  that  of  ultra  vires,  216-221. 
insolvency  is  not  to  an  action  on  subscriptions,  382. 
to  contract  of  subscription,  554. 


698  INDEX. 

[References  are  to  Sections."} 
DEFINITION, 

of  corporation,  2. 

different  corporations,  12-20. 

various  kinds  of  corporations,  17,  18,  19. 

joint  stock  company,  20. 

of  consolidation,  34. 

of  promoters,  51. 

de  facto  corporations,  72. 

of  charter,  95. 

of  tax,  118. 

of  toll,  118. 

of  franchise,  120. 

of  by-law,  144. 

of  ultra  vires,  201. 

of  capital,  299. 

of  capital  stock,  300. 

of  shares  of  stock,  301. 

of  dividends,  398. 

of  profits,  403. 

of  income,  419. 

of  quorum,  482. 

of  majority,  482. 

of  debt,  572. 

DEFRAUDED  STOCKHOLDERS, 
remedies  of,  375. 

DELAY, 

creating  estoppel,  220. 

in  questioning  fraud,  323. 

in  asking  for  forfeiture  of  charter,  697. 

DELEGATION, 

of  power  to  create  corporations,  26. 

DELEGATION  OF  AUTHORITY, 
by  directors,  501. 

DELIVERY, 

pledge  of  stock  certificates  by,  446. 

DEMAND, 

for  inspection  of  records,  395. 
before  suit  by  stockholder,  421,  422. 

DEPOSIT, 

payment  of  on  stock  subscription,  355. 


INDEX.  699 

[Eeferences  are  to  Sections."] 
DEVISE, 

to  United  States,  validity,  161  n. 
power  to  take  real  estate  by,  164. 
statute  limiting  that  to  corporation,  165. 

DILIGENCE, 

subscriber  using  to  discover  insolvency,  381. 

DIRECTORS, 

when  personally  liable,  92. 

making  by-laws,  146. 

when  may  be  preferred  creditors,  189. 

power  to  assign  for  creditors,  189  n. 

validity  of  preferences  in  favor  of,  189n. 

personal  liability  of,  245. 

service  of  process  on,  277. 

making  calls,  383. 

control  over  dividends,  399. 

discretion  of  as  to  dividends,  400. 

duty  to  protect  corporate  property,  401. 

regulating  manner  of  paying  dividend,  407. 

stockholders  suing  to  restrain  actions  of,  426. 

when  disqualified  to  act,  433. 

can  not  prevent  transfer  of  shares,  436. 

as  principals  for  other  officers,  494. 

meetings  of,  496. 

length  of  term  of  office,  496. 

place  of  meeting,  497. 

qualifications  of,  498. 

as  shareholder,  498. 

powers  of,  499. 

ratifying  agents'  acts,  499. 

stockholders'  control  over,  500. 

delegating  authority,  501. 

relation  to  the  corporation,  502. 

not  to  receive  secret  profits,  502. 

not  to  contract  with  themselves,  503. 

right  to  deal  with  his  corporation,  504. 

loaning  money  to  corporation,  504. 

taking  note  for  their  own  salary,  504. 

effect  where  interested,  504  n. 

enforcing  contract  with  corporation,  504  n. 

voting  for  their  own  salary,  504  n. 

purchasing  at  foreclosure  sale,  504  n. 

contracts  between  corporations  having  same  ones,  606,  607. 

when  contracts  with  are  void,  507. 

liability  for  acts  in  excess  of  authority,  511. 


700  INDEX. 

[Beferences  are  to  Sections.1} 
DIRECTORS—  Continued. 

degree  of  care  required  of,  513. 

supervision  over  subagents,  515. 

knowledge  of  contents  of  corporate  records,  516. 

when  liable  for  debts,  522. 

liability  for  maintaining  nuisance,  523. 

when  not  regarded  as  agents,  528  n. 

conferring  powers  upon  president,  529. 

effect  of  notice  to.  534. 

when  entitled  to  compensation,  535. 

power  to  fix  compensation  of  officers,  535. 

when  subject  to  penalties,  567. 

DISAFFIRMANCE, 

after  part  performance,  208. 

DISCRETION, 

as  to  declaration  of  dividends,  399. 
of  directors  as  to  dividends,  400. 
as  to  transfers  of  shares,  437. 

DISCRETIONARY  POWER, 

courts  will  not  control  that  of  officers,  428. 

DISCRIMINATION, 

effect  of  in  declaring  dividends,  407. 

DISFRANCHISEMENT, 

in  joint  stock  companies,  291. 
in  non-stock  corporations,  292, 
grounds  for,  292. 

DISSOLUTION, 

expiration  of  charter,  77. 

effect  of  on  corporate  contracts,  101. 

effect  of  transfer  of  shares  after,  445. 

See  Insolvency  and  Dissolution. 
DIVIDEND, 

on  preferred  stock,  313. 

accumulative,  314. 

right  of  preferred  shareholder  to,  314  n. 

nature  of,  398. 

control  of  directors  over,  399. 

discretion  of  directors,  400. 

protection  of  corporate  property,  401. 

when  may  be  legally  declared,  402. 

what  are  profits,  403. 


INDEX.  701 

[References  are  to  Sections."] 


DIVIDEND—  Continued. 
right  to  declare,  404. 
to  whom  they  belong,  405. 
collection  of,  406. 

how  payable,  no  discrimination,  407. 
right  of  pledgee  of  stock  to,  408. 
unlawful  payment  of,  409. 
set-off  by  the  corporation,  410. 
who  entitled  to,  411. 

as  between  successive  absolute  owners,  412-414. 
as  between  life  tenant  and  remainder-man,  415-419. 
recovery  of  capital  distributed  as,  551. 

DIVIDEND  STOCK, 

right  to  issue,  303. 

DOMESTIC  CORPORATION, 

foreign  corporation  becoming,  64. 
consolidating  with  foreign,  190  n. 

DOMICILE, 

that  of  corporation,  241. 

DUTIES, 

validity  of  contract  not  to  perform,  201. 

E 

EARNINGS, 

when  stockholders  entitled  to,  399. 
as  profits,  403. 

EASEMENT, 

use  of  street  for  street  railway  company,  122. 

ECCLESIASTICAL  CORPORATIONS, 

nature  and  extent  of,  17,  18. 

ELECTION, 

combination  to  control,  476. 

presumption  of  regularity,  490. 

inspectors  of,  491. 

illegal  votes,  492. 

control  of  courts  over,  493. 

statute  authorizing  review  of,  493w. 

See  Corporate  Meetings  and  Elections. 

ELEEMOSYNARY  CORPORATIONS, 
definition  and  nature  of,  19. 


702  INDEX. 

[Beferences  are  to  Sections.'] 
EMINENT  DOMAIN, 

corporate  franchise  subject  to,  108. 

lessee  may  not  exercise,  128. 

when  foreign  corporation  may  exercise,  256. 

EMPLOYES, 

liability  for  debts  to,  573. 

EQUITABLE  CONVERSION, 
doctrine  of,  166. 

EQUITY, 

when  shareholder  entitled  to  relief  in,  421. 
when  will  not  interfere  for  stockholder,  423. 
protecting  minority  stockholders,  432. 
resorting  to  to  secure  transfer  of  shares,  461. 
power  to  control  corporate  election,  493. 
creditors  resorting  to,  537. 
power  to  declare  dissolution,  603. 

ESTATE, 

that  may  be  taken  in  real  estate,  167. 

ESTOPPEL, 

by  ratification,  59  n. 

to  deny  promoter's  contract,  60. 

to  question  corporate  existence,  71. 

to  question  law  under  which  corporation  organized,  88. 

as  a  defense  to  ultra  vires  acts,  204. 

to  assert  defense  of  ultra  vires,  216-221. 

by  part  performance  of  contract,  218. 

by  retention  of  benefits,  219. 

to  allege  non-compliance  of  conditions,  271. 

to  deny  membership,  289. 

to  deny  corporate  existence,  289  n. 

to  attack  preferred  stock,  311. 

by  recital  in  stock  certificate,  322. 

to  deny  subscription,  358. 

of  shareholder  to  deny  subscription,  378. 

of  subscriber  to  stock,  389. 

to  deny  transfer  of  shares,  451. 

by  participating  in  corporate  meeting,  465. 

to  question  acts  of  de  facto  officers,  533. 

to  deny  liability,  544. 

ESTOPPEL  TO  DENY  CORPORATE  EXISTENCE, 

general  statement,  81. 

the  general  rule,  82. 

in  actions  against  members  as  partners,  83. 


INDEX.  703 

[References  are  to  Sections.'] 
ESTOPPEL  TO  DENY  CORPORATE  EXISTENCE—  Continued. 
actions  on  stock  subscriptions,  84, 
subscriptions  in  contemplation  of  incorporation,  85. 
by  acquiescence,  86. 
limited  to  de  facto  corporations,  87. 
under  unconstitutional  statutes,  88. 

EVIDENCE, 

to  show  incorporation,  49,  50. 

of  transactions  at  corporate  meetings,  470. 

as  to  who  are  stockholders,  558  n. 

EXCISE  TAX, 

on  corporation,  114  n. 

EXCLUSIVE  FRANCHISE, 

grant  of,  107. 

power  to  grant,  108  n. 

EXECUTION, 

effect  of  sale  of  shares  on,  442. 

EXECUTIVE  COMMITTEE, 

directors  delegating  authority  to,  501. 

EXECUTOR, 

collecting  dividends,  412. 
purchase  of  shares  from,  454. 
right  to  vote  stock,  471. 
giving  proxy,  473. 
liability  of  on  stock,  569. 

EXEMPLARY  DAMAGES, 

See  Punitive  Damages. 

EXEMPTION  FROM  TAXATION, 

validity  of,  119a. 
never  presumed,  119a, 
effect  of  consolidation  on,  119a. 
effect  where  railroad  sold,  128. 
how  consolidation  affects,  197. 

EXPENSES, 

of  promoters,  62. 
assessment  to  pay,  354  n. 

EXPRESS  POWERS, 

enumeration  of,  138. 
powers  implied  from,  139. 


704  INDEX. 

[Beferences  are  to  Sectiont.] 
EXPULSION, 

grounds  for,  294. 

proceedings  for,  295. 

notice  before,  296. 

court  reviewing  proceedings,  298. 

EXPULSION  OF  MEMBERS, 
right  to,  158. 

EXTRA  TERRITORIAL  FORCE, 
laws  do  not  have,  242. 

EXTRA  TERRITORIAL  POWERS, 
nature  of,  240-246. 

F 

FALSE  IMPRISONMENT, 

corporate  liability  for,  233,  234  n. 

FALSE  REPORT, 

liability  of  directors  for  making,  522. 

FALSE  REPRESENTATION, 

liability  for  those  of  agent,  510. 
liability  of  officers  for,  520. 

FEDERAL  AGENCIES, 
taxation,  115. 

FEDERAL  CONSTITUTION, 

restricting  taxing  power,  114. 

FEDERAL  COURTS, 

enforcing  stockholder's  liability  in,  580. 

FINE, 

corporation  subject  to,  236. 
for  contempt  of  court,  238. 

FORECLOSURE  SALE, 

director  purchasing  at,  504  n. 

FOREIGN  CORPORATION, 

consolidated  company  as,  34  n. 

becoming  domestic  corporation,  64. 

as  person,  68. 

as  de  jure  corporation,  87  n. 

visitorial  power  over,  90  n. 

taxation  of,  114. 

excise  tax  on,  114  n. 


INDEX.  70a 

[Eeferences  are  to  Sections."] 
FOREIGN  CORPORATION-  Continued. 
consolidating  with  domestic,  195  n. 
submitting  to  state  laws,  243. 
comity  recognizing,  247. 
power  of  state  to  exclude,  249. 
when  liable  as  partner,  249. 
limitations  on  power  of  state  to  control,  250. 
no  visitorial  power  over,  252. 
effect  of  state  comity  on,  254-260. 
power  to  hold  real  estate,  255  n. 
when  may  exercise  power  of  eminent  domain,  256. 
discrimination  against,  258. 
powers  of,  258. 

acts  not  authorized  by  charter,  259. 
restrictions  imposed  on,  260. 
statutory  restrictions  on,  261-267. 
waiver  of  constitutional  rights  by,  264. 
removal  of  causes  by,  264. 
what  constitutes  "  doing  business"  by,  266. 
berrowing  money  from,  266. 

effect  of  failure  to  compiy  with  statutory  requirements,  268,  272. 
enforcing  contract  with,  268  n. 
when  note  to  can  not  be  enforced,  270  n. 
estoppel  to  question  contract  with,  271. 
actions  by  and  against,  273-282. 
service  of  process  on,  275. 
suits  against,  275  n. 
service  on  agent  of,  276. 
statute  regulating  service  of  process  on,  279. 
designating  agent  to  accept  service  of  process,  280. 
proceedings  by  state  against,  282. 

FOREIGN  INSURANCE  COMPANY, 

power  to  regulate,  251. 

FOREIGN  JURISDICTION, 

enforcing  subscription  in,  555. 
enforcing  stockholder's  liability  in,  579. 
rights  of  receiver  in,  588. 

FOREIGN  STATE, 

jurisdiction  over  foreign  corporations,  243. 
power  of  corporation,  247. 
corporate  acts  out  of  state,  248. 
holding  corporate  meetings  in,  465. 
corporation  organized  to  do  business  in,  550. 
suing  stockholder  in,  555. 
45 — Private  Corp. 


706  INDEX. 

[References  are  to  Sections.] 
FORFEITURE, 

for  ultra  vires  acts,  93  n. 
distinguished  from  repeal,  94. 
of  franchises,  129. 
by-laws  imposing,  157. 
release  of  subscriber  by,  387. 
when  a  cumulative  remedy,  388. 
for  failure  to  file  report,  522  n. 
effect  of  delay  in  asking  for,  597. 
for  non-user,  597  n. 

FORFEITURE  OF  STOCK, 

liability  of  stockholder  after,  388. 

FORGERY, 

in  transfer  of  shares  of  stock,  453. 

FORMALITIES, 

lack  of  in  exercising  corporate  power,  229. 

FORUM, 

effect  where  contracts  contrary  to  law  of,  256. 

FOURTEENTH  AMENDMENT, 
citizenship  under,  65. 

FRANCHISE, 

corporate  name  as,  48. 

user  as  evidence  of  corporation,  75. 

collateral  attack  on  right  to  exercise,  78. 

ultra  vires  contracts  as  abuse  of,  93. 

grant  of  exclusive,  107. 

subject  to  eminent  domain  power,  108. 

corporate  capacity  is,  120. 

conditions  on  granting,  121  n. 

as  real  property,  122. 

mortgage  of,  122  n. 

forfeiture  by  non-user,  129  n. 

how  affected  by  consolidation,  197. 

FRANCHISES  AND  PRIVILEGES, 
nature  of  a  franchise,  120. 
eonditions  in,  121. 

to  use  street  for  railway  purposes,  121. 
nature  of  rights  acquired,  122. 
of  being  a  corporation,  123. 
in  whom  franchise  vests,  124. 
sale  and  transfer  of,  125. 
corporation  charged  with  public  duties,  126. 


INDEX. 

[Beferences  are  to  Sections."] 
FRANCHISES  AND  PRIVILEGES  -Continued. 
transfer  under  legislative  authority,  127. 
construction  of,  127. 

pertaining  to  use  of  particular  property,  128. 
forfeiture  of,  129. 
constitutional  protection  of,  130. 

FRAUD, 

by  promoter,  53. 

subscriptions  obtained  by,  56. 

by  use  of  prospectus,  57. 

effect  of  in  organizing  corporation,  79. 

in  state  control  over  corporations,  91. 

on  creditors,  192. 

liability  for,  234. 

liability  for  that  of  agents,  323. 

paying  for  stock  with  overvalued  property,  341. 

when  stockholder  not  bound  by,  341  n. 

when  parol  declarations  amount  to,  353  n. 

how  it  affects  contract  of  subscription,  369,  370,  371. 

contract  merely  voidable  for,  371. 

liability  for  that  of  promoters,  372. 

what  ones  will  vitiate  stock  subscription,  373. 

expression  of  belief  or  opinion,  374. 

diligence  to  discover,  379,  380. 

stockholders  suing  to  prevent,  426. 

on  creditors  by  transfer  of  shares,  443. 

in  issue  of  certificates,  447. 

in  transfer,  effect  of,  450. 

minority  objecting  to,  484. 

creditors  may  take  advantage  of,  503. 

presumption  of  when  contract  made  with  officer,  504. 

burden  of  disproving,  504. 

contract  between  corporations  having  common  directors,  506. 

in  assuming  corporate  existence,  546. 

in  "one  man"  corporation,  548. 

in  organizing  corporation  to  do  business  in  foreign  state,  550. 

in  sale  of  stock  below  par,  552. 

FRAUDULENT  ACTS, 

stockholders  not  liable  for,  553. 

FRAUDULENT  CONVEYANCES, 

creditors  setting  aside,  537. 

FRAUDULENT  REPRESENTATIONS, 
in  sale  to  corporation,  54. 
when  no  liability  for,  58. 
liability  for  those  of  promoters,  372. 


707 


708  INDEX. 

[References  are  to  Sections."} 

FRAUDULENTLY  ISSUED  STOCK, 

c  verissue  of  stock,  320. 

bona  fide  holders  of,  321. 

estoppel  by  recital  in  stock  certificate,  322. 

liability  for  fraudulent  acts  of  agents,  323,  324. 

liability  on,  824. 

liability  to  innocent  purchaser  of,  325. 

recovery  of  money  paid  for,  326. 

payment  for  stock,  327. 

FUTURE  INCOME, 

power  to  mortgage,  188. 

a 

GAINS, 

right  of  life  tenant  to,  417. 

GAS  COMPANIES, 

state  control  over,  91. 

power  to  deal  in  patents,  139  «. 

GENERAL  LAW, 

creating  corporations,  32,  33. 
incorporation  under,  35-50. 

GENERAL  MANAGER, 

power  and  authority  of,  529  ». 

GENERAL  POWERS, 
theory  of,  132. 

GOOD  FAITH, 

effect  of  in  organizing  corporation,  74. 

GOOD-WILL, 

where  to  be  taxed,  550  n. 

GUARANTEED  STOCK, 
nature  of,  307. 

GUARANTY, 

corporate  power  to  make,  180. 

H 

HIGHWAY, 

corporate  liability  for  obstructing,  236. 

HISTORY, 

of  corporations,  8,  4,  567. 


INDEX.  709 

[Beferences  are  to  Sectfau.] 
I 


ILLEGAL  ACTS, 

consequences  of,  93. 

ILLEGAL  CONTRACTS, 

liability  for  benefits  received  tinder,  227. 

ILLEGAL  INCORPORATION, 
liability  resulting  from,  543. 

ILLEGAL  SHARES, 

injunction  to  prevent  voting  of,  493. 

ILLEGAL  VOTES, 

effect  of  at  corporate  elections,  492. 

ILLUSTRATIVE  CASES, 

of  franchises,  121. 

of  profits,  403. 

of  actions  by  stockholders,  424-426. 

of  ultra  vires  acts,  431. 

of  ratification  of  voidable  contracts,  507. 

of  powers  of  president,  529. 

of  enforcement  of  stockholders'  liability,  681,  582. 

IMPAIRMENT  OF  CONTRACTS, 

by  dissolution  of  corporation,  593. 

IMPLICATION, 

creation  of  corporations  by,  31. 

IMPLIED  AGREEMENT, 

to  pay  for  shares  of  stock,  366. 

IMPLIED  CONTRACT, 

by  grant  of  franchise,  107. 
when  corporation  bound  by,  170. 
in  stock  subscription,  349. 

IMPLIED  POWERS, 

from  express  powers,  139. 

INCIDENTAL  POWERS, 
of  corporations,  140. 

INCOME, 

right  of  life  tenant  to,  415,  418. 
defined,  419. 


710  INDEX. 

{References  are  to  Sections.] 
INCORPORATED  SOCIETIES, 
nature  of,  297. 

INCORPORATION, 
date  of,  44. 
proof  of,  49,  50. 
effect  of  in  several  states,  64. 

INCORPORATORS, 

agreement  between,  24. 

who  may  be,  45. 

number  of,  46. 

when  liable  as  partners,  545. 

INDEBTEDNESS, 

limitations  upon  amount  of,  183. 
taking  stock  to  secure,  191. 
power  of  president  to  create,  529  n. 

INDICTMENT, 

corporation  subject  to,  236. 
for  maintaining  nuisance,  523. 

INDIVIDUAL  LIABILITY, 

of  officers,  514. 

INDORSEMENT, 

corporate  power  to  make,  180. 

of  certificate,  449. 

power  of  treasurer  to  make,  532. 

INHABITANT, 

corporation  as,  66. 

INJUNCTION, 

to  protect  corporate  name,  48. 

against  ultra  vires  acts,  93,  537. 

does  not  lie  against  legislative  action,  121  n. 

right  of  minority  stockholder  to  maintain,  420. 

against  voting  trust  agreement,  477. 

against  acceptance  of  amendment,  487. 

in  reference  to  corporate  elections,  493. 

INNOCENT  HOLDER, 

of  fraudulently  issued  stock,  323. 

INNOCENT  PARTIES, 

right  to  rely  on  subscriptions,  377,  378. 


INDEX.  711 

[References  are  to  Sections."] 
INNOCENT  PURCHASERS, 

of  fraudulently  issued  stock,  325. 

INSOLVENCY, 

effect  of  discharge  in,  246. 

rights  of  creditors  to  reach  subscriptions,  377,  378. 

right  to  rescind  subscription  after,  379. 

right  to  rescind  subscription  before,  380. 

subscribers  using  diligence  to  discover,  381. 

no  defense  to  action  on  subscriptions,  382. 

effect  of  transfer  of  shares  after,  445. 

majority  winding  up  business  on,  485. 

decree  making  assessments,  556,  557. 

continuing  corporation  after,  601. 

INSOLVENCY  AND  DISSOLUTION, 

manner  of  dissolution,  592. 

impairment  of  contracts,  593, 

expiration  of  term  of  existence,  594. 

dissolution  by  legislative  act,  595. 

surrender  of  charter,  596. 

forfeiture  of  charter,  597. 

loss  of  integral  part,  598. 

statutory  methods  of  dissolution,  599. 

voluntary  liquidation,  600. 

statutory  provisions  for  a  temporary  continuance  of  the  corporation,  601. 

abandonment  of  business,  602. 

sale  or  loss  of  property,  603. 

powers  of  a  court  of  equity,  604. 

effect  of  dissolution,  605. 

effect  of  upon  corporate  debts  and  assets,  606. 

INSOLVENCY  PROCEEDINGS, 
effect  of,  246. 

INSOLVENT  COMPANY, 

sale  of  stock  by,  337. 

INSOLVENT  CORPORATION, 

powers  of  to  make  assignment,  189. 

effect  of  purchasing  its  own  shares,  192,  193. 

right  of  director  to  take  mortgage  from,  504. 

INSPECTORS, 

at  corporate  elections,  491. 

INSURANCE, 

effect  of  by-laws  on,  153. 
not  interstate  commerce,  251. 


712  INDEX. 

[References  are  to  Sections.'} 

INSURANCE  COMPANY, 

what  are  profits  in,  403. 

INSURANCE  CONTRACTS, 
validity  of,  267. 

INTEGRAL  PART, 

dissolution  by  loss  of,  598, 
INTENT, 

crimes  involve,  237. 

INTEREST, 

stock  bearing,  313  n. 
on  dividend,  406. 

INTERSTATE  COMMERCE, 

power  of  congress  over,  114. 
telegraph  companies,  118. 
validity  of  tax  on,  119. 
state  no  power  to  regulate,  250,  251. 
insurance  is  not,  251. 

IRREGULARITIES, 

effect  of  in  articles  of  incorporation,  41. 
effect  of  in  exercise  of  corporate  power,  228. 
effect  of  in  stock  subscription,  388. 

J 

JOINT  LIABILITY, 

when  stockholders  liable  for,  564. 

JOINT  STOCK  COMPANY, 

definition  and  nature  of,  20. 
disfranchisement  in,  291. 

JUDGES, 

at  corporate  elections,  491. 

JUDGMENT, 

on  stock  subscription,  555  n. 

effect  of  that  on  assessment,  557. 

effect  of  on  stockholders,  576,  577. 

conclusiveness  of,  587. 

effect  of  after  corporation  dissolved,  605. 

JUDGMENT  CREDITORS, 

right  to  control  management  of  corporation,  537. 


INDEX.  713 

[References  are  to  Sections."} 
JUDICIAL  NOTICE, 

none  of  by-law,  144. 
JURISDICTION, 

how  citizenship  affects,  63,  64. 

over  foreign  corporation,  243. 

in  which  stockholders'  liability  may  be  enforced,  579. 

to  decree  dissolution,  603. 

JURY  TRIAL, 

none  in  contempt  proceedings,  238. 

K 

KNOWLEDGE, 

extent  to  which  directors  charged  with,  516. 
when  corporation  bound  by  that  of  officer  or  agent,  534. 
See  Notice. 


LABORERS, 

liability  for  debts  to,  573. 

LACHES, 

in  denying  contract  of  promoter,  59. 

effect  where  there  is  fraud,  323. 

effect  on  right  to  rescission,  376. 

in  repudiating  contract  with  officer,  505. 
See  Delay. 
LAND, 

See  Real  Estate. 
LAW, 

by-law  not  to  be  repugnant  to,  149. 

no  extra  territorial  force,  242. 

fixing  amount  of  stock  to  be  subscribed,  354. 

LEASE, 

power  to  execute,  186. 

LEGISLATIVE  ACT, 

dissolution  by,  595. 

LEGISLATIVE  ACTION, 

can  not  be  enjoined,  121  n. 

LEGISLATIVE  AUTHORITY, 

for  consolidation.  195. 

to  issue  preferred  stock,  310. 


714  INDEX. 

[Beferences  are  to  Sections."] 
LEGISLATURE, 

delegation  of  power,  26,  27. 

authorizing  consolidation,  34, 

power  and  authority  over  corporations,  64. 

repealing  charter,  94. 

amending  or  repealing  charter,  99,  100. 

right  to  exercise  police  power,  109. 

authorizing  transfer  of  franchises,  127. 

regulating  stock  subscriptions,  349. 

power  to  impose  liability  on  stockholders,  359. 

LESSEE  OF  RAILROAD, 
authority  of,  128. 

LIABILITY  OF  STOCKHOLDERS, 

general  statement,  558. 

power  of  legislature  to  impose,  559. 

limitations  by  contract,  560. 

exceptions  in  favor  of  certain  classes  of  corporations,  561. 

repeal  of  statutes,  effect,  562. 

constitutional  provisions,  563. 

when  contractual,  564. 

when  penal,  565. 

survival  of  the  right  of  action,  566. 

liability  of  officers  and  directors,  567. 

as  to  time  of  holding  stock,  568. 

trustees,  pledgees  and  executors,  569. 

unrecorded  transfers,  transferrer  and  transferee,  570. 

debts  for  which  they  are  liable,  571-574. 

how  enforced,  575-588. 

remedy  against  corporation,  576. 

conclusiveness  of  judgment  against  the  corporation,  577. 

by  whom  enforcible,  579. 

enforcement  in  foreign  jurisdictions,  579. 

proceedings  in  the  federal  courts,  580. 

rule  in  various  states,  581,  582. 

where  a  statutory  remedy  is  provided.  583. 

where  no  statutory  remedy  is  provided,  584. 

ancillary  proceedings,  585. 

original  proceedings  in  court  of  corporate  domicile,  586. 

conclusiveness  of  the  decree  of  court  of  domicile,  587. 

rights  of  receiver  in  foreign  jurisdiction,  588. 

right  of  set-off,  589. 

statute  of  limitations,  590. 

contribution  among  stockholders,  591. 

LIBEL, 

liability  for,  233. 
corporation  liable  for,  236. 


INDEX.  715 

[References  are  to  Sections."] 


LICENSE, 

effect  on  citizenship  of  corporation,  67. 

distinguished  from  franchise,  121. 

to  do  business  in  foreign  state,  249. 

granting  to  foreign  corporation  and  revoking,  265. 

LICENSE  TAX, 

on  foreign  corporation,  262. 

LIEN, 

when  creditors  have  none,  318. 

of  corporation  on  shares,  457. 

how  that  on  shares  affected  by  transfer,  467. 

how  that  on  shares  enforced,  457. 

LIENHOLDERS, 

right  to  control  management,  537. 

LIFE-TENANT, 

interest  in  dividends,  415. 

right  to  dividends,  416,  417,  418,  419. 

LIQUIDATION, 

when  voluntary  permitted,  600. 

LIS  PENDENS, 

no  application  to  transfer  of  shares,  447. 

LOANS, 

power  of  national  banks  as  to,  194. 
when  corporation  may  make,  199. 

LOBBYING  CONTRACTS, 
validity,  223. 

LOCAL  ASSESSMENT, 

no  exemption  from,  119a. 

LODGE, 

expulsion  of  members,  292 n. 

LOST  CERTIFICATE, 

new  one  in  place  of,  253. 
liability  on,  324. 

M 

MAJORITY, 

when  required  to  do  business,  4  n. 
power  to  sell  all  the  property,  60  n. 


716  INDEX. 

[Beferences  are  Ur  Sections."} 
MAJORITY—  Continued. 

power  of  to  amend  by-laws,  106  n. 

power  to  issue  preferred  stock,  309. 

control  by,  432. 

limitations  on  power  of,  433. 

acting  outside  of  regular  or  called  meeting,  463. 

powers  of,  482. 

power  of  to  manage  corporation,  483. 

power  to  wind  up  business,  485. 

power  to  accept  amendments  to  chartw,  486,  487. 

accepting  immaterial  amendments  and  alterr^iort1*,  48*. 

right  to  accept  beneficial  amendments,  48tf 

MALICIOUS  PROSECUTION, 
corporate  liability  for,  233. 

MALUM  IN  SE, 

ultra  vires  act  which  is,  216. 
validity  of  contracts  which  are,  223. 

MALUM  PROHIBITUM, 

ultra  vires  act  which  is,  216. 

MANAGEMENT, 

right  of  stockholders  to  participate  in,  390. 
powers  of  majority  in  reference  to,  483. 
by  directors,  496. 
creditors  can  not  control,  537. 

MANAGEMENT  OF  CORPORATIONS, 

See  Officers  and  Agentb. 
MANAGER, 

liable  for  acts  of  negligence,  515  n. 

MANDAMUS, 

to  secure  inspection  of  records,  394. 

to  secure  inspection  of  books,  396. 

not  proper  to  compel  declaration  of  dividends,  399. 

not  proper  to  compel  payment  of  dividends,  406. 

as  remedy  to  secure  registry  of  shares,  462. 

MANUFACTURING  COMPANY, 

liability  of  stockholders  in,  561. 

MARRIED  WOMAN, 

as  subscriber  to  stock,  346. 


INDEX. 

[References  are  to  Section$.'\ 

MEASURE  OF  DAMAGES, 

on  stock  subscription,  345. 
for  conversion  of  shares,  460. 

See  Damages. 

MEETINGS  AND  ELECTIONS, 

See  Corporate  Meetings  and  Elections ' 

MEETINGS  OF  DIRECTORS, 
time  and  place,  496,  497. 

MEMBERS, 

notice  of  by-laws,  153  n. 
expulsion  of,  158. 
bound  by  by-laws,  293  n. 

MEMBERSHIP, 

how  may  be  transferred,  434. 

See  Rights  of  Membership. 

MEMBERSHIP  IN  A  CORPORATION, 

non-stock  corporations,  283. 

corporations  having  capital  stock,  284. 

who  can  be  members,  285. 

method  of  obtaining  shares,  286. 

effect  of  delivery  of  stock  certificate,  287. 

compliance  with  conditions,  288. 

estoppel  to  deny,  289. 

holder  of  illegally  issued  shares,  290. 

disfranchisement  in  stock  companies,  291. 

disfranchisement  in  non-stock  companies,  292. 

nature  of  in  non-stocK  companies,  293. 

grounds  for  expulsion,  294. 

proceedings  for  expulsion,  295. 

notice  before  expulsion,  296. 

in  incorporated  and  unincorporated  societies,  297. 

review  by  courts  of  expulsion  proceedings,  298. 

MINING  COMPANY, 

liability  of  stockholders,  561. 

MINISTERIAL  DUTIES, 
delegation  of,  27. 

MINORITY, 

rights  of,  420,  484. 

right  to  restrain  ultra  vires  acts,  431. 

equity  protecting,  432. 

cumulative  voting  by,  481. 

right  to  be  heard,  484. 

objecting  to  amendments,  486. 


717 


718  INDEX. 

[Beferences  are  to  Sections.] 
MISREPRESENTATION, 

as  to  solvency,  liability  of  officers  for,  520  n. 

MISTAKES, 

liability  of  officers  for,  518. 

MISUSER, 

forfeiture,  100  n. 
dissolution  because  of,  597  n. 

MONEY, 

power  of  corporation  to  borrow,  182. 
when  corporation  may  loan,  199. 
recovering  ultra  vires  loan  of,  226. 
borrowing  from  foreign  corporation,  266. 
director  loaning  to  the  corporation,  504. 
treasurer  no  inherent  power  to  borrow,  532. 

MONOPOLY, 

trust  as,  117  n. 

See  Trust. 

MORTGAGE, 

to  invalid  corporation,  76  n. 

of  franchise,  126  n. 

of  corporate  franchise,  127. 

power  of  corporation  to  execute,  182. 

power  to  give,  188. 

part  valid  and  part  void,  224  n. 

presumption  as  to  authority  for  execution,  495t  ] 

right  of  director  to  take,  504. 

authority  of  president  concerning,  529. 

MOTIVE, 

as  affecting  vote  of  stockholder,  474. 

MUNICIPAL  CORPORATIONS, 

nature  of,  13. 

subscribing  for  stock,  346  n. 

MUNICIPAL  ORDINANCE, 

validity  of  one  imposing  taxes,  118. 

MUNICIPALITY, 

as  subscriber  to  stock,  346. 


INDEX. 
[Beferences  are  to  Sections."] 

N 

NAME, 

effect  of  change  of,  48  n. 

See  Corporate  Name. 

NATIONAL  BANKS, 

state  taxation  of,  116. 
power  as  to  loans,  194. 
recovering  ultra  vires  loans,  226. 

NEGLIGENCE, 

as  to  transfer  of  shares,  451,  453. 
in  allowing  transfer  of  shares,  452. 
liability  of  directors  for,  512. 
when  manager  liable  for  acts  of,  515  n. 

NEGOTIABLE  INSTRUMENTS, 
stock  certificates  are  not,  450. 

NEGOTIABLE  PAPER, 

power  to  indorse  and  guarantee,  180.  "] 

power  of  corporation  to  make,  182. 

when  ultra  vires,  182. 

liability  to  holder  of  over-issued,  184. 

unauthorized  in  hands  of  innocent  purchaser,  229. 

NET  PROFITS, 

See  Profits. 
NEW  CERTIFICATE, 

issuing  on  transfer  of  stock,  444. 

NEW  SHARES, 

preference  in  subscription  for,  397. 
when  remainder-man  entitled  to,  417. 

NON-NEGOTIABLE  INSTRUMENT, 

certificate  of  stock  is  not,  305. 

NON-RESIDENTS, 

organizing  corporation,  73  n. 
discrimination  against,  258. 

NON-STOCK   CORPORATIONS, 
membership  in,  283. 
disfranchisement  in,  292. 
nature  of  membership  in,  293. 


719 


720  INDEX. 

[Beferences  are  to  Section*.] 
NON-USER, 

forfeiture  for,  100  n. 
effect  on  franchise,  129. 
effect  of,  597. 

NOTE, 

liability  of  stockholder  on,  547. 

NOTICE, 

effect  of  to  stockholder,  8  n. 

of  by-laws,  153. 

of  corporate  powers,  171  n.,  183,  203,  212. 

when  to  be  taken  of  corporate  powers,  215. 

before  expulsion,  296,  298  n. 

of  allotment  of  stock,  351. 

of  withdrawal  of  subscription,  365. 

of  call,  384. 

to  corporation  of  transfers  of  shares,  435. 

of  trust  in  shares,  454. 

to  corporation  of  trust  in  shares,  455. 

of  corporate  meeting,  466. 

when  not  required  of  adjourned  meeting,  468. 

of  directors'  meeting,  496. 

to  officers  and  agents,  534. 

NOVATION  OF  PARTIES, 

by  transfer  of  shares,  458. 

NUISANCE, 

ultra  vires  acts  as,  93. 
corporation  liable  for,  236. 
liability  of  directors  for,  523. 
indictment  as  remedy  against,  523. 

NUMBER  OF  VOTES, 

by  each  stockholder,  480. 

o 

OBJECTS, 

for  which  corporations  may  be  organized,  37. 

OBLIGATION  OF  CONTRACTS, 
charter  as  contract,  96,  97. 
dissolution  of  corporation,  101. 

OFFICE  OF  CORPORATION, 

holding  meetings  at,  465. 


INDEX.  721 

[Beferences  are  to  Sections."] 

OFFICERS  AND  AGENTS, 
effect  of  by-laws  on,  153. 

liability  for  wrongfully  paying  dividends,  409. 
courts  will  not  control  discretionary  power  of,  428. 
general  statement,  494. 
presumption  of  authority,  495. 
general  management,  496. 
directors,  496. 
directors'  meetings,  496. 
place  of  directors'  meetings,  497. 
qualification  of  directors,  498. 
powers  of  directors,  499. 
stockholders'  control  over  directors,  500. 
delegation  of  authority,  501. 
executive  committee,  501. 

relation  of  officers  and  directors  to  the  corporation,  502. 
contracts  between  corporation  and  its  officers,  503. 
when  an  officer  may  deal  with  his  corporation,  504. 
right  of  corporation  to  repudiate  such  contract,  505. 
contracts  between  corporations  having  common  officers  or  directors. 

506,  507. 
liability  of  corporation  for  torts  of  its  agents,  508. 
ratification  of  acts,  509. 

liability  for  torts  in  ultra  vires  transactions,  510. 
liability  of  officers  for  acts  in  excess  of  authority,  511. 
liability  for  abuse  of  trust,  512. 
degree  of  care  required  of  directors,  513. 
liability  of  officer  is  for  individual  acts  or  omissions,  514. 
supervision  of  subagents,  515. 
knowledge  of  contents  of  corporate  records,  516. 
liability  for  care  of  papers,  517. 
liability  for  mistakes,  518. 
liability  on  contracts,  519. 
liability  to  third  persons  for  torts,  520. 
violation  of  charter  or  statute,  521. 
liability  imposed  by  statute,  522. 

liability  of  directors  where  corporation  maintains  a  nuisance,  523. 
liability  imposed  for  benefit  of  third  persons,  524. 
remedy  of  the  corporation  against  an  officer,  525. 
statute  of  limitations,  526. 
no  liability  to  corporate  creditors,  527. 
powers  of  particular  officers,  528. 
the  president,  529. 
the  vice-president,  530. 
the  secretary,  531. 
the  treasurer,  532. 

46— Private  Corp. 


722  INDEX. 

[References  are  to  Sections.] 
OFFICERS  AND  AGENTS— Continued. 
de  facto  officers,  533. 
notice  to  officers  and  agents,  534. 
compensation,  535. 
removal  from  office,  536. 
creditors  can  not  control  management,  537. 
when  subject  to  penalties,  567. 
rights  as  creditors,  574. 

See  Elections. 

"ONE  MAN"  CORPORATION, 
when  may  be  formed,  548. 
liability  of  shareholder  in,  549. 

OPINION, 

expression  of  not  fraud,  374. 

ORAL  NOTICE, 

of  withdrawal  of  subscription,  365. 

ORDINANCE, 

granting  right  to  use  street  for  railway  purposes,  121. 

ORGANIZATION, 

conditions  precedent  to,  40. 

ORGANIZING  CORPORATION, 

substantial  compliance  with  statute,  38. 

OVERISSUE  OF  STOCK, 
effect  of,  320. 

OVERVALUED  PROPERTY, 

remedy  where  stock  paid  for  in,  341. 

OWNERSHIP  OF  SHARES, 

separation  of  voting  power  from,  475-477. 

P 

PAPER, 

power  to  indorse  and  guarantee,  180. 
liability  for  care  of,  517. 

PAR, 

issuing  shares  of  stock  below,  329. 
liability  on  shares  issued  below,  552. 

PAROL  DECLARATIONS 
as  fraud,  353  n. 


INDEX.  723 

[Beferences  are  to  Sections.] 


PAROL  EVIDENCE, 

to  prove  incorporation,  49,  50. 

of  transactions  at  corporate  meetings,  470. 

PART  PERFORMANCE, 

disaffirmance  after,  208. 
estoppel  by,  218. 

PARTICULAR  POWERS, 

list  of,  169-199rt. 

PARTIES, 

to  suit  by  stockholder,  430. 

how  transfer  of  shares  affects,  458. 

PARTNERS, 

members  of  corporation  as,  83. 

when  foreign  corporation  liable  as,  249. 

stockholders  compared  to,  458. 

liability  after  incorporation  of  partnership,  541. 

when  incorporators  liable  as,  544. 

corporators  liable  as,  545. 

liability  as,  546. 

where  there  is  not  even  de  facto  corporation,  547. 

PARTNERSHIP, 

compared  to  corporation,  20. 
partner  selling  property  to,  54. 
power  of  corporation  to  enter  into,  181. 
notice  to  of  corporate  meeting,  467  n. 
effect  of  incorporation  of,  541. 

PATENTS, 

power  of  gas  company  to  deal  in,  139  n. 

PAYMENT, 

for  stock  with  property,  340. 
for  shares,  statutes  regulating,  342. 
of  deposit  on  stock  subscription,  355. 
for  stock,  how  may  be  made,  552. 

PAYMENT  FOR  STOCK, 

how  may  be  made,  327. 

PENAL  STATUTES, 

obligations  imposed  by,  245. 
where  to  enforce,  245. 


724  INDEX. 

[Beferences  are  to  Sections."] 
PENALTY, 

no  vested  interest  in,  88  n. 

failing  to  comply  with  statutory  requirements,  269. 

how  lack  of  affects  validity  of  contract,  270. 

no  vested  right  in,  522. 

when  stockholders'  liability  in  nature  of,  565. 

when  officers  and  directors  subject  to,  567. 

PERPETUAL  SUCCESSION, 
right  of,  140,  142. 

PERSON, 

corporation  as,  8,  65,  68,  89  n,  236. 
foreign  corporation  as,  68. 

PERSONAL  INJURY, 

when  directors  liable  for,  523. 

PERSONAL  INTEREST, 

as  affecting  right  of  stockholder  to  vote,  474. 

PERSONAL  LIABILITY, 

of  officers,  516,  et  seq. 

officers,  statute  imposing,  522. 

how  that  of  directors  determined,  522. 

where  corporate  organization  defective,  543. 

when  stockholders  not  liable  for,  561. 

for  debts  to  laborers  and  employes,  573. 

PERSONAL  PROPERTY, 

taxing  that  of  corporation,  113. 
power  to  acquire,  185. 
power  to  alienate,  186. 
corporate  power  to  mortgage,  188. 
capital  stock  as,  315. 
disposition  of  on  dissolution,  606. 

PLACE, 

where  corporation  may  transact  business,  136.    ' 
where  corporate  meetings  are  held,  465. 

PLEDGE, 

of  stock  certificates  by  delivery,  446. 
effect  on  right  to  vote  stock,  477. 

PLEDGEE, 

right  of  to  dividends,  408. 
stock,  rights  of,  442. 
right  to  vote  stock,  471. 
liability  of  on  stock,  569. 


INDEX. 

[Beferences  are  to  Sections.'} 
PLEDGOR  AND  PLEDGEE, 

right  to  dividends  as  between,  408. 

POLICE  POWER, 

fourteenth  amendment  does  not  destroy,  65  n. 
corporations  subject  to,  109. 

POOLING  CONTRACTS, 
validity,  174. 

POWER  OF  ATTORNEY, 

transfer  of  shares  on  forged,  452. 

POWERS, 

of  corporations,  4. 

under  Roman  law,  4  n. 

of  de  facto  corporation,  80. 

generally,  131. 

theory  of  corporate  power,  132,  133. 

source  and  limits  of,  133  n. 

principles  of  construction,  134. 

presumption  of  power  and  regularity,  135. 

place  where  powers  may  be  exercised,  136. 

when  not  limited  by  term  of  corporate  existence,  187, 

express,  138. 

powers  implied  from  express  powers,  139. 

business  in  which  corporation  may  engage,  139. 

incidental  powers,  140. 

perpetual  succession,  142. 

to  have  a  seal,  143. 

to  make  and  enforce  by-laws,  144-159. 

to  take  and  hold  land,  160-168. 

to  hold  stock  in  another  corporation,  190. 

after  consolidation,  197. 

notice  of  those  of  a  corporation,  203. 

of  directors,  499. 

of  particular  officers,  528. 

how  conferred  upon  officers,  528. 

illustrations  of  those  of  president,  529. 

See  Extra  Territorial  Powers. 

PREFERENCES, 

power  to  make  for  creditors,  189. 

validity  of  those  in  favor  of  directors,  189  n. 

PREFERRED   SHAREHOLDERS, 

right  to  dividends,  314  n. 


725 


726  INDEX. 

[References  are  to  Sections."] 
PREFERRED  STOCK, 
defined,  306,  307. 
power  to  issue,  308. 
power  of  majority,  309. 
under  legislative  authority,  310. 
estoppel  to  attack,  311. 
status  of  holders  of,  312. 
rights  of  holders  of,  313. 
dividends  on,  313. 

PRELIMINARY  AGREEMENT, 

to  form  corporation,  effect  of,  345a. 

PREMATURE  CONTRACT, 

how  that  by  corporation  affects  subscription,  368. 

PRESCRIPTION, 

corporations  by,  30. 

PRESIDENT, 

service  of  process  on,  277. 
holding  meetings  at  office  of,  465  n. 
power  and  authority  of  529. 
how  business  entrusted  to,  529  n. 

PRESUMPTION, 

of  legal  incorporation  from  delay,  50  n. 

as  to  citizenship  of  corporation,  63,  64. 

none  of  exemption  from  taxation,  119a. 

of  corporate  powers,  135. 

of  validity  of  contracts,  211. 

as  to  powers  of  foreign  corporation,  255. 

that  foreign  corporation  complied  with  statute,  272. 

that  party  is  a  stockholder,  348  n. 

of  right-doing  in  sale  of  stock,  456. 

as  to  notice  of  corporate  meeting,  467. 

as  to  capacity  of  stockholder,  482. 

of  regularity  of  elections,  490. 

of  authority  of  agents,  495. 

as  to  regularity  of  meetings,  496  n. 

of  fraud,  contract  with  officer,  504. 

that  seal  authoritatively  affixed,  531. 

PRINCIPAL, 

when  bound  by  notice  to  agent,  534. 

PRINCIPAL  AND  AGENT, 

torts  of  agent,  508. 


INDEX.  727 


[References  are  to  Sections."] 

PRIVATE  CORPORATION, 

defined,  15. 

power  to  require  reports  from,  92. 

PRIVATE  INTERNATIONAL  LAW, 
foundation  for,  254  n. 

PRIVILEGES, 

after  consolidation,  197. 

See  Franchises  and  Privileges. 

PROCEDURE, 

in  prosecuting  corporation  for  crime,  239. 

in  enforcing  liability  of  stockholders,  585,  586. 

PROCESS, 

service  on  foreign  corporations,  275. 
service  on  agent  of  corporation,  276. 
service  on  officer  temporarily  in  state,  277. 
service  on  officer  of  corporation,  277. 
illustrative  cases  of  service  of,  278. 
statutes  regulating  service  of,  279. 
designating  agent  to  accept  service  of,  280. 
service  of  obtained  by  deception,  281. 

PROFITS, 

promoter  not  to  make,  53. 

paying  to  holders  of  preferred  stock,  313. 

distinguished  from  dividends.  398. 

declaring  dividend  out  of,  399. 

what  are,  403. 

when  life  tenant  entitled  to,  415. 

directors  to  account  for,  502. 

not  a  part  of  capital  stock,  551. 

PROMISSORY  NOTE, 

authority  of  treasurer  to  execute,  532. 

PROMOTERS, 

defined,  51. 

fiduciary  position  of,  52. 

not  to  receive  secret  profits,  53. 

owners  of  property  as,  54. 

accounting  to  stockholders,  53. 

personal  liability  of  on  contracts,  55. 

when  liable  for  fraud,  56. 

using  fraudulent  prospectus,  57. 

liability  of  corporation  on  contracts  of,  58. 


728  INDEX. 

[References  are  to  Sections.] 
PROMOTERS—  Continued. 

adopting  contract  of,  59. 

accepting  benefits  under  contract  of,  60. 

expenses  and  services  of,  62. 

notice  to  of  withdrawal  of  subscription,  365. 

liability  for  fraudulent  representations  of,  372. 

when  corporation  bound  by  knowledge  of,  534. 

liability  of,  540. 

PROOF  OF  INCORPORATION, 

in  direct  proceedings,  49. 
in  indirect  proceedings,  50. 

PROPERTY, 

promoter  selling  to  the  corporation,  54. 

represented  by  capital  stock,  113  n. 

power  to  acquire  and  hold,  140. 

paying  for  stock  with,  337. 

payment  for  stock  in,  340. 

paying  dividend  in,  407. 

directors  may  transfer,  499. 

not  necessary  to  corporate  existence,  603. 

disposition  of  on  dissolution,  606. 

PROSPECTUS, 

effect  of  fraudulent,  57. 

PROXY, 

right  to  vote  by,  473. 
how  to  be  executed,  473. 
executors  giving,  473. 
power  to  revoke,  475. 

PUBLIC  CORPORATIONS, 

nature  of,  12. 
state  control  over,  91. 
duty  to  serve  all,  91. 
ultra  vires  acts  of,  204. 

PUBLIC  DUTIES, 

corporations  charged  with,  126,  187. 

PUBLIC  POLICY, 

by-law  against,  150. 

against  holding  real  estate,  161  n. 

contracts  against,  172,  224. 

punishing  corporations  for  crimes,  236. 

how  determined,  257. 


INDEX.  729 


[Beferences  are  to  Sections."] 
PUBLIC  POLICY—  Continued. 

in  reference  to  transfer  of  shares,  438. 
as  to  transfer  of  shares,  438. 
when  voting  trust  agreement  against,  476. 
voting  trust  agreement  against,  478. 

PUBLICATION, 

articles  of  incorporation,  42. 

PUNITIVE  DAMAGES, 
liability  for,  235. 
corporation  liable  for,  237. 

PURCHASERS  OF  SHARES, 

transferred  in  violation  of  a  trust,  rights  of,  454. 

PURPOSES, 

for  which  corporations  may  be  organized,  37. 

Q 

QUASI-PUBLIC  CORPORATIONS, 
denned,  14. 
state  control  over,  91. 
effect  of  ultra  vires  acts  of,  93. 

QUO  WARRANTO, 

when  lies,  10. 

to  question  corporate  existence,  70. 

failure  to  file  reports,  92. 

who  to  institute,  93. 

against  foreign  corporation,  282. 

as  remedy  where  watered  stock  issued,  333. 

to  try  title  to  corporate  officer,  493  n. 

to  determine  right  to  an  office,  536. 

QUORUM, 

of  members,  482. 

power  of  majority  of,  482. 

by-law  determining,  482  n. 

presumption  that  there  is  at  an  election,  490. 

of  directors,  496. 

of  executive  committee,  501. 

R 

RAILROAD, 

right  to  lay  in  street,  121. 


730  INDEX. 

[References  are  to  Sections."] 
RAILROAD  COMPANY, 
taxation  of,  113. 

how  consolidation  affects  taxation,  119a. 
power  to  guaranty  bonds,  180. 
how  consolidation  affects  duties  of,  198. 
conditional  subscription  to  stock  of,  352. 
liability  for  assault  on  passenger,  508. 

RAILROAD  RATES, 
power  to  fix,  91. 

RATIFICATION, 

of  claim  of  corporate  franchise,  29. 

of  contract  of  promoter,  59. 

estoppel  by,  59  n. 

when  none  of  ultra  vires  contract,  207. 

of  ultra  vires  acts,  221. 

of  acts  of  agents,  371. 

of  contract  with  director,  503. 

of  contract  made  with  officer,  505,  507  n. 

of  voidable  contracts,  507. 

of  torts  of  agents,  509. 

of  president's  acts,  529. 

of  treasurer's  acts,  532. 

REAL  ESTATE, 

franchises  as,  122. 

purpose  for  which  may  be  held,  160  n. 

limiting  amount  of  that  held,  161  n. 

corporate  power  to  mortgage,  188. 

power  of  foreign  corporation  to  hold,  255  n. 

disposition  of  on  dissolution,  606. 

REAL  ESTATE— POWER  TO  TAKE  AND  HOLD, 

rule  at  common  law,  160. 

statutes  affecting,  161. 

manner  of  acquiring  title,  163. 

taking  by  devise,  164,  165. 

doctrine  of  equitable  conversion,  166. 

estate  that  may  be  taken,  167. 

REASONABLE  TIME, 

to  accept  corporate  charter,  25. 

RECEIVER, 

asserting  defense  of  ultra  vires,  219  n. 
collecting  stock  subscriptions,  389a. 
enforcing  subscriptions,  555. 


INDEX.  731 

[References  are  to  Sections."] 
RECEIVER—  Continued. 

enforcing  liability  of  stockholders,  578. 

representing  creditors,  582. 

rights  of  in  foreign  jurisdiction,  588. 

appointment  of  does  not  amount  to  dissolution,  602. 

RECITAL, 

estoppel  by  that  in  stock  certificate,  322. 
effect  of  in  shares  of  stock,  331. 

RECORD, 

of  transfer  of  shares,  442. 
of  corporate  meetings,  470. 

See  Inspection  of  Records. 

REGISTRY  OF  SHARES, 

mandamus  as  remedy,  462. 

REGULAR  MEETINGS, 
how  held,  466. 

RELEASE, 

of  stockholder,  when  creditor  not  bound  by,  539. 

RELEASE  OF  SUBSCRIBER, 

by  consent,  385. 
by  corporation,  386. 
by  forfeiture,  387. 

RELIGIOUS  SOCIETIES 
as  corporations,  18. 

REMAINDER-MAN, 

interest  in  dividends,  415. 
right  to  dividends,  416-419. 

REMEDY, 

illegal  amendment  to  charter,  106. 

validity  of  statutes  affecting,  110 

where  stock  paid  for  in  overvalued  property,  341. 

of  defrauded  stockholders,  375. 

forfeiture  of  shares  as,  388. 

to  secure  inspection  of  records,  394. 

for  wrongful  refusal  to  permit  inspection  of  records,  396. 

for  wrongful  refusal  to  transfer  stock,  459. 

of  the  corporation  against  officers,  525. 

against  corporation  on  debt,  576. 

for  enforcing  liability  of  stockholders,  583,  584. 

to  secure  dissolution,  603 


732  INDEX. 

[Beferences  are  to  Sections."] 
REMOVAL, 

of  officers,  536. 

REMOVAL  OF  CAUSES, 

right  to  by  foreign  corporation,  264. 

RENTALS, 

taxation  of,  118  n. 

REPEAL, 

distinguished  from  forfeiture,  94. 

of  corporate  charter,  99,  100. 

of  by-laws,  159. 

of  statute  as  to  stockholders'  liability,  562. 

REPORTS, 

power  to  require,  92. 

liability  of  directors  for  failing  to  make,  522. 

RESCISSION, 

of  subscription  for  fraud,  374. 

necessity  for  prompt  action,  376. 

of  subscription  after  insolvency,  379. 

right  of  as  to  subscription  before  insolvency,  380. 

of  declaration  of  dividends,  404. 

RESOLUTION, 

distinguished  from  by-law,  144  n. 

RESTRAINT  OF  TRADE, 

agreement  not  to  sell  stock,  475. 

RESTRICTIONS, 

imposed  on  foreign  corporations,  260. 

See  Statutory  Restrictions. 

RETALIATORY  STATUTES, 

against  foreign  corporations,  263. 

RIGHT  OF  ACTION, 

survival  of  on  stockholders'  liability,  566. 

RIGHTS  OF  MEMBERSHIP, 

participation  in  the  management,  390. 

general  rights  of  stockholders,  391. 

rights  in  the  corporate  property,  392. 

right  to  inspect  records,  393. 

condition  upon  which  inspection  is  permitted,  394. 

demand  for  inspection  of  records,  395. 

remedy  for  wrongful  refusal  to  permit  inspection  of  record,  396. 

preference  in  subscription  for  new  shares,  397. 

See  Dividends;  Actions  by  Stockholders. 


INDEX.  733 


[Beferences  are  to  Sections.] 
RULES  AND  REGULATIONS, 

corporations  publishing,  156. 
as  to  votes  at  corporate  meetings,  471. 
See  By-Laws. 

s 

SALE, 

of  franchises,  125. 

right  to  dividends  on,  413. 

after  declaration  but  before  payment  of  dividend,  414. 

rights  of  corporate  creditors  to  question,  537. 

SCIRE  FACIAS, 

to  secure  dissolution,  604. 

See  Quo  Warranto. 
SEAL, 

authority  to  have,  143. 

not  necessary  to  stock  certificate,  143  n. 

corporate  acts  under,  170. 

when  contracts  need  not  be  under,  170. 

SECRET  CONDITIONS, 

effect  on  stock  subscription,  353. 

SECRET  PROFITS, 

promoter  not  to  make,  53. 
directors  not  to  receive,  502. 

SECRETARY, 

power  and  authority  of,  531. 
place  of  domicile,  597. 

SERVANTS, 

liability  for  torts  of,  234. 

SERVICE  OF  PROCESS, 

obtained  by  deception,  281. 

See  Process. 
SERVICES, 

of  promoters,  62. 

paying  for  stock  by,  337. 

SET-OFF, 

of  dividends  against  stockholder,  410. 
against  stockholder's  liability,  589. 


734  INDEX. 

[References  are  to  Sections."] 
SHAREHOLDER, 

taxation,  how  affected  by,  112. 

as  creditor,  404. 

when  no  duty  on  to  protect  corporate  rights,  420. 

release  by  transfer  of  shares,  441. 

director  as,  498. 

SHARES  OF  STOCK, 

taxation  of,  117. 

method  of  obtaining,  286. 

illegally  issued,  rights  of  holder,  290. 

defined,  301. 

recovery  of  money  paid  for  void  ones,  326. 

how  may  be  paid  for,  327. 

issue  below  par,  329. 

effect  of  recital  that  they  are  fully  paid,  331. 

bona  fide  purchasers  of,  332. 

accepted  as  a  gratuity,  338. 

payment  for,  342. 

form  of  contract  for,  348. 

implied  agreement  to  pay  for,  366. 

forfeiture  of,  387. 

forfeiture  of  as  a  remedy,  388. 

preference  in  subscription  for  new  ones,  397. 

rights  acquired  by  transferee  of,  427. 

transfer  on  forged  power  of  attorney,  452. 

purchasing  those  held  in  trust,  454. 

lien  of  corporation  on,  457. 

how  lien  on  enforced,  457. 

liability  on  those  issued  below  par,  552. 

See  Transfer  op  Shares;  Stock. 

SLANDER  AND  LIBEL, 

liability  for,  233,  234  n. 

SOCIETIES, 

See  Non-Stock  Corporations. 
SOLVENCY, 

misrepresentation  as  to,  520  n. 

SPECIAL   ACT, 

creating  corporations,  32. 

SPECIAL  ASSESSMENTS, 
liability  for,  18  n. 

SPECIAL  MEETINGS, 
how  held,  466. 
notice  of,  467. 


INDEX.  736 

[Befermces  are  to  Sections.'] 


SPECIAL  POWERS, 
theory  of,  132. 

SPECIAL  PRIVILEGES. 

validity  of  contract  granting,  175. 

SPECIAL    TERMS, 

stock  subscriptions  on,  360. 

SPECIFIC  PERFORMANCE, 

ultra  vires  contract,  206,  207. 

of  contract  to  transfer  stock,  461,  463. 

of  voting  trust  agreement,  479. 

STATE, 

effect  of  incorporation  in  several,  64. 

attacking  corporate  existence,  70. 

control  over  corporations,  89. 

visitorial  power  over  corporations,  90. 

control  over  quasi-public  corporations,  91. 

reserving  right  to  amend  or  repeal  charter,  99,  100. 

granting  exclusive  franchise,  107. 

right  to  exercise  power  of  eminent  domain,  108. 

police  power  over  corporations,  109. 

power  to  tax  corporations,  112. 

taxing  national  banks,  116. 

asking  forfeiture  of  franchise,  129. 

limiting  corporate  powers,  131. 

questioning  ultra  vires  acts,  168. 

corporate  acts  out  of,  248. 

power  over  foreign  corporations,  249-253. 

no  power  to  regulate  interstate  commerce,  250,  251. 

no  visitorial  power  over  foreign  corporations,  252. 

comity  between,  254-260. 

validity  of  contracts  made  outside  of,  262. 

proceedings  by  against  corporation,  282. 

holding  corporate  meetings  outside  of,  465. 

questioning  corporate  franchises,  594. 

method  by  in  dissolving  corppration,  599. 

proceedings  by  for  dissolution,  604. 

STATE  LAWS, 

foreign  corporation  submitting  to,  243. 

STATUTE, 

authorizing  incorporation,  36. 
validity  of  those  affecting  remedy,  110. 
regulating  right  to  hold  real  estate,  161. 
limiting  devise  to  corporation,  165. 


736  INDEX. 

[References  are  to  Sections."] 
STATUTE— Continu  ed . 

forbidding  trusts,  178. 

validity  of  contract  in  violation  of,  179. 

authorizing  purchase  of  stock  in  other  corporation,  191. 

conferring  authority  to  consolidate,  195. 

contracts  prohibited  by,  225,  226. 

retaliatory  against  foreign  corporations,  263. 

regulating  payment  for  shares  of  stock,  342. 

governing  subscriptions  to  stock,  345. 

fixing  amount  of  stock  to  be  subscribed,  354. 

regulating  inspection  of  records,  394. 

regulating  transfer  of  shares,  442. 

prescribing  manner  of  transferring  stock,  444. 

creating  lien  on  shares,  457. 

regulating  right  to  vote  at  corporate  meetings,  471. 

conferring  right  to  vote  by  proxy,  473. 

limiting  number  of  votes,  480  n. 

authorizing  cumulative  voting,  481. 

authorizing  review  of  corporate  election,  493  n. 

liability  of  officers  for  violating,  521. 

imposing  personal  liability  on  officers,  522. 

imposing  liability  upon  directors,  524. 

fixing  liability  of  stockholders,  558. 

how  repeal  of  affects  liability  of  stockholders,  562. 

following  in  enforcing  liability  of  stockholders,  583. 

prescribing  method  of  dissolving  corporation,  599. 

regulating  method  of  dissolution,  604. 

STATUTE  OF  LIMITATIONS, 

applicable  to  subscriptions,  389a. 

governing  corporation's  action  against  director,  526. 

on  stockholder's  liability,  590. 

STATUTORY  REQUIREMENTS, 

effect  where  foreign  corporation  fails  to  comply  with,  268-272. 
penalty  for  failing  to  comply  with,  269. 

STATUTORY  RESTRICTIONS  ON  FOREIGN  CORPORATIONS, 

in  general,  261. 

conditions  which  may  be  imposed,  262. 

retaliatory  statutes,  263. 

waiver  of  constitutional  rights,  264. 

granting  and  revocation  of  license,  265. 

meaning  of  "doing  business,"  266. 

STOCK, 

forfeiture  for  non-payment  of  calls,  157. 
power  to  hold  in  another  corporation,  190. 


INDEX.  737 

{References  are  to  Sections.'] 
STOCK—  Continued. 

statutory  authority  to  purchase  in  other  corporation,  191. 

taking  to  secure  indebtedness,  191. 

corporation  taking  on  sale  of  property,  191. 

corporation  purchasing  its  own,  192. 

when  a  corporation  may  hold  its  own,  192,  193. 

overissue  of,  320. 

how  may  be  paid  for,  327. 

payment  for  in  property  or  services,  337. 

paid  for  by  overvalued  property,  339. 

agreement  to  take  in  company  to  be  organized,  344. 

municipal  corporations  subscribing  for,  346  n. 

dividends  must  cover  all,  411. 

rights  of  life  tenant  and  remainder-man  in,  415-419. 

validity  of  agreement  not  to  sell,  475. 

right  to  vote  that  pledged,  477. 

when  majority  of  must  be  voted,  482. 

liability  for  debts  contracted  before  distribution  of,  542. 

who  liable  on,  568. 

See  Capital  Stock. 
STOCK  BOOKS, 

duty  to  enter  transfers  on,  448. 
as  evidence  of  right  to  vote,  471. 

See  Books. 
STOCK  CERTIFICATE, 

right  to  compel  issue  of  new  one,  253. 

effect  of  delivery  of,  287. 

pledge  of  by  delivery,  446. 

rights  of  transferee  or  purchaser  of,  450. 

See  Certificate  of  Stock. 

STOCK  SUBSCRIPTIONS, 

actions  on,  denying  corporate  existence,  84. 
in  genera],  343. 

agreement  to  take  shares  in  company  to  be  organized,  344. 
where  there  are  no  statutory  provisions,  345. 
statement  of  rules,  345a. 
who  may  subscribe,  346. 
subscriptions  through  an  agent,  347. 
the  form  of  the  contract,  348. 
the  consideration,  349. 
signing  articles  of  incorporation,  350. 
application,  allotment  and  notice,  351. 
conditional  subscriptions,  352. 
secret  conditions,  353. 

subscription  of  amount  named  in  charter  or  required  by  law,  354. 
47 — Private  Corp. 


738  INDEX. 

[References  are  to  Sections."} 
STOCK  SUBSCRIPTIONS— Continued. 
payment  of  deposit,  355. 
tender  of  certificate,  356. 

conditional  delivery  of  subscription  contract,  357. 
performance  of  condition,  358. 
waiver  of  condition,  358. 
conditions  subsequent,  359. 
upon  special  terms,  360. 
in  excess  of  authorized  capital,  361. 
amount  of  subscription  by  one  person,  362. 
who  may  receive,  363. 
necessary  to  obtain  a  charter,  364. 
withdrawal  of,  365. 

implied  agreement  to  pay  for  shares,  366. 
the  New  England  rule,  367. 

how  premature  contract  by  corporation  affects,  368. 
effect  of  fraud  on,  369. 
the  English  doctrine,  370. 
when  contract  voidable  merely,  371. 
fraudulent  representations  by  promoters,  372. 
what  frauds  will  vitiate,373. 
expressions  of  belief  or  opinion,  374. 
remedies. of  defrauded  stockholders,  375. 
rescission,  prompt  action,  376. 
insolvency,  right  of  creditors,  377. 
rule  in  United  States,  378. 

right  to  rescind  after  insolvency  continued,  379. 
rights  of  creditors  before  insolvency  of  corporation,  380. 
insolvency,  rule  of  diligence,  381. 
enforcement  by  action,  382. 
calls,  383,  384. 

release  of  subscriber  by  consent,  385. 
release  by  corporate  action,  386. 
forfeiture  of,  387. 

when  forfeiture  a  cumulative  remedy,  388. 
estoppel  of  subscriber,  389. 
the  statute  of  limitations,  389a. 

See  SLBSCRIPTIONfc. 

STOCKHOLDERS, 

relation  to  corporation,  8. 

do  not  own  corporate  property,  8  n. 

effect  of  notice  to,  8  n. 

binding  corporation,  10. 

promoter  accounting  to,  53. 

when  estopped  to  deny  object  of  corporation,  84  n. 

making  by-laws,  146. 

effect  of  by-laws  on,  153. 


INDEX. 

[References  are  to  Sections."] 
STOCKHOLDERS— Continued. 
preferring  as  creditor,  189. 
estoppel  to  assert  doctrine  of  ultra  vires,  216. 
how  affected  by  watered  stock,  330. 
when  liable  to  creditors,  341. 
when  not  bound  by  fraud,  341  n. 
remedies  where  defrauded,  375. 
notice  to  of  call  on  stock,  384. 
liability  for  debts,  389a. 
general  rights  of,  391. 
right  to  subscribe  for  new  shares,  397. 
when  capital  may  be  distributed  among,  402. 
when  title  to  dividends  passes  to,  404. 
action  by  to  recover  dividends,  406. 
set-off  of  dividends  against,  410. 
when  may  sue  for  corporation,  421. 
conditions  precedent  to  right  of  a-ction  by,  422. 
when  equity  will  not  interfere  for,  423. 
illustrative  cases  of  actions  by,  424-426. 
parties  to  suit  by,  430. 
right  to  restrain  ultra  vires  acts,  431. 
control  by  majority,  432. 
limitation  on  the  power  of  the  majority,  433. 
right  to  transfer  shares,  435. 
duty  to  protect  against  wrongful  transfers,  455  n. 
duty  of  corporation  to  protect,  456. 
compared  to  partners,  458. 
objecting  to  meeting  held  in  foreign  state,  465. 
when  bound  by  corporate  meeting  467. 
when  bound  by  adjourned  meeting,  468. 
right  to  vote  at  corporate  meetings,  471. 
voting  on  matter  in  which  he  has  personal  interest,  474. 
motive  as  affecting  vote  of,  474. 
right  to  transfer  power  to  vote  stock,  476. 
number  of  votes  by  each  one,  480. 
cumulative  voting,  481. 
one  can  not  hold  meeting,  482. 
power  of  majority,  483. 
rights  of  minority,  484. 
control  over  directors,  500. 
relation  to  directors,  502. 
ratifying  contract  with  directors,  503. 
knowledge  of  contents  of  corporate  records,  516. 
effect  of  notice  to,  534  n. 
fixing  compensation  of  officers,  535. 
single  one  acquiring  all  the  property,  548. 


739 


740  INDEX. 

[References  are  to  Sections."} 
STOCKHOLDERS—  Contin  ed. 

liability  where  corporation  organized  to  do  business  in  foreign  state, 
550. 

required  to  return  capital  wrongfully  distributed,  551. 

not  liable  for  torts  of  corporation,  553. 

effect  of  judgment  against  on  assessment,  557. 

manner  of  proving  who  are,  558  n. 

liability  for  debts,  572,  573. 

when  personally  liable  for  debts  to  laborers  and  employes,  573. 

rights  as  creditors,  574. 

who  may  enforce  liability  against,  578. 

set-off  against  liability  of,  589. 

contribution  among,  591. 

asking  for  dissolution,  599  n. 
See  Common  Law  Liability  of  Stockholders  ;   Liability  of  Stockholders  ; 
Majority  ;  Membership  iij  Corporation  ;  Rights  of  Membership. 

STOLEN  CERTIFICATES, 
liability  on,  324. 
rights  of  purchaser  of,  450. 

STREET, 

grant  of  for  railway  purposes,  121. 

STREET  RAILWAY  COMPANY, 

nature  of  right  to  use  street,  121,  122. 

STRICT  CONSTRUCTION, 

of  corporate  charters,  134. 

SUBAGENTS, 

liability  for  acts  of,  514. 
supervision  of,  515. 

SUBSCRIBERS  TO  STOCK, 

contract  between,  344,  345. 

when  may  escape  from  subscription,  374. 

release  of,  385. 

estoppel  of,  389. 

SUBSCRIPTION, 

prior  to  incorporation,  43. 

obtained  by  fraud,  56. 

in  contemplation  of  incorporation,  85. 

how  amendment  to  charter  affects,  104  n. 

waiver  of  formalities  to,  28(5  n. 

what  amounts  to  withdrawal  of,  365  n. 


INDEX.  741 

[References  are  to  Sections."} 
SUBSCRIPTION—  Continued. 

change  in  corporate  enterprise  releasing,  486. 

liability  on,  538. 

measure  of  liability  on,  539. 

enforcement  of,  554. 

liability  on  conditional,  554. 

enforcing  in  foreign  jurisdiction,  555. 
See  Common  Law  Liability  of  Stockholders  ;  Liability  of  Stockhold- 
ers;  Stock  Subscriptions. 

SUBSCRIPTION  CONTRACT, 

conditional  delivery  of,  354. 

SUBSEQUENT  CREDITORS, 

rights  against  watered  stock,  334. 

SUMMONS, 

See  Process. 
SUPERINTENDENT, 

director's  compensation  as,  535  n. 

SURRENDER  OF  CHARTER, 
effect  of,  596. 

SURRENDERING  CERTIFICATE, 

on  transfer  of  shares,  447, 

T 

TAXATION, 

of  corporations,  112. 

situs  of  taxable  property,  113. 

laws  no  extraterritorial  force,  113. 

federal  agencies,  115. 

of  national  banks  by  state,  116. 

"other  moneyed  capital,"  117. 

of  telegraph  companies,  118. 

validity  of  municipal  ordinance  imposing,  118. 

of  government  telegraph  messages,  118  n. 

railroad  rentals,  118  n. 

various  agencies  of  commerce,  119. 

exemption  from,  119a. 

of  consolidated  corporation,  119a. 

of  franchises,  122. 

nature  of  right  of  exemption  from,  128. 

of  corporate  good-will,  550  n, 

TAXING  POWER, 

restrictions  imposed  by  federal  constitution,  114. 


742  INDEX. 

[Beferences  are  to  Sections."] 
TELEGRAPH  COMPANIES, 
state  control  over,  91. 
taxation  of,  118. 

TELEGRAPH  MESSAGES, 
taxation  of,  118. 

TELEPHONE  COMPANIES, 
state  control  over,  91. 

TENANT  IN  COMMON, 
corporation  as,  167  n. 

TENDER, 

of  certificate  of  stock,  when  required  356. 

TERM  OF  EXISTENCE, 

status  after  expiration  of,  77. 

THIRD  PERSONS, 

how  by-laws  affect,  154. 

liability  of  officers  to  for  torts,  520. 

holding -directors  liable  in  tort,  523. 

liability  imposed  on  directors  for  benefit  of,  524. 

TITLE, 

to  franchises,  when  vests,  124. 
manner  of  acquiring  to  real  estate,  163. 
when  that  to  dividends  passes,  404. 
to  dividends,  412. 

TIME, 

of  corporate  existence,  effect,  37. 

TOLL, 

defined,  118. 

TORTS, 

liability  of  consolidated  company  for,  198. 

liability  for,  221. 

liability  for  those  of  agents,  508. 

liability  for  those  of  officers,  508. 

ratifying  those  of  agent,  509. 

liability  for  those  in  ultra  vires  transactions,  510. 

liability  of  officers  to  third  persons  for,  520. 

stockholders  not  liable  for  those  of  corporation,  553. 

suing  for  after  expiration  of  charter,  594  n. 


INDEX.  743 

[References  are  to  Sections."] 
TORTS  AND  CRIMES— LIABILITY  FOR, 
general  statement,  232. 
growth  of  the  law,  233. 
the  modern  rule,  234. 
liability  for  punitive  damages,  235. 
commission  of  crime,  236. 
crimes  involving  intent,  237. 
contempt  of  court,  238. 

TRAFFIC  AGREEMENTS, 
validity,  176. 

TRANSFER  BOOKS, 

closing  for  dividends,  405,  412. 

TRANSFER  OF  FRANCHISES, 

rights  in  regard  to,  125. 

power  and  authority  concerning,  127,  128. 

TRANSFER  OF  SHARES, 

general  statement,  434. 

the  right  to  transfer  shares,  435. 

power  to  prohibit  transfers,  436. 

the  regulation  of  transfers,  437,  439. 

restrictions  imposed  by  by-law  or  express  contract,  438. 

transfer  on  books  of  the  corporation,  440,  441. 

the  rights  of  attaching  creditors,  442. 

transfers  in  fraud  of  creditors,  443. 

manner  of  making  assignment  and  transfer,  444. 

transfer  after  insolvency  or  dissolution,  445. 

pledge  of  stock  certificates  by  delivery,  446. 

surrender  of  old  certificate,  447. 

fraudulent  reissue  of  shares,  447. 

evidence  of  transferee's  right,  448. 

indorsement  of  certificate,  449. 

rights  of  transferee  where  transfer  is  fraudulent,  450. 

negligence  of  owner,  estoppel,  451. 

transfer  on  forged  power  of  attorney,  452. 

forgery  of  transfer,  negligence,  453. 

rights  of  purchasers  of  shares  transferred  in  violation  of  a  trust,  454. 

transfers  in  breach  of  trust,  liability  of  corporation,  455. 

when  the  power  to  sell  exists,  456.   ■ 

lien  of  corporation  on  shares,  457. 

effect  of  upon  rights  and  liabilities  of  parties,  458. 

remedy  for  a  wrongful  refusal  to  transfer,  459. 

action  for  damages  for,  460. 

a  suit  in  equity,  461. 

mandamus,  462. 

how  affects  liability  on  stock,  568. 


744  INDEX. 

[References  are  to  Sections."} 

TRANSFER  OF  STOCK, 

right  to  dividends  on,  412. 

dividends,  413,  414. 

how  unrecorded  affects  liability  of  stockholders,  570. 

TRANSFEREE  OF  SHARES, 
rights  of,  427. 
liability  for  calls,  458,  570. 

TRANSFERER  OF  STOCK, 
liability  of,  570. 

TREASURER, 

may  be  director,  498. 
power  and  authority  of,  532. 
place  of  domicile,  597. 

TROVER, 

for  converting  shares  of  stock,  315  n. 

TRUST, 

validity  of  contracts  by,  179. 

shares  transferred  in  violation  of,  rights  of  purchasers,  454. 

purchasing  shares  held  in,  454. 

liability  for  transferring  shares  in  breach  of,  455. 

liability  for  abuse  of,  512. 

See  Voting  Trusts  and  Agreements. 

TRUST  AGREEMENTS, 
validity  of,  176. 
illustrations  of,  177. 
statutes  forbidding,  178. 

TRUST  FUND, 

capital  stock  as,  317. 
capital  is  for  creditors,  485. 
shares  of  stock  as,  552. 

TRUST-FUND  DOCTRINE, 

meaning  of,  318. 
criticisms  on,  319. 

TRUSTEE, 

power  of  corporation  to  act  as,  199a. 

sale  of  shares  by,  456. 

right  to  vote  stock,  471. 

validity  of  agreement  giving  voting  power  to,  477  n. 

directors  as,  502. 

directors  acting  as,  513. 

liability  of  on  stock,  569. 


INDEX.  745 

[Beferences  are  to  Sections.'] 

u 

ULTRA  VIRES, 

when  negotiable  paper  is,  182. 

purchase  of  corporation's  own  stock,  192. 

general  statement,  200. 

proper  use  of  the  phrase,  201. 

the  strict  rule  concerning,  202. 

reason  for  the  rule  concerning,  202. 

on  what  doctrine  rests,  203  n. 

conflicting  views,  204. 

estoppel  to  question  acts  of,  204. 

as  a  defense,  207,  215  n. 

estoppel  to  assert  defense  of,  216-221. 

defense  without  accounting  for  benefits,  218  n. 

receiver  asserting  defense  of,  219  n. 

loan,  recovery,  226. 

ULTRA  VIRES  ACTS, 
consequences  of,  93. 
forfeiture  for,  93  n. 
who  may  question,  168. 
purchasing  stock  in  another  corporation,  190. 
acquiescence  in,  220. 
ratification  of,  221. 
issue  of  watered  stock,  333. 
right  of  stockholder  to  restrain,  431. 
illustrative  cases  of,  431. 
right  of  creditors  to  restrain,  537. 

ULTRA  VIRES  CONTRACTS, 
as  abuse  of  franchise,  93. 
illustrations  of,  169. 
effect  where  executed,  205,  209. 
specific  performance  of,  206,  207. 
disaffirmance  after  part  performance,  208. 
recovery  of  consideration  paid,  209. 
enforcing,  209  n. 

limitations  upon  the  authority  of  corporate  officers,  213. 
restrictions  contained  in  by-laws,  214. 
effect  where  partly  executed,  218. 
estoppel  by  retention  of  benefits,  219. 

ULTRA  VIRES  TRANSACTIONS, 
liability  for  torts  in,  510. 


746  INDEX. 

[Beferences  are  to  Sections.] 
UNCONSTITUTIONAL  STATUTE, 

organization  of  corporation  under,  76. 
attacking  corporation  organized  under,  88. 

UNINCORPORATED  SOCIETIES, 
nature  of,  297. 

UNPAID   SUBSCRIPTIONS, 
enforcing,  554. 

UNRECORDED  TRANSFERS, 

effect  on  stockholders'  liability,  570. 

USAGE, 

as  to  voting  by  proxy,  473. 
conferring  authority  on  officers,  529  n. 

USER, 

corporation  by,  75. 


VENDEE  OF  SHARES, 

right  of  to  dividends,  405. 

VENDOR  AND  VENDEE, 

right  to  dividends  as  between,  408. 

VESTED  RIGHT, 

none  in  penalty,  88  n,  522. 
in  corporate  franchise,  102. 

VICE-PRESIDENT, 

power  and  authority  of,  530. 

VISITORIAL  POWER, 

over  corporations,  90. 

over  foreign  corporations,  90  n,  252. 

VOID  SHARES, 

recovery  of  money  paid  for,  326. 

VOIDABLE  CONTRACT, 

ratification  of,  221,  507. 

VOLUNTARY  LIQUIDATION, 
when  permitted,  600. 


INDEX.  747 

[Beferences  are  to  Sections.] 
VOTE, 

right  to  cast  at  corporate  meetings,  471. 

right  of  bondholders  to  cast,  472. 

casting  by  proxy,  473. 

number  by  each  stockholder,  480. 

cumulative  voting,  481. 

illegal  at  corporate  election,  492. 

VOTING  POWER, 

separation  of  from  ownership  of  shares,  475-477. 

VOTING  TRUSTS  AND  AGREEMENTS, 

nature  and  validity  of,  475^177. 
the  Shepaug  voting  trust  cases,  478. 
specific  performance  of,  479. 
injunction  against,  477. 
against  public  policy,  478. 

w 

WAIVER, 

of  by-laws,  159. 

of  formalities  to  subscription,  286  n. 
of  condition  in  subscription,  358,  374. 
of  lien  on  shares,  457. 

WATER  COMPANIES, 

state  control  over,  91. 

WATERED   STOCK, 

meaning  of  phrase,  328. 

issue  of  shares  below  par,  329. 

as  between  stockholder  and  creditor,  330. 

recital  that  shares  shall  be  deemed  fully  paid  up,  331. 

bona  fide  purchasers  of  shares,  332,  333. 

liability  to  subsequent  creditors  only,  334. 

bonus  stock  given  to  "sweeten"  bonds,  335. 

construction  bonds  and  bonus  shares,  336. 

stock  issued  by  a  going  concern  with  impaired  capital,  337. 

shares  accepted  as  a  gratuity,  338. 

illustrations,  339. 

payment  in  property,  340. 

remedy  where  there  is  overvaluation,  341. 

constitutional  and  statutory  provisions  as  to  payment  of  shares,  342. 

WILLFULNESS, 

effect  where  agent  acts  with,  508. 


748  INDEX. 

[References  are  to  Section*.] 
WINDING  UP  BUSINESS, 
power  of  majority,  485. 

WITHDRAWAL  OF  SUBSCRIPTION, 

oral  notice  of,  365. 
what  amounts  to,  365  n. 

WORDS  AND  PHRASES, 

"continuous  existence,"  2  n. 

"perpetual  succession,"  2  n. 

"person,"  65. 

"inhabitant,"  66. 

"debtor"  and  "creditor,"  68. 

"other  moneyed  capital,"  117. 

"franchise,"  120. 

"ultra  vires,  "200. 

"person,"  236. 

"doing  business,"  266. 

"watered  stock,"  306,  328. 

"debt,"  457. 

"majority  of  shareholders,"  486  ». 

WRONGS, 

liability  for,  238. 


UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 


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UNIVERSITY  OF  CALIFORNIA  LIBRARY 

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OCT  *  «  1991 

Law  Library  Rac'd. 

OCT*" 


315 


